Paid users, podcasts and marketing: key takeaways from Spotify’s earnings
Spotify closed 2019 with a positive quarter that saw it add 10 million new paying subscribers (126m) in addition to sowing the seeds of success in its podcasting business. In the update, it also gave a glimpse at how its future marketing campaigns will be increasingly integrated with its app. Here's what you need to know.
3 positive takeaways from Spotify’s Q4 2019 earnings
The fourth quarter showed that total revenue increased 24% to €1,855m. Furthermore, monthly active users (MAUs) were up almost a third in a year to 271 million.
It said: “Strong MAU trends are a harbinger of future subscriber and financial growth.”
Growth in subscribers
Spotify is open to all, whether they listen in the ad-supported free tier, or without ads in Premium. The company's fortunes depends on how it can monetise both groups of consumers.
Paid subscribers were up 29%, with this its fastest-growing quarter yet (+10 million subscribers). Once it attracts listeners into the free tier where the habit is built, ad interruptions then encourage users to spent on a membership (£9.99 a month in the UK).
Its income didn't quite pan out as predicted however. In the last quarter, subscriber income was higher than expected, whereas ad-supported revenue was lower for the quarter at €217m (+23%).
However, it anticipated a greater windfall from the Dynamic Ad Breaks which is adding extra significant sellable inventory in the US and UK. This feature is will soon expand to 10 more markets in Q1.
Podcasts catching on
Podcasts appear to be paying off for Spotify. Its push into the sector saw it attract listens from 16% of its monthly active users. Consumption hours of podcasts were up 200%, across 700,000 podcast titles available.
In preparation for the boom, Spotify went out on an acquisition spree. Early in 2019 it acquired podcast owner Gimlet and production tool Anchor. Reports claimed it had put down $300m on the properties. Months later, Parcast, the crime, mystery and sci-fi producer joined the fold bringing spend to around $400m.
At the time, Daniel Ek, Spotify co-founder and chief executive, said it was to set to “become both the premier producer of podcasts and the leading platform for podcast creators”.
Meghan Keaney Anderson, vice-president of marketing for HubSpot, wrote in The Drum that the podcast advertising game was due for disruption and could offer an easier-to-use ad network, with access to a range of shows and price points.
With 75% of UK marketers looking to up spend in podcasts, Spotify is in prime position to monetise. Of course, on the Premium tier, listeners should be ad-free, but it can reach more than 100 million free listeners.
On the free tier, Spotify is improving its measurement tools after spending last year building out its targeting capabilities. In 2019 the streaming service started letting advertisers target podcast listeners and buy against dayparts and listener interests.
It warned: “Any decision to accelerate our investment in podcast and technology spend should be viewed as an indication of our belief that our strategy is having tangible results.”
Marketing integration with product
Spotify revealed the results of its famous Wrapped campaign, after running it for a fifth year.
The latest iteration wrapped the decade with insights into what users were listening to plastered across traditional and digital advertising spots and more than ever, integrated into the app.
The December campaign ran through the native mobile app for the first time, whereas it had previously only been accessible on desktop.
Users in an extra 21 markets were treated to a personalised summary of their listening habits (even in podcasting) and were encouraged to share the findings. Of its 271 million monthly active users, it said that more than 60 million users engaged with Wrapped and 40 million shared Wrapped stories and cards.
Furthermore, the scheme appears to drive further listens, it attributes 6.5bn additional streams to the Year/Decade Top Songs playlists.
Chris Beer, senior trends analyst, at GlobalWebIndex, reflected on Spotify's results.
“Spotify earnings demonstrate a positive outlook for the platform, but also the music streaming industry generally. With accelerated growth for the third consecutive quarter, in subscribers and more brands turning to the platform to reach their target audience.
"Spotify has continued to successfully convert its free users into premium subscribers, with 40% of listeners on a paid-for account, compared to 35% this time two years ago.
"It’s still working hard to monetize its free tier of users, and our research shows its free users are 48% more likely to discover brands through sponsored messages or ads on podcasts. With the company’s announcement of new ad technology earlier this month, both advertisers and creators are better placed to understand the most effective messaging."
He concluded that internet users are spending on average almost 20 minutes more per day listening to music-streaming services than they were in 2017. A trend that he could see growing in the coming years.