Spotify sees ad revenues decline 21% but remains encouraged by growth in podcast ads

With ad revenues down 21%, Spotify is encouraged by growth in podcast ads

After ploughing big bucks in its audio-first strategy, Spotify could not have foreseen a global pandemic getting in the way of it making a return on its investment. But it has revealed it was not exempt from the coronavirus downturn, with ad-supported revenue down 21%.

Helpfully for the streaming giant, its business is split between ad-supported users and paid subscriptions, with the latter hitting 138 million worldwide, a 27% rise year-on-year.

"When I look at the landscape, what excited me is we're going after audio," chief exec Daniel Ek told investors. "Audio is a multi-billion user opportunity and it's a marketplace that is currently north of $50bn in advertising revenue. It's the combination of subscription and advertising in the long-term that I think is the future of big business."

The Drum unpacks the social media group’s latest financials and where it's at in terms of its podcast empire-building.

How has Covid-19 impacted Spotify?

  • Spotify's revenue rose 13% to $2.2bn, which was below estimates.

  • Ad-supported revenue fell 21% in Q2. "The quarter started off slow," Ek admitted. "The last three weeks of Q1 were pretty weak, and those big declines continued into April and May. Ads business was down about 25% and then we really had a nice pickup in June, which was only down about 10%."

  • Despite changing consumption habits, Spotify experienced an increase in paid subscriptions, adding 8m more during Q2. Above estimates, it rose 27% year-on-year.

  • Total monthly active users (MAU) saw a 29% year-on-year increase, to 299 million.

Did the lockdown impact its podcast venture?

  • Podcasts engagement overall is increasing. Spotify now has 21% of MAU engaged with podcasts, up from 19% in Q1. Consumption was up over 100% in the quarter. Premium does have higher engagement than the ad-supported business.

  • Ek admitted that while podcast ad-revenue is "still reasonably small" it "outperformed in the quarter, making it one of the strongest areas of growth." Earlier this month, Spotify struck a $20m deal with Omnicom that gave its agencies first-mover access to the platform’s exclusive podcast content. As Spotify looks to reclaim lost ad revenue, it is "really excited about this deal to invest in podcast advertising."

  • Since upping its podcast game, Spotify has been scooping up exclusive rights to well-known shows, including the colossal buy of the Joe Rogan Experience. "Exclusivity is a key component," he claims. "However we are an open platform. Over half 1.5 million shows are now available, 50% of which were created in 2020."

  • Ek said it was "too early to talk about what the impact the Joe Rogan Experience will have. It's a big show and we are encouraged by the reception we've seen in the marketplace, but it's gonna take time and we have to learn how to market and merchandise."

  • With podcast fans enjoying watching rather than listening, Spotify introduced a video feature with select podcasts last week. "You shouldn't expect it to be another Youtube," Ek insists. "It's another capability we're adding for creators to connect to fans. We expect for the foreseeable future, the majority of consumption to be audio."

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