Spotify hypes the potential revenue of podcasts and audiobooks at its second Investor Day event – TechCrunch

In its second Investor Day, streaming service Spotify updated the financial community about its potential for further growth and monetization, despite the overall economic downturn impacting the tech sector. The company spent a good portion of its presentation specifically focused on podcasts, which it said had been “largely unchanged” for years before its entry into the market, due to the limitations of RSS.

Spotify cited how unbundling podcasts from RSS technology has paved the way for Spotify to generate revenue through these popular audio programs – a sentiment that’s not universally beloved by those who support an open podcast ecosystem. Spotify has disrupted that market by bringing some podcasts in-house, where they can only be heard on its service, and competitors have followed. This has fractured the ecosystem and left consumers at a disadvantage as some shows are no longer broadly available.

“We’ve been able to replace RSS for on-platform distribution, which means that podcasts created on our platform are no longer held back by this outdated technology,” Maya Prohovnik, Spotify’s Head of Talk, told investors.

The company also highlighted the growth of podcasts on its service, noting that Spotify today has over 4 million podcasts, up from 500,000 in 2019. 1,000 of these are either operated or licensed as exclusives by the company. It noted, too, that its podcast creation tool Anchor has helped to contribute to this growth, saying that the app powers 75% of the podcasts on Spotify and each new show created on Anchor brings in an additional 2.5 million monthly active users to the service .

Combined with its other hosting platform, Megaphone, Spotify says that shows powered by its tools account for 45% of all podcast consumption on the platform.

But beyond the sheer number of available shows, Spotify highlighted the revenue-generating potential of its investments in this medium – investments which are over $ 1 billion when considering its acquisitions of tools, ad tech, and studios, as well as internal development efforts. Those efforts have also put Spotify in a complicated position with regard to which creators it chooses to platform and to what extent the content is moderated, as the Joe Rogan PR crisis demonstrated. But Spotify largely weathered that storm, as its hosting of the controversial podcaster didn’t impact its ability to grow paid subscribers.

Spotify believes its long-term revenue goals with podcasts will be achieved as it further develops its advertising technology, grows its podcast subscriptions business, and invests in new creator monetization tools.

In prepared remarks published just ahead of the start of Investory Day, Spotify CEO Daniel Ek spoke to the revenue possibilities ahead for podcasts, and noted that its continued investments in this area of ​​its business are what’s been pulling down its gross margin.

He said that Spotify’s overall gross margin is roughly 28.5%, which is behind the company’s longer-term stated target of a 30-35% gross margin.

“What’s been dragging it down is our move into podcasting,” Ek said. “We saw such a significant opportunity to expand our platform and our audience, so we decided to go aggressively after podcasting. And this meant making a significant investment, which clearly has brought more listeners to Spotify and deepened the engagement, but it also has impacted our overall gross margin. ”

Ek then noted that Spotify’s podcast vertical is “still largely in investment mode and not yet profitable,” but he believes the market has a “40-50% gross margin potential.”

This is not only related to Spotify’s ability to monetize podcasts with ads, but also new initiatives like its podcast subscriptions. The company told investors it’s now offering podcast subscriptions – essentially, paid podcasts – across 34 markets. Its on-platform subscriber retention rate for these is 90% since its 2021 launch. It said it’s partnered with over 100 publishers and platforms on subscriptions to date and is expanding.

Another newer area of ​​non-music-related audio investment outside podcasts could then follow, Spotify said, speaking to its more recent entry into the audiobook market, now led by other service providers, like Apple, Audible (Amazon), Google, Scribd, Audiobooks.com and others.

“Today, the global size of the book market is estimated to be around $ 140 billion dollars. That’s inclusive of printed books, e-books, and audiobooks, with audiobooks having only about a 6-7% market share, ”said Ek. “But when you look at the most penetrated audiobook markets, it’s actually closer to 50% of the market. So call that an annual opportunity of $ 70 billion dollars for us to expand and eventually compete for, ”he added.

“We believe this presents a really unique opportunity to introduce music and podcast listeners around the world to audiobooks and drastically expand that market,” added Nir Zicherman, Spotify’s Head of Audiobooks & Gated Content Vertical, speaking to investors. “Our platform will soon be a place where consumers can purchase and listen to their favorite audiobooks, right in Spotify.” The offering would reach Spotify’s global audience of over 422 listeners, he said.

The company also suggested it could leverage its existing machine learning models to grow the audiobooks category on the service by way of personalized recommendations, as it has done with music and podcasts. It expects this new vertical to contribute to the increase of its user base’s lifetime value, or LTV – a metric it says is now more important to measuring the health of its business than in earlier days when it focused more on user growth.

Like many other tech businesses recently, Spotify has seen its share price tumble in 2022. The stock is down over 50% year-to-date, and down 70% from all-time highs. However, the company surpassed its own monthly active user guidance by 4 million in Q1, when it reported that 422 million people used its service during the quarter. Still, it only added 2 million new Premium subscribers, short of the expected 3 million, when it reached the 182 million total paying customers, in line with estimates. And it pulled in € 2.66 billion ($ 2.81 billion) in revenue, up 24% year-over-year – but this had fallen short of analyst expectations.

Despite the current economic downturn, Spotify’s key message to investors today was that its business has growth potential not only because its investments in podcasts are still early and have yet to pay off, but because it’s still finding new markets to expand into, as it has now with audiobooks.

The company said it’s on track to top 1 billion users by 2030.

Ek concluded the presentation with the long-term forecast, saying the company will achieve $ 100 billion in revenue over the next decade, a 40% gross margin, and a 20% operating margin.

Among the stats highlighted during the event:

General

  • 89% of Spotify Premium subscribers use Spotify on multiple devices, up from 75% in 2018
  • Compounded annual growth rates of 26% for monthly active users, 26% for subscribers, and 26% for revenue on a currency-adjusted basis
  • Over 2,000 partners, up from 250 in 2018; 28% of all new registrations come from partners, up from 14% in 2018
  • More than 81% of listeners cite personalization as best feature
  • Monthly subscriber churn create declined 40% over last 4 years
  • Gross margin is roughly 28.5%, on track to goal of 30-35%
  • Number of markets reached is 183 markets and territories, which tripled over past 4 years
  • Number of new customers doubled from Q4 2021 to Q1 2022; 85% retention rate from existing customers; user base on track to 1 billion listeners
  • Q1 2022 revenue up 224% year-over-year
  • Spotify Wrapped 2021 was the “most successful” Wrapped to date; was No. 1 trending topic on TikTok and Twitter
  • Terms of Google payment deal undisclosed but “beneficial to Spotify”
  • US advertising revenue in 2021 was now almost a quarter of revenue, compared to 1 / 10th globally
  • 100 million users in Latin America
  • On track to hit over 1 billion users globally by 2030

Music

  • 83% of platform streams come from artists using Spotify’s creator tools at least monthly
  • Discovery mode program, powered by algorithmic promotion, had 98% customer retention and used by over 50 labels / distributors
  • Artists using Discovery mode increased listenership by over 40%
  • Concert ticket integrations has generated $ 300 million for the music industry
  • Spotify now reaches nearly a third of all addressable consumers in Western Europe, Australia, and New Zealand

Podcasts

  • More than 4 million podcasts, up from 500K in 2019; “Increasing number” of audiobooks
  • Belief is podcasts could ultimately have GM of 40-50%; audiobooks could have above 40% GM
  • Spotify-owned Anchor powers 75% of podcasts
  • Every new anchor show brings 2.5 additional MAUs to Spotify
  • Between Anchor and our hosting platform Megaphone, Spotify-powered shows account for 45% of all consumption on the platform
  • On-platform podcast subscription platform average subscriber retention rate is 90% since 2021 launch
  • Spotify’s original and exclusive shows accounted for 18 of the top 100 podcasts on the service
  • Spotify produces or licenses 1,000 podcasts
  • Top podcasts are (in order): Joe Rogan Experience, Armchair Expert, Call Her Daddy

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