Spotify Hits 96 Million Paid Users, Plans to Make Platform Big as Netflix

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Spotify has begun taking action on controlling a large share of the audio streaming market. This move is evident as the company is buying Gimlet Media and Anchor in a bid to become the Netflix of audio content by increasing investment on original material.

Spotify also claims to spend $500 million this year on acquiring more podcast networks. In a CNBC interview with Jim Cramer and David Faber, CEO Daniel Ek said while “the magnitude of the numbers won’t be the same” as Netflix’s extensive spending on original content, “I don’t think it’s unlikely that it is a Netflix type of story,” when it comes to growing expenditure in this area.

He also added “Growing podcast listening on Spotify is an important strategy for driving top of funnel growth, increased user engagement, lower churn, faster revenue growth, and higher margins,” the company mentioned in its earnings. “We intend to lean into this strategy in 2019, both to acquire exclusive content and to increase investment in the production of content in-house.”

When presented questions about Apple and Amazon that have focused on dominating the streaming space, Ek answered although “they are formidable companies,” Spotify remains an audio streaming company and does not plan to invest in other areas like its competitors. This revelation comes after Spotify had plans to launch a video service with little success.

“I believe in this day in age that you need to be very very clear with your brand what you are for consumers for them to take it up and the best experience wins,” Mr. Elk said. “And now we’re adding the best content to that as well, and that’s now Spotify. During another interview with The Wall Street Journal, Ek said he is more focused on growing what he claims is the $100 billion music and radio market, instead of fighting for a spot in the $1 trillion video market.

“The question I always ask myself is, are your eyes really worth ten times as much as your ears? And I don’t think that’s the case,” he explained the Journal. “If we add more monetization opportunities the industry will grow, and that’s the opportunity.”

On another interview with Squawk On the Street, Ek said: “It’s really about expanding our mission from just being about music to being about all of audio and being the world’s leading audio platform.” On another occasion, he added that “These companies are best-in-class and together we will offer differentiated and original content,” after confirming that the deal would soon be completed.

Terms of the deals with both networks are not known however Recode, and Vulture’s Nicholas Quah claims that Gimlet will cost Spotify at least $200 million. According to Quah, this sum will make this acquisition the biggest in the podcast industry.

Gimlet owns a massive selection of popular shows such as “Reply All,” “Start-up,”  “Homecoming” and “Pitching.” These shows will expand Spotify’s array of podcasts. Besides, the network has previously hosted the second season of crime podcast ” Crimetown” on the streaming Spotify in 2018 and even bought the Amy Schumer’s rights to her podcast for $1 million. Gimlet also plans to collaborate with Hollywood to create movie adaptations of its podcasts.

On the other hand, Anchor brings its content creation technology to the table. This means podcast creators can use the service to publish and distribute shows. According to Ek, Anchor has 15 billion hour’s worth of podcast episodes in Q4.

In Anchor’s fourth-quarter earnings, the company recorded 207 million monthly active followers, which is an increase from 191 million in the final quarter. Ninety-six million users subscribed to its premium services (a rise from 87 million) while 109 million people made up the ad-supported audience ( an increase from a previous 116 million).

Alternatively, Spotify had 71 million premium listeners while 93 users accessed the free features at the same point last time. These figures have led to a profit of €1.5 billion (about $1.7 billion) and a record-breaking quarterly operating profit of  €94 million ( about $99 million). This shows a surprising change from the €87 million (roughly $99 million) loss it witnessed at the end of Q4 2017.

According to Billboard.com, after the December IPO of Tencent Music, in which Spotify had a stake, the company saw its quarterly net profit skyrocket to €442 million ($503 million), up from 43 million in the previous quarter and considerably more positive than the $596 million ($678 million) loss in the year-ago quarter ended Dec. 31, 2017.

Coming on the heels of the December IPO of Tencent Music, in which Spotify had a stake, the company recorded quarterly net profits of €442 million ($503 million), up from 43 million in the recent quarter and an improvement from the $596 millions loss in the year-ago quarter ended Dec 31, 2017.  As of Sept 30, the company reveals that it has a staff of 4,165 employees on its payroll.

Spotify claims that its increased audience comes as a result of its mid-November expansion which involved 13 countries in the Middle East and North Africa. The company is expected to launch in India during the current quarter, another significant development that will test the service’s viability in emerging markets. There are also plans to penetrate the Indian market in the current quarter in a bid to prove the service’s viability in emerging markets. “Performance to date has exceeded our initial expectations, and we hope to build on this momentum in 2019,” the streaming service reported in its earnings.

Although Spotify features podcasts and even produces original content, the company intends to begin an aggressive drive to acquire more networks this year. “Growing podcast listening on Spotify is an important strategy for driving top of funnel growth, increased user engagement, lower churn, faster revenue growth, and higher margins,” the company said in its earnings. “We intend to lean into this strategy in 2019, both to acquire exclusive content and to increase investment in the production of content in-house.”

As Spotify gains ground, it’s certain that larger record labels will begin to charge expensive licensing fees. However, it can purchase podcasts and own it. If it allows the ideal titles, this will draw users from third-party apps and gradually encourage them to subscribe to its premium service. Anchor will also help Spotify create a YouTube-style distribution platform. Ek said in a  Spotify blog post that “Gimlet and Anchor will position us to become the leading platform for podcast creators around the world and the leading producer of podcasts.” In the same post, he also expected that 20 percent of listeners on the Spotify platform would subscribe to it’s “non-music content.”

Following the announcement and the release of the Q4 earnings report, Spotify was down by 2.8 percent at Wednesday’s close. Although it surprised commentators for operating profit in the quarter with revenue of € 94 million  ($107 million) as against a mean forecast for a loss of 16 million at a Reuters poll of analysts. Furthermore, Spotify recorded average revenue per user (ARPU) drop 7 percent in the quarter, as the rate of low-cost subscriptions rose while growth in markets with higher ARPU was less than in areas with lower ARPU figures.

The company hinted that its discount offerings influenced the downward pressure on ARPU, “and is increasingly driven by market mix as growth in our relatively lower ARPU markets is outpacing geographies with higher ARPU.”

Spotify’s drop in sales numbers might lead to the drop in stock. Sales blew by 29 percent in 2018, from a 39 percent growth in 2017 and 52 percent in 2016.

Posted by Abiodun Adewusi

Abiodun Adewusi is a freelance writer who lives in Nigeria. As a writer, he is passionate about providing content on technology helping people keep up with the latest trends. You can see some of his work on Medium and Ezine.

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