Spotify has garnered 2 million registered users in India since its February launch, amidst a legal battle with Warner Music. Spotify CEO Daniel Ek said growth in India has been faster than initially expected; its worth a reminder that two major music labels, Warner Music and Saregama, are absent from Spotify’s library in India due to legal issues. Of the 2 million users, Spotify had gotten the first 1 million within a week of launch.

Spotify CEO Daniel Ek agreed that minimum guarantees to record labels for launches in newer markets had impacted gross margins, although he declined to quantify the impact. He explained that Spotify initially loses money in every new market due to these minimum guarantees, but grows its way into MAU breakeven and starts earning profit thereon. “This is history repeating itself, .. as long as we are able to achieve the growth objectives we set for the business, and we have consistently, then the markets where we are growing the business become profitable.”

ARPU; working in low ARPU markets like India

ARPU was roughly flat year-on-year at €4.71 this quarter; “the declines in ARPU are a result of shifts in both product and geographic mix. Approximately 75% of the impact to ARPU is attributable to product mix changes, and the remainder a function of changes in geographic mix and other factors.”

ARPU decline and India launch: Ek explained that the ARPU decline can be explained by price points in India and Asia are significantly lower than in the US; “so if on day one we had zero and day two we had lots, the day two average company ARPU will be lower than it was on day zero. But margins across regions, independent of price points, are relatively equal. And so from a margin perspective, expansion in those regions works for the business, which is part of the launch there.”

Global monthly users, subscribers, ad and subs revenues

Globally, Spotify’s monthly active users increased by 26% year-on-year to 217 million. Premium subscribers increased by 32% to 100 million subscribers. However, the company slipped back into operating losses of €47 million; it had recorded its first ever quarterly profit of €94 million last quarter. Premium subscriptions accounted for 91% of Spotify’s revenue this quarter, totaling up to €1.3 billion, 34% higher year-on-year. Ad-supported revenue amounted to €126 million, up by 24% year-on-year; ad revenue was below expectations this quarter which Spotify said was “pricing related”. Measurement and programmatic revenues accounted for 40% and 26% of the ad revenue this quarter respectively. A new ad-supported version of Spotify led to a 12% increase in content hours per MAU across free users, the company said.

Impact of the EU Copyright Directive

I think it’s really too early to say what the exact impact will be of Article 13 or 17 depending on which provision you’re looking at. Now our view is obviously that we want a landscape where we’re competing on a level-playing field and where our rights holders are getting paid for their content. If Article 13 or 17 leads to more of that, we think we will do better. If it’s — if the question is how material is it, I think it’s way too early to tell you.
– Daniel Ek

Podcasts

Spotify noted a “small incremental benefit from podcasts” after the acquisitions of Gimlet Media and Anchor in February and the rollout of Spotify’s exclusive content.” Spotify said it aims to develop an advertising solution for podcasts “that will allow us to layer in the kind of targeting, measurement, and reporting capabilities we have for the core Ad-Supported business.”

Download: Press Release | Investor Call Transcript

Edit: This story has been updated with notes from Spotify’s call with investors