Spotify now has 320 million monthly active users, the company said on September 29, thanks partly to good performance in India. “The [Monthly Active User] outperformance was buoyed by India, which benefited from successful marketing campaigns, as well as stronger than expected results from our July launches in Russia, CIS, and the Balkans, with Russia serving as the largest upside driver,” the company said in a press release. CIS refers to the Commonwealth of Independent States, which consists of post-Soviet Eurasian countries like Tajikistan, Armenia, Kyrgyzstan, Kazakhstan, Belarus and Azerbaijan; Spotify launched in some of these countries this July.
Premium users, meanwhile, stood at 144 million. MAUs and premium subscriptions grew by 29% and 27% respectively. Spotify said it has 185 million free users, but did not provide a country-wise breakdown. “Rest of World”, the territory which includes Indian Spotify subscribers, accounts for 10% of premium revenue. “Our average monthly Premium churn rate for the quarter fell below 4% for the first time, marking an 89 bps improvement Y/Y and 49 bps sequentially, driven by churn improvement across all product offerings,” Spotify said.
“Monetizing” fan bases and sidelining ARPU
- Making money from live events: Unlike video streaming platforms, music services can “upsell” music with live performances. Spotify CEO Daniel Ek said that to the end of “monetizing […] fan bases”, the company must do three things: “One is to grow their fan bases. The second is to engage further in their fan base. And then the third is monetizing those fan bases. And we’re going to create tools and services in all three of these categories.” Ek said that live performances and merchandise was a means to this end.
- ARPU is down: Average revenue per user has been decreasing steadily as Spotify struggles to compete with Apple Music and streaming services around the world. ARPU is a difficult to estimate for Spotify. On top of the diverse pricing of the service globally, the company counts all members in a family subscription, which means that not all premium users are paying Spotify money. Ek declined to disclose how many premium users were paying. “For us, it has been historically about really thinking about growing users and subscribers first, before worrying about the monetization part second,” Spotify CFO Paul Vogel said. “In markets where we think we have the opportunity to potentially raise prices, we will and will continue to test,” he added.
India strategy and emulating TikTok
On India strategy, Ek had this to say: “In the Western world, we tend to focus a lot on signups by email. In many of these emerging markets [like India], you can’t do that. It’s all about phone numbers and the ability to interact with already existing services like WhatsApp and others to drive growth.
“So whether we’re extending the toolbox and it adds value and amortize on the core base, like, for instance our WhatsApp integrations or Instagram integrations or for instance, the adding [of] the signup flow to involve signing up via your phone number, instead of an email… All of those are sort of small changes and tweaks that we’re adding that then gives benefits across the base globally.”
- On emulating TikTok: Ek said that while he was impressed by the growth of TikTok, Spotify would only take inspiration from the service in a very limited sense: “Now that said, related to Spotify, again our focus isn’t so much on making the average user a creator that many of the social platforms do. We instead want to add superpowers to the people who want to be professional creators,” Ek said, adding that bundling music and podcast content in a single playlist was something the company was doing towards this end.
- Podcast revenue growing: Spotify’s podcast revenues from ads it sells on its own original programming has been growing rapidly, Ek said. “I think Q3 [if] my memory serves me correct, had about 2x the number of podcasts advertisers in Q3 than we did in Q2,” he said. “The traction on podcasting is strong, both from a revenue standpoint, from a retention standpoint, and then from a growth in the number of podcasts advertiser standpoint.”
Spotify financials Q3 2020
- Revenue: €1.79 billion (up 29% YoY, up 7% QoQ)
- Gross profit: €489 million (up 11% YoY, up 2% QoQ)
- Premium subscribers: 144 million (up 27% YoY, up 5% QoQ)
- Ad-supported MAUs: 185 million (up 31% YoY, up 9% QoQ)