Spotify thinks the Top 40 is over (and other key takeaways from its Q2 results)

 Spotify thinks the Top 40 is over (and other key takeaways from its Q2 results)


The Top 40 chart has lengthy been a measure by which components of the music {industry} decide their largest artists – to not point out their very own industrial efficiency. But in response to Spotify, these days are completed.

The context for this industry-challenging declare is vital, and speaks to the speedy evolution of the streaming-driven document enterprise.

In its monetary outcomes for the second calendar quarter today (reflecting the three months to finish of June), Spotify revealed that the variety of artists making up its “top tier” of acts now stands at over 43,000.

That determine is up 43% from 30,000 one 12 months in the past, says Spotify.

“Gone are the days of Top 40, it’s now the Top 43,000.”

Spotify shareholder letter

What does “top tier” truly imply? MBW has double-checked with a Spotify spokesperson, who’s confirmed that it means these acts share at least 90% of the streams on the platform.

We take pleasure in stats like this; they’re price remembering. We bear in mind, for instance, that back at Spotify’s investor presentation in 2018, Daniel Ek revealed that, at the shut of 2017, Spotify counted 22,000 artists inside the “top tier” of its platform.

This, in flip, represented a 28% rise on the 16,000 artists who had been in Spotify’s “top tier” at the shut of 2015.

In other phrases, the surprisingly small group of artists sharing 90% of streams on Spotify as we speak has (a) nearly doubled in quantity in the previous three years, and (b) almost tripled in the previous 5 years.

In totally different phrases: the unique membership of artists attracting the majority of streams on Spotify is getting considerably much less unique. The spoils are being shared extra broadly; the ‘middle class’ of artist on Spotify is on the rise – and the dominance of the blockbuster famous person is having to make means.

“Our product and platform are driving discovery, diversifying taste, and helping up-and-coming artists reach new audiences,” mentioned Spotify as we speak, including: “Gone are the days of Top 40, it’s now the Top 43,000.”

How the main document firms – corporations who historically thrive in a world the place blockbuster artists solely hog the most streams – are reacting to this development shall be one in all the key speaking factors of the music enterprise in years to come back.

There had been loads extra attention-grabbing revelations in Spotify’s Q2 outcomes (and subsequent earnings name) as we speak too. Here’s 4 of them…

  1. Spotify now has over 60m music tracks on its service, and 1.5m podcasts

At first look, this appears a comparatively pedestrian replace. But this quarter (Q2 2020) is the first by which Spotify has mentioned its complete music catalog has surpassed 60m tracks.

Considering that Daniel Ek has beforehand revealed that nearly 40,000 tracks are added to Spotify daily, it’s not troublesome to extrapolate, and illustrate the gigantic magnitude of music that may quickly be accessible on Spotify – aka: the noise which new artists attempting to interrupt (particularly onto influential playlists) must overcome.

According to MBW’s calculations, Ek’s 40,000 stat means greater than 1,000,000 tracks are being added to the service each month.

It additionally implies that Spotify’s ‘over 60m’ stat will flip into ‘over 75m’ by August subsequent 12 months. And it can flip into ‘over 100m’ by April 2023.

Mark it in your calendars.

2. Spotify is struggling to give subscriptions away outdoors of the US, Europe and Latin America

As famous by sharp-eyed industry analysts as we speak, one in all the extra shocking issues about Spotify’s Q2 2020 outcomes is the disappointing uptake of paid subscriptions outdoors of the US and Europe.

Each quarter, Spotify tells traders in proportion phrases how its paying viewers breaks down throughout the globe.

Here’s how that interprets into precise paying subscriber numbers in the most up-to-date quarter (Q2), and the quarters earlier than it:

Spotify added 8m Premium subscribers round the world in Q2 2020. But digging deeper into the figures exhibits that almost half this 8m quantity (+3.1m) subscribed in Europe, with one other 2.3m in North America.

In Latin America, Spotify added 1.7m subscribers, however in the total remainder of the world – together with India, Vietnam, Japan, North Africa and the Middle East – it added lower than 1,000,000 subs (+900ok).

This was considerably down on the 1.9m subs Spotify added in these areas in the prior quarter (Q1 2020). Regions, bear in mind, which house an addressable audience of over 2.5bn folks.

Something which will fear Spotify’s traders is that the firm mentioned as we speak: “Despite the ongoing uncertainty around COVID-19, we had our largest ever bi-annual campaign [in Q2] with strong gross additions in both the ‘3 months on us’ intro offer for new users, as well as the win-back offer for returning customers.”

Yes: Spotify gave away three-month subscription trials throughout the world in Q2, by way of its “largest ever” free trial campaign.

Yet fewer than 1,000,000 folks outdoors of Europe, North America and Latin America had been truly .

3) Why Spotify’s two-sided market take care of Universal is in all probability a margin-grab – for each firms

There was lots of discuss (some would say an excessive amount of!) about “innovation” in Spotify’s press release asserting its new international licensing take care of Universal Music Group final week.

The announcement was gentle on element, and fairly heavy on mutual congratulations (as was the Wall Street Journal piece that puffed it up). The most attention-grabbing nugget from the PR: the incontrovertible fact that UMG dedicated to “collaboration on new, state-of-the-art marketing campaigns across Spotify” whereas pledging to “deepen its leading role as an early adopter of future products and provide valuable feedback to Spotify’s development team”.

What would possibly the deal truly imply in less complicated phrases? Here’s a suggestion: Universal has agreed to take a set variety of paid-for advertising and marketing campaigns on Spotify over the subsequent two years – by way of Spotify’s ‘two-sided marketplace’ and, notably, by way of its Marquee pop-up ads.

“[Via Marquee] you should see better results for artists and labels… And, of course, for Spotify, it means a higher gross margin business, as well.”

Paul Vogel, spotify

What would this obtain for each events? Well, for Universal, it may imply the means to nab a bunch of prime actual property on Spotify for its tentpole releases, serving to drive up visibility on the platform and – if Spotify’s impressive Marquee conversion rates are to be believed – consequently driving up UMG’s market share on the platform.

What does Spotify get out of such an association? That was given away by the agency’s former CFO, Barry McCarthy, on an earnings name final 12 months, when he suggested that major labels buying the Marquee pop-ups would equate to “expense offsets in the form of, let’s say, lower content costs“. i.e. if we’re paying the labels X, and they’re paying us back X for marketing on our two-sided marketplace, investors can level those numbers off against each other to figure out Spotify’s ‘true’ content cost each quarter.

Daniel Ek didn’t give much away about this idea today, though he did tell investors: “We’re very excited by Universal’s willingness to experiment and go all-in on the marketplace.”

Will UMG going “all in” see it nudge rivals out of coveted chart positions by way of aggressive direct advertising and marketing on Spotify? Spotify shall be hoping so… as a result of advertisements beget advertisements.

If Spotify can set up a place whereby main labels have to promote on Spotify with a purpose to acquire market share? The largest winner out of that state of affairs is… Spotify. (At least till the inevitable payola accusations begin flying.)

Paul Vogel, Spotify’s CFO, mentioned as we speak: “[Via Marquee] you should see better results for artists and labels, because they are able to grow their fans a lot better at more efficient prices than [on] other advertising marketplaces or billboards that they’ve traditionally spent [money] on. And of course, for Spotify, it means a higher gross margin business, as well.”

As for the affect these 1.5m podcasts are going to have on labels’ share of Spotify’s subscription revenues in the future – and the normal leverage of the document enterprise when negotiating with SPOT?

That’s one to deal with one other day…

4) Spotify’s promoting woes proceed – as a consequence of COVID

As famous in MBW’s story on Spotify’s Q2 performance earlier, the firm’s promoting revenues fell 21% year-on-year in the quarter, which it blamed squarely on circumstances attributable to COVID-19.

The pandemic has definitely damage promoting spend throughout digital platforms the world over. But, as I famous in this Rolling Stone piece, Spotify’s promoting revenues had been problematic earlier than coronavirus messed with this 12 months – each for traders and for the music rightsholders that license SPOT’s free tier with their total catalogs.

In the full 12 months of 2019, Spotify generated €678m in promoting (see under), making up simply 10% of its general income. That income proportion barely modified from the identical 10% portion advertisements claimed in 2018.

In Q2 2020, nevertheless, SPOT’s €131m in promoting revenues comprised simply 6.9% of its total turnover. The agency famous that these advert revenues had been worst hit by COVID in April and May, however that in June, they had been nonetheless down 12% YoY.

SPOT’s promoting revenues have dissatisfied the labels for years. Will the unlucky results of COVID now shorten those self same labels’ endurance with Spotify’s ad-funded tier – particularly when Spotify is anticipating them to pay it promoting cash for Marquee?

Lest we overlook that in November final 12 months, Spotify publicly said that it was its aiming to dramatically enhance its promoting revenues up to 20% of its overall revenue pie. It’s at present an extended, great distance off.

Could podcast promoting assist? Even if it might probably, it’s not nice information for the document {industry}.

Paul Vogel reminded traders as we speak that, in future, “[any] advertising related to podcasting will be 100% Spotify’s and not shared” with the firm’s label companions.Music Business Worldwide


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