Did Spotify screw up? ‘No… and sure,’ says its CEO

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Hello, everybody, I’m right here right this moment whereas Ariel is off for the week. I’ve actually been having fun with the brand new Rian Johnson / Natasha Lyonne present Poker Face, with its oddball characters and unusually prolonged murder-of-the-week introductions. The primary 4 episodes are already out, and two of them have a enjoyable audio tie-in. (See, I made this related to the publication!) There’s an enormous plot level round a radio broadcast in a single episode, and one other contains a true crime present known as Homicide Woman, whose host is performed by a former podcaster (and Verge alum). Gotta respect its dedication to the Podcast Voice.

At the moment, I dive into Spotify’s earnings and the place the corporate is headed in 2023. However first, a fast announcement…

Need to come work with us? Sizzling Pod has a gap arising this spring for a full-time author to affix us for round six months. We’re searching for somebody who is aware of their stuff in the case of the enterprise of audio — and, clearly, being a diehard podcast fan helps, too. If anybody who’d be an ideal match, please cross the job itemizing alongside!

I may have run with a variety of headlines right here, however this quote from Spotify’s earnings name felt just like the second that greatest encapsulated the corporate’s present state of affairs. 

Spotify reported its This autumn 2022 earnings this morning, and the outcomes had been robust in some key areas. Spotify grew to become the primary music streaming service to cross 200 million paid subscribers (not that the others are usually sharing), and it’s closing in on 500 million month-to-month customers, a goal it’s more likely to attain this coming quarter. Revenues from subscriptions and advertisements had been each up double digits 12 months over 12 months as nicely.

However on the similar time, these numbers weren’t sufficient to stave off final week’s layoffs, which noticed Spotify lower 6 % of its workers. There was an enormous reorg, and the corporate’s working loss jumped to €231 million (about $250 million); it was €7 million for the year-ago quarter. This all follows a number of years of massive investments in hiring, content material, and acquisitions. (The Chartable and Podsights purchases had been introduced practically a 12 months in the past.) And it comes simply months after we noticed Spotify in the reduction of on a few of its authentic content material plans through… much more layoffs at Gimlet and Parcast.

So the query on the minds of a variety of buyers — and evidently one which Spotify CEO Daniel Ek knew was coming — was: had been Spotify’s substantial investments in 2022 a mistake? And to that, Ek answered, “No… and sure.”

His argument for no: person progress is approach up, new options helped set the app other than opponents, and long-term investments are already having a short-term affect.

His argument for sure: “In hindsight, I in all probability acquired slightly carried away and overinvested relative to the uncertainty we noticed shaping up out there.”

All of this context is to clarify Spotify’s priorities going ahead. Ek reiterated repeatedly that the corporate can be reorienting round “velocity and effectivity.” The reorg? Pace and effectivity. The objective for 2023? Pace and effectivity. The most important factor holding Spotify again? Pace and effectivity. (I counted 12 “effectivity” drops between Ek and CFO Paul Vogel simply in my notes from the decision.)

Now, I don’t know precisely how this restructure will allow some dramatic enhancements in Spotify’s effectivity, however Ek mentioned he’s in want of extra assist on the prime. Transferring Alex Norstrom, Spotify’s chief enterprise officer, and Gustav Söderström, Spotify’s chief product officer, into extra centralized roles will “materially imply we’ll have extra brains fascinated with these items … to make choices sooner as a result of that’s truthfully one of many greatest blockers.”

It’s not nearly making choices sooner, although. Ek was additionally clear that 2023 is extra about investments paying off than making new ones. There’ll be “extra environment friendly spending” in podcasting, making it much less of a drag on gross margins. Similar cope with spending round advantages for Premium subscribers. “You’ll see the incremental funding sluggish and the advantages sort of hit in ’23,” Vogel mentioned.

The TL;DR for 2023: after years of massive funding, Spotify’s lastly being requested to indicate what it’s all amounted to — or at the very least that it will probably constrain the losses till all of it pays off.

There are a handful of different moments I needed to focus on from the earnings name.

Ek is aware of Spotify’s audiobook product wants work:

• “There’s two varieties of corporations: there’s the corporate that waits till it will get it excellent the primary time … after which the corporate that releases one thing it is aware of wants work and quickly improves from there. We’re positively the latter.”
• He promised “a variety of new issues” in audiobooks rolling out this 12 months.
• For what it’s value, “audiobook” reveals up two instances in Spotify’s slide deck for shareholders; “podcast” reveals up 18.

What Daybreak Ostroff’s departure means for Spotify’s authentic content material:

• “I don’t assume from a method standpoint that it’ll differ all that a lot,” Ek mentioned.
• One factor that might have an effect, although: advertising and marketing, promoting, and content material shall be on a mixed P&L beneath Norstrom. That’s meant to assist Spotify with “driving sources to the place it’s most wanted.”

Some adjustments to podcast spending are within the works:

• Traders (and Ek) talked about a number of instances that podcast investments had been a “drag” on gross margins.
• That’s anticipated to fall off this 12 months, partially as a result of the investments had been already made but in addition due to a change in spending technique for 2023.
• “We’ve been making many investments. Some have been working vastly and it’s best to count on us to double down on these, and a few haven’t labored out.”
• My learn: extra Batman Unburied, much less Gimlet and Parcast. I’d guess Joe Rogan — whose contract supposedly runs via roughly the top of 2023 — is on that “double down” record, too.

Pushkin laid off “a handful of workers” final week, Ashley Carman reported at Bloomberg. The cuts got here in response to falling income and the troublesome financial surroundings. Pushkin spokesperson Nicole Morano confirmed the cuts to Sizzling Pod; Morano mentioned that no reveals had been being canceled because of this.

The layoffs observe comparable cutbacks throughout the trade: Spotify with round 600 roles final week, Vox Media with a number of audio roles the week earlier than, NPR with the cancellation of its internships and fellowships, plus the sooner cuts at Gimlet and Parcast. It’s clear the whole trade is feeling the tighter advert market proper now.

At the moment was actually a Spotify extravaganza. I’ll be again with you Thursday and Friday with SiriusXM’s earnings, some hiring information, and no matter else breaks between from time to time. And when you’re not already a subscriber, you may enroll right here.