Spotify Growth Statistics into 2020 (and Beyond)
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The Vinyl player. The boom-box. The CD player. The Walkman.
All these at one time or the other were the markers of music distinction, the cool purveyors that music aficionados swore by.
But they have all become relics of the past, in no small part due to the music streaming revolution that Spotify now sits on top.
Spotify’s mantra is to provide music for everyone, to essentially allow you to soundtrack your life. As a digital streaming and media service provider, Spotify allows users to play millions of songs, and podcasts for free, with the option of upgrading to its ad-free paid premium service.
Launched in Sweden in 2008, Spotify’s media platform has transformed the way we listen to music by allowing users access to a staggering amount of music, amounting to over 50 million song tracks and 3 billion playlists. In addition, it also incorporates music videos, exclusive video series, and documentaries.
Spotify provides several access points to enjoy its content. It provides the ease and flexibility of listening from a desktop through the browser. However, you can also access it through its app via a mobile phone or tablet.
You sign up for its free service account with either Facebook or an email address. In addition to its free service, it has included an ad-free premium plan. In addition, this premium version also allows you access to songs both on-demand and offline, and you can take it for a free 3-month test run before deciding whether to commit.
In this article, we’ll be looking at what factors have underpinned the growth and dominance of Spotify through the lens of business financials such as growth, users, revenue, and markets.
Spotify currently sits on the music mountain-top as king of streaming services through the explosiveness of its user growth, although rivals are snipping at its heels. However, things are looking good in terms of growth and its financial trajectory seems to be on the upswing with the release of its financial results for the third quarter of 2019.
User growth is always an important metric for web-based companies because it signals that a product or service on a stronger path to revenue and profitability. Exceeding growth expectations will therefore put a smile on the face of Spotify’s investors, especially after just making money for the second time after more than a dozen years in business.
Even before this recent favorable news, Spotify had already achieved an important milestone back in April, when it became the first music streaming service to reach 100 million paid subscribers. It was also Spotify’s first quarterly operating profit.
Its growth strategy has largely depended on embracing free trials, expanding its product reach, and offerings (with podcast engagement). Because users who are forking up their hard-earned money money to become paid subscribers shows that the service is on stronger footing.
According to the company, while other aspects of Spotify’s product offerings were in line with expectations, however, its premium subscription did much better than anticipated:
According to its released financials, Spotify’s Total Monthly Active Users (MAUs) now stands at 248 million, which represents a 30% increase compared to the same quarter last year.
Sprinting Away From Rivals
This bullish growth has consequently allowed Spotify to widen the lead and continue to sprint past other Internet and technology juggernauts like Apple with Apple Music and its 60 million subscribers, and Amazon (with Amazon’s Unlimited and Prime Music) 32 million users as of April 2019.
As early as April, Spotify had already begun to show signs of increasing separation from the pack by growing paid subscribers by 32-percent year-on-year. However, this recent shift will likely intensify the competition among these music industry’s rivals. While this user growth report is good news for Spotify, contest for listeners world-wide is no were near abating so Spotify cannot afford to rest on its laurels.
For instance, the good news back in April was, however, tempered by the fact that although Apple has about half of Spotify’s paid users worldwide (50 million), it was nevertheless edging out Spotify in the US market where users typically act as first adopters with regard to technology innovation.
And the status quo doesn’t seem to have changed since this was reported in April.
By adding 5 million paid subscribers in the third quarter, Spotify has shown that its lofty ambition regarding users is paying off lots of dividends.
As touted by its company’s website, it is the most popular audio streaming subscription service worldwide, and it’s hard to disagree with this assertion as the numbers are there to backup the claim.
While its numbers are impressive, comprising of 248m users, including 113m subscribers, the breadth of its reach is also remarkable. It has users in 79 markets, highlighting Spotify’s ability to satisfy music tastes not just across genres and niches, but cultural preferences as well.
This diversity ensures that the companies revenue is not beholden or disproportionately dependent on any particular region or country. Perhaps to ensure this heterogeneity, there is also an increasing thrust to focus attention on podcast users, whom the company sees as essential to maintaining its dominance and extending future growth.
Underscoring its importance, Chief Executive Daniel Ek stated that, “Our podcast users spend almost twice the time on the platform, and spend even more time listening to music.”
As a result, Spotify believes that by betting on its podcast users, it will be able to differentiate itself more starkly in the market with original programming, forecasting that 20 percent of all Spotify listening will be non-music content in the future.
Its banking on its acquisition of Gimlet, a highly reputable podcast network company, to help it to not only lock-in more original content, but to create a cascade effect of drawing more users away from rivals such as Stitcher and Apple Podcasts.
Spotify is also hoping that these new crop of users will propel it to cement its goal of becoming the world’s number one audio platform.
Moreover, emerging markets provide Spotify with a long runway for growth, exemplified by the two million Indian users who joined after the company launched its service in that nation in February.
At the time of this writing, Spotify has somewhat defied the odds by beating its third-quarter revenues and marking only the second time in history that the music service has posted a quarterly operating profit.
Its revenue growth was up by 28%, and its profit increased by 29% when compared to the same period the previous year. Premium subscribers are its most lucrative type of customers, and this year-over-year gain placed it comfortably ahead by nearly twice the margin of its nearest competitor, Apple.
As the self-proclaimed largest driver of revenue to the music business, if a rising tide lifts all boats, then even the artists and labels should experience a boost from the Spotify’s fortunes.
Markers of Success
But Spotify’s assertion might no longer be conjecture as streaming services are now responsible for about 80% of industry revenue in the United States, making it the largest source of revenue in the music industry.
In other words, streaming is taking a much bigger chunk of the music pie, with Spotify as global leader and still gaining market share over competitors, especially smaller ones. Its recent revenue prowess driven by market share gains are a testament to its competitive advantages in the music industry.
What is perhaps most encouraging with Spotify’s rash of positive trends is that its profits is mostly based on paid users on the platform.
Furthermore, in what will definitely raise the spirit of investors, it also declared that its paying customer user base has jumped by a gain of 31% in the same year-over-year comparison, to 113 million paying subscribers.
There were several pillars on which this Spotify’s earnings success rested upon. Apart from the aforementioned MAU accelerated growth, there was a better than expected trifecta of operating profits, the attendant subscriber growth, and improved gross margins.
Broadening the Revenue Base
Spotify’s recent revenue spike didn’t occur in a vacuum. Spotify has deftly and strategically been broadening its revenue-base, especially with regard to its podcast business.
Spoify’s recent financial results for the third quarter of 2019, highlight that there are both nascent signs and leading indicators that suggests podcast engagement is already driving what they called “a virtuous cycle propelling overall platform engagement” forward.
They say in statistics that correlation doesn’t always equal causation, but the Spotify report went out of its way to state that based on their data set, there is a substantial link between podcast hours streamed and the subsequent conversion of free users to premium subscribers.
Business Model and Controversy
Spotify’s core business model is based on paying artists a royalty stemming from the number of artists streams as a proportion of total songs streamed. This is opposed to downloads or physical sales that pay artistes a fixed price for each song or album sold.
Spotify distributes the revenue generated on its platform by giving 70% to those who hold the rights to the music, and these subsequently pay the artists themselves based on the separate agreements reached.
However, this model has drawn controversy and criticism in the past, especially from artists and producers arguing that this model doesn’t fairly compensate the music creators. However, it has since renegotiated several license deals, one prior to going public in 2017.
Spotify entered direct licensing deals with a small number of independent artists, which uncharacteristically bypassed the major music labels altogether.
This past July, Spotify announced that they had reached an agreement to renew the global sound recording licenses with two of our four major label partners, and are in talks with the others.
Spotify is currently used in the Americas, Australia, New Zealand, parts of Africa and Asia, and most parts of Europe. It can be accessed on virtually all modern browsers, phones, and devices.
The music-streaming giant is not only aiming at improved long-term retention of its music listeners, but also its artists and content creators as well. Spotify is mulling how to allow podcast producers the ability to incorporate different ads targeting their users into their podcasts.
These ads are reportedly going to be similar to those that run during conventional ad supported music listening.
Podcasts Seen as the Future of Streaming Content
To fortify its podcast position, Spotify recently acquired Gimlet Media, Anchor, and Parcast, all three reputable companies with strong core competencies in the podcast industry.
Gimlet Media is a start-up and award-winning podcast company that focuses on creating a network of narrative podcasting, while Anchor provides creators with tools to build, publish, and monetize their podcasts. Parcast produces audio drama and podcasts that are scripted.
This emphasis on podcasts is already yielding dividends for Spotify. “In just shy of two years, we have become the second-biggest podcasting platform,” declared CEO Daniel Ek.
This bold market strategy has been in the making for quite some time, with the company signaling its intention to spend around $500 million to grow its podcast business in 2018 when it announced the financial results for the fourth quarter.
Market Reach and Spread
As you can see, there is no particular region that enjoys a lopsided monopoly, although Europe (35%) and North America enjoy a lion’s share of the market Spotify has captured in terms of Monthly Average Users (MAU).
Spotify is capitalizing on the evident thirst for music streaming happening worldwide. Its Chief Finance Officer, Barry McCarthy reported that it is adding around two million subscribers each month globally, compared to one million for Apple.
The good news in these metrics is that Spotify still has enough room to grow in most regions, with the market approaching nothing like maturity or saturation, especially with regard to the Rest of the World, which currently stands at only 16%.
Prior to its launch, the music streaming industry was still at its infancy. In the year before Spotify’s entrance, music streaming was only responsible for 1% of the worldwide music revenues and physical formats, mainly CDs, accounted for 70 percent of global music revenues.
Fast forward to the present day, and Spotify has been able to play a significant part in transitioning the industry from a “transaction-based” experience dependent on buying and ownership, to the present “access-based” streaming.
The company has set its strategic sights on podcasting fueling the engine of its future. So far it hasn’t disappointed, with the music platform experiencing exponential growth in podcast hours streamed (up approximately 39% quarter-on-quarter).