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The cover of Spotify's financial results

Spotify's CEO: “I got carried away”

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Daniel Ek on Spotify’s investment in podcasting

From the earnings call (from 27'53" - transcript lightly edited).

"Investors remain sceptical that podcasting is a good business, and that it has meaningfully moved the needle for Spotify. Can you help them understand why you believe in the investment to date - especially in the context of your recent management changes?" - Rich Greenfield, LightShed Partners

Daniel Ek: Four years ago we entered into podcasting the major player in podcasting had been doing it for 20 years and was considered the unassailable leader. So we wanted to tackle this heads on: and we realized that this was a nascent space that was growing.

All of it still was under-consumed to what we believe the potential was in the industry. And we took the medium and have grown the audience overall globally by a huge margin to what was through four years ago.

It wasn’t just that we took audience from another platform but we actually grew the pie meaningfully for podcasters. And as a result you know now we have over five million creators on Spotify - so a massive increase in the number of people who are creating podcasts. This is true across the world.

We went from being almost nowhere four years ago to now being the leader in many markets around the world in this space.

And that adds several benefits to Spotify. It adds the benefit that it makes our business more defensible, because now it is meaningfully contributing to our advertising story.

It is also so that from a competitive lens when we’ve added this content what we’re seeing is that consumers are not just consuming music on the platform but they’re consuming music and podcasts to a great extent and the number of users on our platform that are consuming podcast keeps growing as well and as that’s happening their retention increases, and as that happening it is impacting our business.

Now what you’re probably asking underneath all of that is that it’s been a drag on the gross margin side so what does that mean for the future. Well - we’ve been making many investments. Some of them have been working greatly and you should expect us to double down on those and some of them not surprisingly haven’t worked out.

There are certain shows that work really really well for us and there shows that didn’t perform as we expected, and I think that’s a sign of maturity that you know you go for the growth first and then you seek the efficiency. But generally what you should expect from us is across the board now to be focused more on that efficiency and creating more leverage and that’s certainly true in podcasting too.

The management changes really had nothing to do with a change of strategy and podcasting - they are more around increasing the speed of decision making and increasing the focus on efficiency across the board. The next era of Spotify is one where we’re adding speed plus efficiency, not just focused on on speed or growth at all costs. That is a big shift, but it is also what we said during the investor day in June.

And now we’re going to have to live up to that and I know some investors don’t believe that we’re serious about it: but hopefully my remarks today show that we are really really focused on driving efficiency going forward.

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