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Spotify’s Daniel Ek Talks ‘Explosion’ in Home Listening, Opportunities to Convert Radio Listeners During Lockdown

Daniel Ek
Courtesy of Daniel Ek

While Spotify’s 2020 first-quarter report would have been mixed under normal circumstances, CEO/cofounder Daniel Ek and CFO Paul Vogel were downright enthusiastic at times during the company’s earnings call Wednesday morning, reflecting that the world’s biggest music-streaming service has been less impacted by the coronavirus pandemic and the ensuing lockdown than it might have been. The pair also discussed the opportunities that have been presented by changes in behavior during the lockdown, particularly the one presented by the drop in linear radio listening as people spend less time in cars.

While Spotify — the world’s biggest music-streaming service — did not a Netflix-sized bump in recent weeks, the company added 6 million subscribers and its total revenue of $2.0 grew 22% year-over-year during the first quarter, roughly in line with its projections. And while ad revenue fell short of expectations “as a result of impacts from COVID-19, particularly the last three weeks of the quarter,” when it was 20% below projections, Ek was quick to note that advertising accounts for a “very small portion of our total revenue” — around 10%, he said. “Our business is less impacted than many others.”

The pair noted changes in listeners’ behavior during the lockdown: Obviously, the lockdown has seen exponentially more at-home listening as in-car usage dropped, with gaming platforms, televisions and home audio systems “exploding.”

“The audience through TV and game consoles has grown materially, in excess of 50% over the same time period,” Vogel said.

Significantly, they noted the change in behavior has moved listeners away from linear radio, a trend they expect to accelerate, and one they see as creating the biggest opportunity for the company to convert listeners to on-demand streaming services.

Ek referenced the trend more than once when asked about other topics during the call. Asked whether the company plans to raise its subscription rates, he said, “Our primary strategy is growth rather than maximizing revenue, and that’s because we see this amazing opportunity of moving people from radio to on-demand audio.”

Asked whether the company’s decline in revenue late in 2019 meant that streaming’s growth could be reaching saturation, Ek noted an increase in growth rates in all territories thus far in 2020 as contradicting reports of a slowdown, and said the company sees an “amazing opportunity” in the millions of people who are no longer listening to linear radio in the car.

Another behavior change is a rise in catalog listening, due partially to the high number of releases that have been bumped until later in the year, including Lady Gaga, the Dixie Chicks, Alicia Keys and others.

However, Ek and Vogel pointed repeatedly to the blockbuster numbers posted by two major releases that were not pushed back — The Weeknd and Dua Lipa, both of which are among the most successful artists on the service in recent weeks. As a result, Ek said, “I’d like to think that with the Weeknd and Dua Lipa’s [success], more artists will come back and we’ll probably see a lot more new music in q2 and q3.

“It’s hard to stay what behaviors will stick post-lockdown,” Ek continued. “If I had to guess I’d say people will stay on new [formats], and we may see greater engagement in car [useage] as people return.” But in terms of catalog consumption, “I expect that will shift as more new releases come.”

Asked why the company has not focused on live performances in the wake of the lockdown’s crushing impact on the touring industry, Ek was dismissively analytical. “The macro trend isn’t really to live, it’s linear to on-demand,” he said. “Live is a relatively small component” of the company’s offerings. “What we’re spending a lot of time on is we’re reflecting culture, and [those] realities have been shifting more toward wellness content, health content, news, more podcasts and increasing their output,” he said “I suspect that will be a bigger story in the consumption trend.”

In answer to multiple questions after the initial call, they noted that:
*Q1 2020 was their biggest-ever quarter for podcast creation
*Subscriptions remain within their forecast
*Over 60% of the service’s users enter through its controversial but successful free (ad-supported) tier
*The company remains focused on launching in Russia and South Korea, although the pandemic has delayed those plans.
*Video, an area into which the company made aggressive moves several years ago, will remain a “complementary” offering in addition to audio.

Ek concluded by saying the company is “really pleased with our quarter, and despite the uncertainty in the world, we will continue to see new opportunities and Spotify will come out of this an even stronger company.”