In advance of Spotify’s successful earnings report on Wednesday morning, cofounder and CEO Daniel Ek and CFO Paul Vogel did a round of brief phone interviews. The earnings report largely speaks for itself: The streaming giant reached 155 million paid subscribers in the fourth quarter of 2020, adding a record 30 million for the year, and its total users grew 27% to 345 million, adding a record 74 million; and the company touted its podcast strategy and reiterated its belief that the strategy is paying back: The company said 25% of its total user base engaged with podcast content in the quarter (up from 22% in Q3 and 16% in the fourth quarter of 2019). It also exceeded is financial targets for revenue for the quarter, with total sales up 24% (excluding the impact of foreign exchange rates) and gross margin.
While Ek and Vogel they demurred from a question about how the company was responding to Morgan Wallen’s racist slur revealed on Tuesday night, they did answer other questions as expansively as the short interview time allowed.
How is the company holding up after a year of pandemic lockdown? Are all of your offices closed, and do you have a sense of when they might reopen?
Pretty much all of our offices, with the exception of maybe two, are still closed, so the vast majority of entire company is working from home. Obviously that’s been incredibly challenging for us all, but the team has showed incredible spirit in making it work. As for the sense of when we can open up again, I don’t know. I’m focused on the safety of our employees, and when the authorities deem it safe and we feel we can offer a safe workplace, we will allow employees to come back. But I can’t say at this point when it’s going to be — that’s the billion-dollar question that every financial analyst in the world is asking right now.
It’s great that you donated $500,000 and gave so much attention to Save Our Stages, can you talk about the inspiration for supporting independent venues?
That was not the only effort we supposed in 2020, we also put aside $10 million into a COVID relief fund for artists, so this is one out of many initiatives that we’re doing. Normally, we support a number of music education programs, in particular for diverse talent, whether it’s female producers or ethnic groups. It just feels like the right thing to do, to help out the community to the best of our ability. I’m also happy about the “Artist Pick” [option on the Spotify platform] that allows artists to pick causes that they care about [for fans to contibute to]. There’s also a live show feature on the service that we’ve updated, so artists can announce [livestream performances]. There’s a number of different things that have happened throughout the year and we will continue to do as much as we can.
In an interview last year, you basically said that artists need to engage regularly with their fans, and that the traditional cycle of releasing an album every two or three years may not be ideal for all artists these days, which many people seemed to see as a criticism. Do you feel what you said was misconstrued?
I meant exactly what you just said in your question — that it’s important to continue the engagement between artist and consumer. I did not mean to imply that people need to work harder or crank out ten albums a year. It’s very difficult sometimes to be as eloquent as you can be in a five-minute conversation before an earnings call — like this one, as well! — and I probably could have phrased it a lot better than I did. But the music industry is growing and streaming is a big part of that growth, and Spotify is a big part of that growth. I look back at where the music industry was when Spotify came into it: It was in free-fall because of piracy, and we turned that around and it’s heading in the right direction. Can things be better? Of course they can, and we can be better as well. But I look at the future and I have incredible optimism, and streaming will be a big part of that.
Some people are skeptical about your podcast strategy — do you feel the investment is paying back in terms of being able to attract and retain subscribers? Do you have any metrics that can show the return on investment?
We’re very, very comfortable that this investment is working, and one of the points we’ve used to guide investors to look at is the growth of the audience in podcasts. In the fourth quarter, over one-fourth of our users are engaging with podcasts on a monthly basis, so we’re absolutely seeing a positive effect.
Vogel: If you look, over a year ago, we said in a letter to shareholders that we saw a positive effect from podcast consumption in terms of attention and engagement. We didn’t actually quantify it, but we believe it is a causal relationship.
What is it based on?
Vogel: Testing we’ve done and work we’ve done algorithmically with a team that’s dedicated to making sure we understand the value of every piece of content on our platform.