Spotify Reaches 100 Million Subscribers, but Not Without Some Dissonance
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Version 0 of 1. Spotify now has 100 million paying users around the world, the company said on Monday. But the music-streaming giant stumbled slightly in its recent entry into India, and its profit margins narrowed partly because of an aggressive investment in podcasts. In its first-quarter earnings report, Spotify said it had 217 million users around the world, up from 207 million at the end of last year. Of those, 100 million are paying subscribers, compared with 96 million at the end of 2018. Since it went public a little over a year ago, the company said, the number of subscribers has jumped 32 percent, from 75 million in the first quarter of 2018. In its most recent quarter, Spotify, which is based in Stockholm, had revenue of 1.5 billion euros, about $1.7 billion. That was a 33 percent increase from the same period a year earlier. It had a net loss of €142 million, or about $158 million. The company’s main rival is Apple, thanks to the iPhone maker’s introduction in 2015 of Apple Music, which has 50 million paying users around the world. Unlike Spotify, which offers a free plan that includes advertising, Apple Music is available only by paid subscription. As the two companies compete for listeners around the world, India has been one of the most coveted new markets. The music industry had been anticipating Spotify’s arrival in the country for months, and when it finally became available there in February, Spotify proclaimed the move a success, saying it had signed up a million users in one week. The company said Monday that the figure had doubled since then. But Spotify’s arrival in India was marred by music-licensing disputes, a potential sign of coming friction as global music conglomerates seek to maximize income from streaming, now the most popular listening format. Just as Spotify was set to open in India, Warner/Chappell, one of the biggest music publishers, sued the company, saying it had not secured the proper rights to include Warner/Chappell songs. Spotify set up shop in India anyway, saying its use of Warner/Chappell music was allowed under Indian copyright law. The case remains active in an Indian court. Spotify hit another roadblock this month when it agreed to remove the content of Saregama, one of India’s biggest labels, after another licensing dispute. In an interview, Barry McCarthy, Spotify’s chief financial officer, said the company was committed to its strategy for international expansion. “Warner India is about a global license agreement; it’s not really about India,” he said. “And Saregama, we have constructive relationships. We have confidence that will be resolved.” Spotify, which began in 2008, has recently gotten in on the podcast boom. In February, the company paid about $340 million for two podcast companies, Gimlet Media and Anchor, and in March bought another, Parcast, for $56 million. Daniel Ek, Spotify’s chief executive, has said “non-music content” will eventually make up 20 percent of the service’s offerings. That change could help Spotify reduce its dependence on major record labels, and improve its profit margins, since it can be cheaper to stream podcasts than music, particularly podcasts Spotify controls. But it may take time for podcasts to have the desired effect on Spotify’s bottom line. The company’s gross margin was 24.7 percent for the quarter, down from 24.9 percent a year earlier and 26.7 percent for the fourth quarter of 2018. Mr. McCarthy said Spotify’s investments in podcasts had created “a great deal of downward pressure on margins, at least initially as we built out the business.” In an earnings call with investors, he and Mr. Ek also noted that lower subscription prices in markets like India tended to reduce the company’s average revenue per user, a closely watched metric. On the call, Mr. Ek sounded optimistic that Spotify would continue to dominate the industry, even as it pursues an antitrust complaint against Apple in Europe related to what it contends are its rival’s anticompetitive practices. Spotify has faced tough competition from the start, Mr. Ek said, and there is still plenty of room for growth. “The music industry market,” he said, “is just way bigger than people realize.” |