Is Spotify really the key to identifying real fans? More importantly, can the streaming music giant successfully monetize its Artists platform?
In is Q3 2018 report, Spotify revealed one thing – despite the cash burn, the service continues to grow. Monthly active users continue to grow, reaching 191 million. Global subscriptions rose to 87 million. Premium subscriber revenue reached $1.38 billion, and total revenue jumped to $1.51 billion.
Plus, the service posted its first-ever quarterly profit.
Investors didn’t react too well, however, to the news. Thanks to weaker-than-expected guidance for Q4 2018 and broader market anxiety, the company’s valuation dropped to $26 billion. Though the streaming music giant announced a $1 billion stock repurchase program yesterday, its stock still remains relatively weak, floating under the $140 mark.
That hasn’t gotten to Daniel Ek, however.
During the company’s earnings call last Thursday, Spotify’s CEO outlined his vision for the streaming music platform. Namely, how the service could finally maintain profitability for more than just one quarter.
Building a profitable artist-centric streaming music platform.
Eric Sheridan, an analyst at UBS, had an interesting question for the company’s executives. He asked them how the platform would take advantage of multiple opportunities present in e-commerce.
“How should we think about the e-commerce opportunity – ticketing, merchandising, et cetera – on the platform in the coming years? What are some of the friction points with product partners, et cetera, that Spotify needs to solve to achieve their goals?”
The company continues to face stiff competition in key markets. Apple Music has overtaken the streaming music giant in the US, Japan, and Canada. Thanks to its success in the smart speaker market, Amazon’s Music Unlimited and Prime Music keep booming. And, Tencent Music Entertainment will soon launch its IPO in the US.
Avoiding Sheridan’s question, Ek said he wouldn’t “talk about the specifics of merchandising and ticketing.” Instead, directing the conversation back to Spotify, he said the company’s current goal is to connect artists and fans.
“As part of that, for many artists, they have a huge audience on Spotify, and we have a better ability – we believe – over time to discern who are real fans versus not.”
Then, touching on the company’s revamped Spotify for Artists, analysts Dick Delfas asked whether the company had any plans to monetize that platform.
Revealing the artist platform now has 250,000 creators, Ek said the company will implement a monetization model.
Using a similar ‘freemium’ model, some artists and managers will receive a limited suite of tools. To access the full suite, they’ll have to pay up.
“Our strategy in our marketplace side of the business is the same as we have on the rest of Spotify, which is it’s a freemium business, meaning there will be a certain amount of products which artists and labels can get for free, and there are others which we will charge money for. So, that’s an evolving strategy when it comes to our product portfolio.”
Though they’ll charge for the tools, Spotify executives currently have no money to charge for the data they gather. Ek added,
“Data specifically is very unlikely to be one of those things that we’ll charge for.”
So, what does this mean for the future of Spotify?
Aiming to attract thousands of indie artists, the company aims to offer artists the tools they need to grow on the platform.
Following its exclusive distribution deal with Distrokid, Spotify wants to become the go-to platform for indie artists. Ek’s model sounds eerily similar to what SoundCloud offers for millions of DJs, content creators, and indie artists. That model has proven successful for the indie streaming music service so far, helping CEO Kerry Trainor turn the company’s fortunes around following a disastrous 2017.
But, whether Spotify can truly earn a profit from monetizing its artist platform remains to be seen. I imagine, however, the monetization platform remains a minor stepping stone in Ek and Spotify’s long-term plans. Expect to hear more announcements about the initiative and others in the near future.
Featured image by (CC by 2.0).