Photo Credit: Reet Talreja
Spotify has officially confirmed that its paid version is shutting down in Russia, and higher-ups expect to lose 1.5 million subscribers as a result.
Spotify CFO (and former Morgan Stanley analyst) Paul Vogel just recently shed light upon the anticipated impact of his company’s Russia shutdown, broaching the subject during an interview at the 2022 Morgan Stanley Technology, Media & Telecom Conference. The Stockholm-based audio platform previously joined the long list of businesses – including the major labels, Live Nation, and a number of others outside the music space – that have closed their Russian offices.
Additionally, a message on Spotify Russia’s website indicates that “our Premium Service is no longer available for purchase in Russia,” with paid users’ accounts set to convert to the ad-supported version (Spotify has also paused ad campaigns in the European nation) at the end of the current subscription period.
“If you are an existing Premium customer, this means that our next attempt to take payment may unfortunately fail,” reads the message. “If we are unable to successfully process your next payment your Spotify subscription will automatically convert to our Free service once your payment has failed.”
Regarding Paul Vogel’s comments on the shutdown’s subscribership impact, the nearly six-year Spotify exec reiterated that “with Russia’s invasion of Ukraine, we have decided to pull all of our employees out of Russia, and we are no longer charging for Premium users.”
“And so the Premium users we do have in Russia will churn off,” he continued, “the majority of them in Q1, a little bit in Q2. So the really good news is we were actually above plan heading into – heading out of the end of February and into early March. We do expect probably a churn of about a million and a half users out of the subs business.”
Plus, the former Barclays managing director emphasized that Spotify will remain live in Russia because “we think it’s really important that information is still flowing there.” Podcast listenership is up in the region, he elaborated, and the audio-entertainment business is “trying to continue to provide information and non-propaganda information as much as we can.”
From there, the Spotify CFO acknowledged that his company will experience “a little bit of a hiccup” by losing the 1.5 million paid users at hand. Though these accounts generated a relatively small portion of revenue (Spotify’s monthly cost varies significantly by location), they could well prove meaningful in terms of the forecasted 183 million paid users that execs are banking on for Q1 2022.
This modest subscriber guidance, which represents just three million more paid users than Spotify had as of Q4 2021, appeared to contribute to a stock-price falloff last month for SPOT. (Shares today dipped 2.75 percent from yesterday’s close, to $132.67 apiece.)
Elsewhere during the extensive discussion at the Morgan Stanley event, Vogel struck an optimistic tone regarding Spotify’s growth potential – “there’s really no presence” in “newer markets” like Latin America, Africa, and Southeast Asia – and touched upon the possibility of future price increases, podcasting’s reach, advertiser demand, Spotify’s gross margin, and audiobooks.
On Spotify Pricing and the Possibility of Further Increases
“I think over time, we’ll continue to figure out what we want to do with pricing. I don’t think we necessarily know right now how consistent we will be. … I think what we do believe is we continue to add more and more value into Spotify, right? So whether it’s on the music side, whether it’s on the podcasting side, whether it’s Marketplace tools to creators, that we think the ability to raise ARPU across the platform is still a lot in front of us.”
On Demand From “Significant” Advertisers
“The number of kind of significant advertisers in the last year – I’m not going to define ‘significant’ – but it’s a pretty big number that has jumped from like four up to nine.”
On Spotify’s Stateside Podcast Listenership
“My IR team could correct me if I’m wrong on this, but I think it’s something like in the U.S. alone, there’s like 125 million users who listen to more than 50 minutes of podcasts a month or something like that.”
On Spotify’s Gross Margin
“We’re trying to be thoughtful about how much to invest, but we think there’s a huge opportunity in front of us. And while we could clearly show even more gross-margin expansion in the near term if we wanted to…we’re not managing necessarily to optimize gross margin right now. We’re optimizing to build a business that’s going to optimize gross margin three to five years from now.”
On the Perceived Potential of Audiobooks
“It’s another way for our users to have more content and better content and more differentiated content on the platform. So we’ve made an acquisition, we’re still waiting to get through the regulatory approval on that, but we’re optimistic hopefully that that will happen.”
Spotify in November of 2021 purchased audiobook platform Findaway, and also in the spoken-word arena, the company (as well as Amazon) is reportedly considering placing a bid on podcast company Audioboom.
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Wow, Spotify is trying to make it looks like they took a stand.