Spotify touts paid promotion in $100 billion annual revenue lawsuit
Earlier this week, Spotify chief Daniel Ek predicted that his company’s annual revenue would hit $100 billion over the next 10 years. But with the Stockholm-based streaming platform having generated $11.4 billion in 2021, the company appears to be banking on artist billing to keep its finances running.
Ek voiced his decidedly ambitious view of Spotify’s long-term revenue potential at the recent 2022 Investor Day. Echoing CFO Paul Vogel’s statements months ago after Spotify’s stock plunged (NYSE :SPOT), Ek indicated upfront that his ‘t “does a very good job of explaining” his alleged evolution over the past few years.
Then, after attempting to communicate the specifics of this development – covering everything from the countries in which Spotify operates to the non-music audio entertainment users can now access – Ek concluded by expressing his optimistic outlook for Spotify’s revenue over the next the coming decade.
“So from everything I see, I think over the next decade we’ll be a company that’s capable of generating $100 billion in revenue a year, and we’ll be able to achieve a gross margin of 40% and a 20% operating margin,” said the 39-year-old.
Of course, other Spotify executives also spoke at the marathon event, which lasted around 3.5 hours. And a Charlie Hellman, vice president and global head of music products, relayed during his presentation that artist billing represents a key element of the service’s business model.
“Because there is so much added to Spotify every day,” Hellman said, “artists need tools that will help them stand out, now more than ever. … In many ways, these activities of monetization are where our promotional activities were a few years ago – at an early stage but with huge potential.
“And just like our promotional activities, we plan to build at scale. As we diversify revenue streams for artists and identify the best ways to increase spending from a user base that is growing. to reach one billion, we will enrich artists further, even outside of their rapidly growing streaming royalties, and deliver a margin impact to Spotify.
“These marketplace companies have been the primary driver of growth in our music gross margins,” Hellman noted to conclude the keynote. “And given the strong growth rates, that revenue will continue to be the main driver to help us improve those margins even further.”
When it comes to the specifics of artist accusations at hand, Spotify has been quietly poring over “two-sided bargain” deals for the past few years. In November 2020, for example, the platform allowed artists and labels to influence listener recommendations at no upfront cost, dubbing the program “Discovery Mode.”
(Unsurprisingly, Hellman said Discovery Mode between Q1 2021 and Q1 2022 had a customer retention rate of 98%, with the program ostensibly increasing viewing for signed up artists by around 40%. )
However, participating parties must agree to a reduced royalty rate for the resulting streams, to the benefit of labels with massive budgets and to the detriment of emerging and independent artists, who generate relatively low payouts from Spotify.
Spotify then doubled down on Discovery Mode with “Marquee,” which Hellman says is growing rapidly in revenue and adoption. Additionally, members of Congress in April 2022 requested more information on Discovery Mode.
Elsewhere, Spotify is embracing live performance, merch, live audio, and even non-fungible tokens (NFTs). Needless to say, a small percentage of artist revenue from sources will undoubtedly add up as adoption rates improve in the future.
As well as making it even more difficult for independent artists to generate revenue from streaming – the paltry pay-per-streams of major services remain the subject of criticism – paid promotion options (and other fees on the platform) form) actually work as a barrier to entry for acts that are trying to establish a presence in the music industry. As usual on Fridays, DMN received more than a few emails today regarding new releases, for example, including 22-year-old Casey’s debut track, “I Like You.”
On a platform that revolves around artist discovery, fewer games and less visibility (for those who don’t fancy diluting their royalties) ultimately contribute to fewer new streaming fans. The point could then impact other components (merch, live, sync) of his career.
But the market has in some ways responded to these considerations, including with bespoke presentation and promotion tools (Amazon Music) and the adoption of fan-powered royalty models (Tidal and SoundCloud).