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Turning the subscription business around: Spotify’s bet

Spotify is still today the only European technology that has managed to sneak into the big leagues. This year it has managed to overcome the barrier of 300 million active users (321 in total) of which 144 are paid.

Spotify’s run to these figures has so far been based on a continuous flight forward in search of more and more users, even at the cost of losing money along the way. In fact, only in 2018, after 13 years, Spotify managed to close its first financial year with profits.

Of course, the profitability achieved at the end of 2018 does not seem to have lasted long for Spotify. In the third quarter of this year – latest results – it reported a loss of 101 million compared to the benefit of 241 million it had in the same period of the previous year. And all this despite, as we say, gaining users, but investing large amounts of money in new lines of business.

All this journey the Swedish company lor has maintained without hardly raising prices -at least substantially- in most of the markets in which it is present. A model that needed – at least until now – that continuous growth of users until it reached profitability, similar to the policy of total reinvestment of income and games with cash-flow that Netflix does.

Opening new business avenues: from podcast to sponsorship

Now, with his accounts taking hold, and while maintaining his disputes with Apple for its clashes on the AppStore, Spotify has started a new path towards other potential benefits.

The first, the bet on the podcast, a market in which it has invested more than 1,000 million dollars between the signing of relevant podcasters like Joe Rogan and the purchase of star-ups dedicated to them like Anchor.

The second, and newer for getting a kind of revolving door in the subscription model, raise the possibility of charging its content creators -for now musicians, but it is expected that soon also podcasters- for promoting their content.

As Spotify announced earlier this month, the system is based on a new test for all artists and labels on the platform where they can decide to promote any specific song they want to win listeners. ‘vitaminndo’ its appearance in the recommendations that normally your algorithm already works. Of course, this can apply to any song, including tracks that might be new releases or that artists want to give an extra promotional boost.

Spotify

“We want to be able to provide tools that help our artists take advantage of those moments, so they can have more control of their success on Spotify”said Charleton Lamb, head of product marketing at Spotify.

To get an ideaIt is as if Amazon gave the opportunity to the authors of novels in ebooks to pay to have their titles promoted within Kindle Unlimited. Paying for visibility, the ultimate root that moved the economy of free platforms, such as Facebook, until now, but which had not been seen in options that already pose a subscription.

But the novelty of this system is that it is not produced with direct payments from the artists. In exchange for this added promotional boost, Spotify Says It Will Pay Artists A “Promotional Recording Royalty Rate” lower each time songs are played during those promotion periods.

In other words, an artist who is interested in this option will see how his listening income is reduced depending on his promotion. Spotify has not specified whether, in the case that it is a new artist, who does not receive income, it can generate a debt in favor of the platform. On these unknowns, the Swedish platform has only said that this function is still in testing, and that the company “would calibrate its operation to ensure that the broadest group of artists and labels can be successful in using it.”

Presumably, this means that the artists would hope that by promoting the song and taking a loss on those works, their income would be offset if the song became popular and people started trying to listen to it directly on their own, but nothing is firmly written.

The other model that you seem to be leaning towards is creating a new subscription dedicated only to premium podcast, something similar to what Audible, Podimo or Ivoox already do in Spain.

The service has come to light in a survey sent through the Spotify application, which was first reported by Variety.

The survey describes at least four possible premium podcast plans, ranging from $ 3 to $ 8 a month. The cheapest plan would include “access to exclusive interviews and episodes” but would still include ads. The most expensive plan would include access to “high-quality original content”, early access to some episodes, and no ads embedded on the platform. Neither of these plans would include access to Spotify’s premium music subscription, which would be unbound.

Ads only give you 9% of your income

What is clear is that these attempts by Spotify have the ultimate purpose increasingly shedding the ad monetization path, which only accounted for 9% of their income in 2019.

This is perhaps why in recent weeks there have been several leaks that suggest that Spotify could raise prices soon, while continuing to calibrate new revenue streams.

The article Turning the subscription business around: Spotify’s bet was published in Explica.co.