Is it possible to earn money by offering podcasts, something that has always been free? Music streaming service Spotify is struggling with that question, according to the presentation of the annual figures on Tuesday.
Partly because of huge investments in podcast – almost 1 billion euros over the past four years – the losses of the Swedish tech company are increasing. That loss amounted to 430 million euros last year, on a turnover of 11.7 billion euros. By way of comparison: in 2021, the loss of 34 million euros – on a turnover of 9.7 billion – was more than a factor of ten smaller. Spotify has not managed to be profitable for a full year since its inception in 2006.
According to CEO Daniel Ek, Spotify has been “too ambitious” during the pandemic, he wrote in Tuesday a letter to its employees. He was referring to the accelerated hiring of staff during the corona period, in the hope that Spotify’s turbulent growth would continue. This appeared to not be the case. Ek said he takes “full responsibility”.
This error of judgment was not without consequences. Spotify announced last week that it would lay off 600 employees, about 6 percent of the total. It joins a long line of tech companies — Amazon, Twitter, Meta, Microsoft, to name a few — that recently laid off staff to cut costs.
Affected Spotify employees were notified individually in the hours following the figures presentation. They each receive five months’ salary. Compared to the layoffs at American tech companies, that is a generous severance payment.
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Spotify managed last year to get a larger audience to pay for the music service, 9.99 euros per month for an almost complete music catalog. It set a new record last quarter: 205 million paying users, more than ten million more than a quarter earlier.
Spotify hopes to further increase that number by entering into exclusivity contracts with popular podcasts. Spotify thus follows the same strategy as, for example, video services Netflix and Disney +, which mainly attract subscribers by offering certain series exclusively on their platform. For example, Spotify signed a 3.5-year contract with Joe Rogan, presenter of the popular podcast The Joe Rogan Experiencewhich Spotify according to The New York Times cost $200 million. The Obamas and Britain’s Prince Harry have also committed to Spotify with exclusive shows.
It is difficult for market leader Spotify to make money from music. Of all revenue from subscriptions and advertising, 70 percent goes directly to labels and artists, the advertising market is difficult and the exclusive contracts with podcasts are expensive. Meanwhile, the biggest competitors, Apple Music and YouTube Music, as parts of the big Apple and Google respectively, don’t have to make a lot of money. To boost revenue, Spotify reported Wednesday that it was considering raising the price of a subscription.
Investors reacted positively to the data. The price of Spotify – listed on the American stock exchange – rose by more than 8 percent in the course of Tuesday. That was good news for the stock, which lost nearly half in value last year.