Morris Esformes Discusses Spotify and Its Lead in Paid Subscribers

Morris Esformes Discusses Spotify and Its Lead in Paid Subscribers

Spotify took the lead in the music streaming services market in late April as it reached 100 million paid subscribers, but upon the company’s emergence into India its profit margins narrowed. Spotify, unlike other music streaming services, is heavily investing into the podcast market in an effort to gain and maintain the younger generations for advertising efforts.

Latest generation iPhone X with Spotify logo on the screen

At the end of its first quarter, the music streaming company said it has 217 million global users and of that number 100 million are paid subscribers, in comparison to the 96 million paid subscribers it had at the end of quarter four in 2018. Since the company went public a little over a year ago, it said it experienced a 32 percent increase of subscribers.

At an estimated revenue value of about $1.7 billion, Spotify’s main competition is Apple Music, which currently has 50 million paid subscribers globally. While the two companies continue to compete for listeners through similar offerings, one of the most coveted new markets is in India. Spotify, after its India release, claimed the arrival to be a major success for the company, as it signed one million new subscribers in just one week of its arrival date.

However, in the midst of its India arrival, Spotify was sued by Warner / Chappell for improper music licensing, a fact that was mainly dismissed by the company as India does not hold the same music licensing laws as those in the United States and other European countries. The dispute is being handled by an Indian court. And while the company may have sidetabled the  Warner / Chappell licensing, it did have to drop coveted Indian music label Saregama for other music licensing laws. Amidst the current licensing trial and the dropping of Saregama, Spotify’s chief financial officer, Barry McCarthy, made a statement noting the company was committed to its International Expansion Plan despite the small licensing hiccups.

Banner on the New York Stock Exchange celebrating the IPO of the streaming music service Spotify.

“Warner India is about a global license agreement; it’s not really about India,” McCarthy said in an interview with The New York Times. “And Saregama, we have constructive relationships. We have confidence that will be resolved,” he continued.

Although Spotify may have current troubles with music licensing, its main focus remains on the eventual “Podcast boom,” a topic I discuss heavily in my recent blog: Morris Esformes Discusses Spotify’s Acquisition of Gimlet Media and Anchor FM.

One reason why Spotify might be willing to take such a massive risk by investing heavily into podcasts is that their strongest reach is in the 18-34 year old market, which is, historically, the most coveted and difficult group for advertisers to engage. As the most sought after age group, advertisers are interested in keying into social trends to easily transition them to lifelong customers.

Another reason could be due to Spotify’s struggles to draw a profit from their current music streaming service, in addition to all of the licensing issues they’ve experienced. Currently, the company employs a subscription based model, but royalties and other fees from artists, labels, and studios have caused issues with streaming services in the past.

To give a clearer image of what the music streaming service will look like in the future, Spotify’s CEO Daniel Ek has said “non-music content” (i.e. Podcasts and other forms of media) will eventually make up 20 percent or more of the streaming service’s content. However, it may take some time before Spotify sees profits within the podcast market.

For the time being, McCarthy has seen what he called “downward pressure” on margins as they continue to expand into the podcast market and Internationally as a company, but Ek remains optimistic in the future of Spotify, even as it rivals Apple Music for subscribers.

Morris Esformes
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