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Updated on May 24, 2022 6:17 am

Tomorrow, Spotify faces its most important earnings name but. Listed here are the three tough questions MBW can be asking.


MBW Reacts is a sequence of quick remark items from the MBW workforce. They’re our ‘fast take’ reactions – by means of a music biz lens – to main leisure information tales. 


Spotify‘s share value just isn’t in a great way.

It closed yesterday on the NYSE at $112.14. That’s down 54% on the place it was on the opening buying and selling day of 2022 (January 3); it’s additionally lower than a third of the scale it was ($364.59) at its all-time peak in February final yr.

The consequence: Over the previous 14 months, Spotify has misplaced at least $47.8 billion in market cap worth (from $69.35 billion to $21.51 billion, in accordance with YCharts).

And these numbers may be about to worsen.

Tomorrow (April 27), Spotify will announce its newest quarterly fiscal numbers, for Q1 a.ok.a the primary three months of 2022.

You don’t want MBW to inform you that – for any consumer-facing subscription enterprise – this was 1 / 4 rocked by macro occasions: from family inflation / value of residing costs capturing upwards, to Vladimir Putin’s broadly condemned invasion of Ukraine.

Netflix is aware of precisely how damaging such components might be to an organization’s efficiency: Final week, the film streamer introduced that it had misplaced 200,000 internet paid subscribers in Q1 across the globe.

The market’s response was unforgiving: Because it introduced its Q1 outcomes on April 20, Netflix has misplaced $65.4 billion – yup – in market cap worth.

That’s sufficient to purchase Elon Musk a few Twitter-and-a-half.

Now, it’s Spotify’s flip within the harsh glare of Quarterly Investor Land.

We don’t but know the numbers Spotify is because of announce in lower than 24 hours’ time. However we do know the stress is on.

MBW is unfortunately not an funding financial institution (in the future, associates, in the future), and due to this fact we received’t have the ear of Spotify’s main executives on the agency’s earnings name tomorrow morning.

But when we did, listed here are three difficult questions we’d undoubtedly ask them:


Netflix logo

1) What’s going to occur to Spotify’s subscriber base within the first half of 2022?

Maybe probably the most troubling aspect of Netflix’s Q1 outcomes final week wasn’t the 200,000 internet loss in international paid subscribers (though that’s primarily what despatched its share value right into a tailspin).

It was that Netflix is now projecting it’ll additionally lose an additional 2.0 million paid subscribers in Q2.

That’s fairly a collapse from the equal quarter in 2021, when Netflix added 1.5 million subscribers.


The part of Netflix’s shareholder letter in Q1 that admits the agency is now projecting a lack of 2 million subscribers within the second quarter

Again in early February, Spotify irked some influential figures on Wall Road by asserting that it might now not offer steering past the following quarter in its fiscal calendar.

Because of this, Spotify is now refusing to publish any projection for the place its international subscriber quantity will find yourself on the shut of 2022.

As an alternative, we simply have this: Spotify’s newest steering, issued in February (inside its FY ’21 outcomes), recommended that the agency’s subscriber base would shut Q1 2022 at 183 million, up by 3 million on the 180 million subscribers it counted on the finish of 2021.

Subsequent to Spotify issuing this quantity on February 2, nonetheless, Russia invaded Ukraine (February 24), whereas the information about value of residing rises for households simply acquired scarier and scarier. (US inflation climbed to 8.5% in March, its highest level for over 40 years, in accordance with the Shopper Value Index.)

Each of those components had been named by Netflix final week as contributing causes for its disappointing Q1 2022 subscriber determine. (Different components cited by Netflix included consumer password sharing, plus sluggish client adoption of linked TVs.)

Netflix’s resolution to shutter its operation in Russia – and finish all Russia-based subscriptions – proved decisive in its decline in Q1: Netflix’s advised shareholders final week that it misplaced 700,000 internet subscribers as a direct results of its actions in Russia; had this not occurred, NFLX would have ended Q1 with quarter-on-quarter international development of 500,000 subscribers.

For Spotify, occasions in Russia are more likely to have an much more extreme impact on subscriber attain.

In March, SPOT’s CFO, Paul Vogel, introduced that the corporate anticipated round 1.5 million of its subscribers to “churn out” of Spotify’s numbers as a consequence of its resolution to cease billing customers in Russia.

Spotify, bear in mind, stated in early February that it anticipated so as to add 3 million internet subscribers in Q1. So with these 1.5 million subs in Russia subsequently phased out, that determine has already been lower in half.

The massive query now: with client costs escalating in numerous key international markets – not least when it comes to vitality costs – will Spotify see any additional decline in its present subscriber base, as individuals look to chop family prices?

And will this extra decline see Spotify ‘do a Netflix’ and find yourself with unfavourable subscriber figures in Q1… or, certainly, in Q2?

A associated query: When Spotify struck its “stock-swap” deal with Tencent Music in 2017, the settlement basically cemented an settlement Spotify wouldn’t broaden its service into China.

(This truth was confirmed by Spotify’s then-CFO, Barry McCarthy, in 2018, when he stated: “Our mainland China technique is our funding in Tencent Music… We’ve got no plans to compete with them in China.”)

With international music subscribers now trying more and more exhausting to draw for Spotify, was this actually such a good suggestion?


2) why didn’t you elevate costs correctly if you had the possibility? And What’s your upsell plan now your previous one has been destroyed by Apple and Amazon?

As MBW lined final week, the savior for Spotify’s subscription churn fee (versus Netflix’s) may be value.

Spotify has been closely criticized by some within the music business for (by-and-large) refusing to budge up its $9.99 / £9.99 / €9.99 month-to-month cost for the standard particular person subscription account in key markets, together with the US, Germany and the UK.

That’s in distinction to Netflix, which has raised its costs various instances lately: Within the US, for instance, a Normal HD subscription to the ‘flix will now value you $15.99 monthly.

Because of this – mixed with the truth that Spotify has such an unlimited catalog of music versus Netflix’s selectively-licensed TV/movie providing – cash-strapped Spotify subscribers could also be much less more likely to cancel their music service, than Netflix subs may be to cancel their TV/movie service.


There’s, although, one other lens by means of which to view this narrative.

Again earlier than the pandemic, in 2019, client circumstances had been significantly extra favorable for a Spotify value rise. The inflation fee within the US that yr, for instance, was a really manageable 1.8%.

In Covid-hit 2020, that annual US inflation fee fell to only 1.2%. And in every of the primary two months of 2021, it was lower than 2%.

Spotify telling its prospects that it was pushing up their month-to-month invoice in any of those time durations would seemingly have been met with far much less value sensitivity (a.ok.a subscription cancellations) than it might right now, when tightening-of-belts and “do we actually want Spotify when YouTube is free?” conversations abound.

Does it now seem like mis-management for Spotify to have resisted elevating costs (past a handful of smaller markets) over the previous 5 years? And if that’s the case, how a lot has it value the corporate long-term?


There’s one apparent purpose why Spotify may need resisted elevating its costs, after all: The potential stranglehold of Apple, Amazon, and YouTube on music streaming – and their unending money piles.

Spotify is aware of that these giants’ subscription music providers supply (just about) the very same music catalog as its personal platform.

At any level, if these different platforms held agency at $9.99-per-month (or much less) as Spotify moved up its value – even a bit – then Daniel Ek and co. might threat pushing price-sensitive prospects away to the competitors.


Spotify did have one elegant choice to encourage its shoppers to pay extra, after all: an up-sell to a greater high quality of audio.

So it might absolutely have been pleasing to SPOT traders to listen to the corporate announce final February at its Stream On occasion that Spotify HiFi – an HD audio launch – was on the best way earlier than the top of 2021.

Billie Eilish and Finneas had been even roped in to elucidate why HD audio issues a lot to artists.



On the subject of “Apple and Amazon watching from the sidelines and laughing”… lest we overlook what occurred subsequent.

Inside three months of Spotify’s announcement that Spotify HiFi was incoming, Apple and Amazon collectively crushed any hope SPOT traders may need had of the corporate launching a $12.99/$15.99 HiFi tier.

Amazon did so by folding its HD-quality music providing – beforehand solely provided at a premium value – into its commonplace value ($9.99 monthly) Music Limitless service.

Apple did so by launching each Lossless Audio and Spatial Audio (with assist for Dolby Atmos)… however, identical to Amazon, folded this into its standard-price Apple Music providing.

Shock, shock: In the long run, Spotify HiFi by no means materialized, as promised, in 2021.

If Spotify had any plans to launch a premium-price HiFi tier, it now knew doing so would look miserly to its prospects… when Apple and Amazon had been making a gift of equal improved-audio options to their subscribers for nadda.

So the query for Spotify administration tomorrow: Should you’re too petrified of competitors from Apple and Amazon to lift your costs… and if Apple and Amazon have additionally destroyed your potential to launch an HD audio up-sell… then what is your plan to enhance per-subscriber income within the months and years forward?


3) Artists leaving Spotify is beginning to turn into an actual factor. Ought to traders be fearful?

Keep in mind again in January when Neil Younger and Joni Mitchell yanked their music catalogs off Spotify in protest at what they perceived to be Covid vaccine misinformation on Joe Rogan’s podcast?

Sure, we agree, it does really feel quite a very long time in the past. But it surely occurred – and their music nonetheless ain’t on Spotify.

On the time, MBW recommended in an analogous column to this one: “I think that Neil Younger could also be about to show {that a} swathe of established artists – particularly status catalog artists – actually don’t want Spotify to outlive anymore.”

After which it appeared like this would-be development simply… went away. It by no means snowballed. It was a failed prediction.

Nonetheless, those that imagine that it utterly vanished haven’t fairly been paying consideration.


There has arguably been no better catalog showcase in 2022 than the half-time Tremendous Bowl celebration of US hip-hop (and a touch of R&B) down the ages.

This stay medley, which befell in mid-February, appeared virtually universally applauded and loved, and has to this point racked up over 83 million (official) performs on YouTube alone.

It featured unbelievable performances from every of Snoop Dogg, Dr. Dre, Mary J Blige, 50 Cent, Eminem, and Kendrick Lamar.



How did these artists capitalize on the frenzy of acclaim, consideration, and nostalgia that this efficiency generated?

Within the case of Snoop… he purchased the rights to the Loss of life Row model, plus the rights to a bunch of the label’s most celebrated albums – together with his personal Doggystyle and Tha Doggfather, plus Dr Dre’s The Power. After which he unceremoniously yanked them off Spotify and numerous different streaming providers.

Why?

As Snoop advised the Drink Champs podcast earlier this month: “Very first thing I did [after acquiring the Death Row rights] was snatch all of the music off these platforms historically identified to individuals, as a result of these platforms don’t pay.

“These platforms get hundreds of thousands of hundreds of thousands of streams, and no one will get paid apart from the file labels.

“So what I wished to do is snatch my music off, create a platform, one thing much like Amazon, Netflix, Hulu. It’ll be a Loss of life Row app. And the music, within the meantime, will stay within the metaverse.”

“I need to create an avenue the place I can present individuals how [they] don’t at all times should undergo the slave commerce, however can create our personal commerce, the place we’re partaking with our personal followers that’s shopping for our music.”

Snoop Dogg on pulling his basic Loss of life Row albums off Spotify and different providers

Snoop then challenged the podcast’s host: “Go to Spotify proper now and search for Loss of life Row music, see how a lot you will discover.”

The artist continued: “We don’t play. It’s referred to as energy; it’s referred to as management.

“I did it on function… ‘cos nobody in right here can inform you what a stream provides as much as. It’s a fraction of a penny… so that you get 100 million streams and also you don’t make one million {dollars}. So what the f*ck is that?

“You need me to maintain providing you with my music, however any individual’s making the cash, and it ain’t me. I can’t afford to maintain doing that.

“I need to create an avenue the place I can present individuals how [they] don’t at all times should undergo the slave commerce, however can create our personal commerce, the place we’re partaking with our personal followers that’s shopping for our music… [and] making us cash off the music that’s being traded and bought.”

“You need me to maintain providing you with my music, however any individual’s making the cash, and it ain’t me. I can’t afford to maintain doing that.”

Snoop Dogg

As MBW wrote in that Neil Younger op/ed again in January: “In an open letter, Younger [has] referred to as on his fellow stars to maneuver off the Spotify platform.

“In the event that they do – no matter their motivations – it might have repercussions far past polemical disputes over Covid-19, and whether or not or not Spotify cares extra about podcasting or music.

“It might, crack by crack, trigger an earthquake on the middle of Spotify’s enterprise.”

Dr Dre at present has 20 million month-to-month listeners on Spotify. Snoop Dogg has 23 million.

Crack. Crack. Crack.Music Enterprise Worldwide

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