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Hi everyone, I’m here today while Ariel is off for the week. I really enjoyed Rian Johnson/Natasha Lyonne’s new show Poker face, with its eccentric characters and unusually elaborate murder-of-the-week introductions. The first four episodes are already out and two of them have a nice audio hookup. (Look, I made this relevant to the newsletter!) There’s a major plot point centered around a radio broadcast in one episode, and another features a true crime show called Murder girlwhose host is played by a former podcaster (and Forget alum). Must respect his commitment to the Podcast Voice.
Today I’m diving into Spotify’s earnings and where the company is headed in 2023. But first a quick announcement…
hot pod is hiring
Do you want to come and work with us? hot pod has a vacancy this spring for a full-time writer for about six months. We’re looking for someone who knows their stuff about audio – and of course it helps to be a diehard podcast fan too. If you know someone who would be a perfect fit, sign up the vacancy by!
Did Spotify screw up? Daniel Ek says ‘no… and yes.’
I could have made a lot of headlines here, but this quote from Spotify’s earnings call felt like the moment that best reflected the company’s current situation.
Spotify reported its fourth quarter 2022 earnings this morning and results were strong in a number of key areas. Spotify became the first music streaming service to pass 200 million paying subscribers (not that the others regularly share), and is approaching 500 million monthly users, a goal likely to be reached in the coming quarter. Subscription and ad revenue both grew double digits year over year.
“In hindsight, I probably got a little carried away.”
But at the same time, those numbers weren’t enough to stave off last week’s layoffs, which saw Spotify cut 6 percent of its workforce. There was a major reorganization and the company’s operating loss rose to €231 million (about $250 million); it was €7 million for the quarter last year. All this follows several years of major investment in recruiting, content and acquisitions. (The purchases of Chartable and Podsights were announced nearly a year ago.) And it comes just months after we saw Spotify cut back on some of its original content plans via… even more layoffs at Gimlet and Parcast.
So the question on the minds of many investors — and clearly one that Spotify CEO Daniel Ek knew was coming — was: were Spotify’s substantial investments in 2022 a mistake? And to that Ek replied: “No … and yes.”
His argument for no: User growth is huge, new features helped differentiate the app from competitors, and long-term investments are already having a short-term impact.
His case for yes: “In hindsight, I probably got a little carried away and overinvested compared to the uncertainty we saw emerging in the market.”
Speed and efficiency. Speed and efficiency. Speed and efficiency.
All this context is meant to explain Spotify’s priorities going forward. Ek reiterated over and over that the company would refocus around “speed and efficiency”. The reorganization? Speed and efficiency. The goal for 2023? Speed and efficiency. The biggest thing holding Spotify back? Speed and efficiency. (I counted 12 “efficiency” drops between Ek and CFO Paul Vogel just in my notes of the call.)
Now, I don’t know precisely how this restructuring will enable some dramatic improvements in Spotify’s efficiency, but Ek said he needs more help at the top. Moving Alex Norstrom, Spotify’s chief business officer, and Gustav Söderström, Spotify’s chief product officer, to more centralized roles will “essentially mean we have more brains to think about these things… to make faster decisions.” , because that is really one of the biggest blocks. ”
It’s not just about making decisions faster, though. It was also clear that 2023 is more about investments paying off than making new ones. There will be “more efficient spending” in podcasting, making it less of a drag on gross margins. Same deal with spending around benefits for Premium subscribers. “You’ll see the incremental investment slow down and the benefits kind of hit in ’23,” Vogel said.
The TL;DR for 2023: After years of heavy investment, Spotify is finally being asked to show what it all comes down to – or at least that it can cut losses until it all pays off.
Spotify earnings, bonus round
There are a handful of other moments I wanted to highlight from the earnings call.
I know Spotify’s audiobook product needs work:
- “There are two types of companies: there is the company that waits for it to be perfect the first time… and then the company that puts out something it knows needs work and quickly improves from there. We are definitely the last.”
- He promised “many new things” in audiobooks coming out this year.
- For what it’s worth, “audiobook” appears twice in Spotify’s shareholder slide deck; “podcast” appears 18.
What Dawn Ostroff’s departure means for Spotify’s original content:
- “From a strategic point of view, I don’t think it will differ that much,” said Ek.
- However, one thing may affect: marketing, advertising and content will fall under Norstrom on a combined profit and loss statement. That’s meant to help Spotify “direct resources where they’re needed most.”
There are some podcast spending changes in the works:
- Investors (and Ek) said multiple times that investment in podcasts was a “barrier” to gross margins.
- That is expected to disappear this year, partly because the investments have already been made, but also due to a change in the spending strategy for 2023.
- “We have invested a lot. Some have worked tremendously and you should expect us to double those, and some have failed.
- My read: more Batman unburied, less Gimlet and Parcast. I’d bet Joe Rogan – whose contract is believed to run until the end of 2023 – is also on that “duplicate” list.
Layoffs also affected Pushkin
Pushkin fired “a handful of employees,” Ashley Carman, last week reported to Bloomberg. The cuts were the result of declining revenues and the difficult economic climate. Pushkin spokesperson Nicole Morano confirmed the cuts hot pod; Morano said no shows were canceled as a result.
The layoffs follow similar cuts across the industry: Spotify with about 600 positions last week, Vox Media with several audio rolls the week before, NPR with the cancellation of its internships and fellowships, plus the earlier cuts at Gimlet and Parcast. Clearly, the entire industry is currently feeling the tightening advertising market.
Today was truly a Spotify extravaganza. I’ll be back with you Thursday and Friday with SiriusXM earnings, some hiring news, and anything else that breaks through between now and then. And if you’re not already a subscriber, you can Register here.
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