Spotify’s Stock Hit Bottom. What’s Next?
8 min read

Spotify’s Stock Hit Bottom. What’s Next?

Hello, excited to be back this week. I have a little bit of news. One of my copy editors, Taylor Curry, will be leaving, and I just wanted to say thank you to Taylor for his work. I cannot understate just how important it is to have my copy editors, and so Mariana Carvalho will step up to be the sole copy editor for the time being. On another note, if anyone reading this knows of any interesting academic papers on the music business or online manipulation of audience numbers (i.e. bots), please send them my way. Now let’s see why Spotify’s stock price hit record lows last week.

My thoughts on Spotify don’t shift a lot, whether the stock is high, low, or whatever form of controversy may arrive with the company. That’s why a few lines I wrote last summer about the company’s podcast pivot rang in my head when seeing recent headlines around the company: “Podcasts remain relatively niche, not because people don’t want audio content, but because radio was introduced in a much less fragmented market of entertainment. The sheer novelty of radio won’t be duplicated because a tech company self-declares itself an audio company, there must be audio that not only reaches current users but inspires new ones. It’s hard to say Spotify’s initial initiatives in this space have accomplished this task.” The narrative Spotify has spun over the last few years never made much sense the closer one examined the podcast or audio market, and maybe the market is finally picking up those hints.

A 2020 report by the Interactive Advertising Bureau (IAB) and PricewaterhouseCooper (PwC) suggested that podcasts would hit over a billion dollars of revenue by 2021, still a relatively small market compared to the tens of billions still spent on TV, radio, and internet advertising. A similar disconnect can be found in the company’s weaker premium growth outside of Europe and the Americas. The ad-supported tier is racking up higher monthly active users (MAU) but converting those people into paying users is proving to be much trickier. Again, this is nothing particularly new, so what happened last week to its stock then?

Spotify’s stock hit a new low. Last year, the company rode the pandemic-driven tech, and the cryptocurrency boom that saw ridiculous stock evaluations spike, then crash back down to reality. Spotify’s Q1 2022 results, depending on which publication you read, could be seen as fine or offer hints at cracks in the business model. The split reaction of the press, the negative turn in the markets, and the company’s extended public relations scandal with Joe Rogan and Neil Young earlier this year show a company ever more mired in controversy. Now, let’s peek into the company’s biggest public gamble.

Here are some recent headlines from Spotify’s podcast endeavors. The company paid $200 million to Joe Rogan, double what was originally reported, for exclusive rights to his podcast. A move that’s caused newsworthy internal and external public relations clashes. Barack and Michelle Obama reportedly backed out of their previous Spotify deal, feeling like they weren’t reaching the potential audience size, and the tabloid press cannot stop poking at Megan Markle, who the company reportedly paid £25 million to produce content that’s taken a while to materialize.

The value of these big-name deals is worth scrutinizing especially without a clear line between subscription numbers and these splashy deals, except for maybe Joe Rogan, who claimed a subscriber bump since the earlier Neil Young controversy. Bloomberg reported earlier this year that there hasn’t been a new breakthrough podcast like Serial or even the New York Times’ The Daily in years, but if any company should find that success Spotify’s hundreds of millions should be pushing in that direction. Yet, beyond a few already established names, there’s not a ton to show for Spotfiy’s own original audio content moving the needle. Spotify’s ad-support revenue in 2021 hit just above $1.2 billion, which could be roughly equal to all of podcasting’s revenue, but since the company doesn’t break out of podcast revenue it’s hard to know how large an impact it's having. Either way that hasn’t stopped the company from spending quite a bit to continue to shape this emerging market.

The company over the last twelve months bought Chartable, Whooshkaa, Findaway, and Podz. The companies range from helping to address podcast discoverability, insights, audiobooks, and allowing radio broadcasts to be converted into podcasts. Those purchases have occurred while two of the company’s big podcast champions Lauren Jarvis and Courtney Holt have left, and the company at the top of the year laid off its own in-house podcast team. And still, the company says it’s set aside over $3 billion to further expand into audio, which just for context is a larger than the expected annual revenue of podcasts, as an entire industry, even in the rosier mid-2020s predictions.

They’re still eyeing new ways of twisting and serving up audio content. The company rebranded Spotify Greenroom, which they took from a live audio startup they bought last year during the inane Clubhouse hype cycle. So far I’ve seen nothing, absolutely nothing, that would imply that “live audio” would be able to replace the seemingly endless options of original audio content online, on the radio, and also the fact that all video content is still “audio”. The company is reportedly looking to invest a bit into tipping artists, which I wrote about back in 2020 as a pretty thin add-on for musicians with a platform where connecting to fans is pretty obscured. Then there’s also the increased government concerns about “Discovery Mode” basically being a new form of payola. I’m skeptical about the long-term viability of any of these initiatives, so before we close, let's look a bit closer at the company’s international expansion limits.

Since Spotify went public, I’ve been keenly interested in the company’s growth outside of western and northern Europe, and the Americas. The reason is that any close examination of their quarterly reports repeats the same story. From Q1 2018 to Q1 2022, according to my estimates from their financial reports, the company saw “rest of the world” premium subscribers grow from 6.75 million to 20 million; and overall listeners in the market went from 19 million to 97 million. The issue is that despite headlines about K-Pop playlists, it’s always playlists and billboards that encompass all of the marketing imagination of the company, there’s little proof of making significant headway in countries. And perhaps more important is that premium subscribers still languish in the markets where they’d be charging the lowest fees possible. Spotify is slowly increasing prices in established markets, which is beyond necessary and in many ways is a win-win for the platform, labels, and artists who see the potential revenue pie increase. The potential pushback from consumers is a narrative that the company would be able to better sell if it wasn’t publicly repeatedly taking anti-musician stances (You know announcing hundred million dollar deals with football clubs or fighting government decrees for higher royalty rates.).

Spotify is not new to narrative change. Spotify Teardown, still a must-read to understanding the company, noted numerous narrative pivots since the company's founding. The audio company's vision cannot mask the company's core service of providing easily accessible music to people on mobile devices. That such a product is tied to burdensome music licensing deals will hold back the company but is the elusive "audio" market really worth owning. Maybe it's time again for a new narrative to take hold.

Unheard Labor

Major labels and publishers continue to be annoyed that Twitter won’t play the game and sign a music license deal. Now that the social media company got a new CEO, music executives, or their press teams, squeezed out a quick story trying to pitch their pet concern to Elon Musk. There is very little reason for Musk to place throwing a pile of money at music executives on his Twitter to-do list, but why not try.

A Note of Financialization

Back to some good old-fashioned catalog deals. Mojo Music and Media, founded by former executives of Spirit Music Group and Ernst & Young, bought half of the publishing catalog of Bob Morrison and the “writer share, artist and record royalties” of fellow songwriter Jerry Reed. BMG purchased half of the writer’s share from members of the British rock band Primal Scream. Notably, this deal didn’t mention BMG’s partnership with the private equity firm KKR or the asset manager Pimco, who both are working with BMG on catalog deals.

Typically, I don’t cover music tech investments here, please follow Water and Music if you want that information. However, Our Happy Company, founded by Kevin Lin, co-founder of Twitch, Chris Lin the founder of KKBOX, a Taiwanese-based music streaming platform, and John Legend just raised $7.5 million from a cluster of venture capital firms. Yet, one yet really caught my eye. Animoca Brands, who are behind the metaverse game The Sandbox, which already announced a deal with Warner Music Group and got crypto shill Snoop Dogg to hock some digital land. The millions intermingling amongst a small cluster of folks within music, crypto, and tech is almost amusing to see play out in real-time. One last thing, Bill Hwang, of Archegos Capital, was arrested for multiple counts of fraud, which is definitely bad. Still, he’ll hold a special place for this newsletter in being the early domino that cratered the stock price of Tencent.  

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