At Spotify, Podcast Cuts and Higher Music Royalties Deepen Losses

Generation Z and overseas listeners helped Spotify notch its strongest ever quarter for new users, while the streaming giant reported steeper losses from podcasting cuts and higher music royalty costs.

The audio company is in the throes of an effort to improve profitability, which includes right-sizing its investments in podcasting and raising prices.

On Monday, Spotify said it is raising prices for its premium subscription to $10.99 a month in the U.S. from its longstanding price of $9.99, confirming an earlier report by The Wall Street Journal. The company had told investors it would raise prices this year as part of a continuing push to consistently turn a profit.

The audio giant said it would soon raise prices in dozens of other markets around the world, including the U.K., France, Mexico, Peru, Singapore and Hong Kong.

How many new subscribers did Spotify add?

• Spotify’s base of paying subscribers—its most lucrative type of customer—rose 17% to 220 million, topping the company’s expectations by three million.

• Overall, the streamer reported 551 million monthly active users, a 27% jump from a year earlier, 21 million ahead of guidance and a record high for the company. The company said it was helped by successful marketing and improved retention. 

• User growth was stronger than expected in all regions, with particular strength in Latin America, the company said. The company also added more younger listeners.

Is the company profitable?

• The company posted a wider loss of €302 million, equivalent to about $335 million, or €1.55 a share, for the quarter ended in June, compared with €125 million, or 85 European cents, in the year-earlier period. Its gross margin fell to 24.1% as a result of €44 million in charges related to canceling podcast shows, staff layoffs and the impairment of excess real estate.

• Spotify said it incurred higher music royalty costs in the period and saw some improvement in podcast profitability. For years, executives have said the company will give priority to investment in growth over profit as Spotify tried to attract users around the world and expand into new forms of audio. Last fall, the company indicated that profitability is expected to improve this year as it moves on from that period of heavy investment.

• Free cash flow, a measure of the cash a company generates from operations that is viewed by many investors as a proxy for performance, was €9 million, compared with €37 million a year earlier and €57 million in the prior quarter.

What about revenue?

• Overall revenue for the second quarter was up 11% to €3.18 billion, shy of the company’s forecast. 

• Subscriptions, the largest contributor to Spotify’s top line, rose 11% to €2.77 billion. Revenue from advertising rose 12% to €404 million. Ad revenue has become increasingly important to the future of Spotify’s podcast business and accounted for nearly 13% of its overall revenue during the second quarter. 

• Average revenue per user for the subscription business in the quarter slipped 6% to €4.27. That metric declined as a result of Spotify drawing new subscribers through discounted plans and lower prices in emerging markets. 

How is its podcast business?

• In June, Spotify said it would cut about 200 jobs, or 2% of its workforce, after struggling to make money in podcasting. The company has consolidated some of its premier Gimlet and Parcast studios and axed many of its original shows. 

• Spotify also loosened exclusivity arrangements with some of its podcasts, and has begun distributing them to other platforms in a move aimed at increasing the audience and ad potential of those shows. Exclusive deals with its biggest stars, including Joe Rogan, Alex Cooper and Emma Chamberlain, remain in place.

News Corp’s Dow Jones & Co., publisher of The Wall Street Journal, has a content partnership with Spotify’s Gimlet Media unit.

Write to Anne Steele at [email protected]