Spotify Earnings: The Music Streaming War Is Heating Up

Sam Blake

Sam primarily covers entertainment and media for dot.LA. Previously he was Marjorie Deane Fellow at The Economist, where he wrote for the business and finance sections of the print edition. He has also worked at the XPRIZE Foundation, U.S. Government Accountability Office, KCRW, and MLB Advanced Media (now Disney Streaming Services). He holds an MBA from UCLA Anderson, an MPP from UCLA Luskin and a BA in History from University of Michigan. Email him at samblake@dot.LA and find him on Twitter @hisamblake

Spotify Earnings: The Music Streaming War Is Heating Up
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On Wednesday morning's earnings call, Spotify chief executive Daniel Ek stressed his firm's focus: "Our primary strategy," he said, "is growth, rather than maximizing revenue." Three times he underscored that the long-term trend of "linear to on-demand" will continue to help Spotify grow, and that the tailwind may even "be accelerated" by the coronavirus.


Indeed, COVID-19 appears to have had little impact on Spotify's first-quarter results. Total users grew to 286 million (a 5% quarterly increase), 130 million of whom now pay for the ad-free version (also up 5%). Advertising revenues are down, but that inflow represents less than 15% of Spotify's total take, which was flat on the quarter.

Spotify has recently been growing outward, too, through bolting on new services and making several acquisitions to extend its audio footprint beyond music. Investors like what they see: the stock surged 11% from yesterday's close.

But Spotify's competition is growing, too, with both Morgan Stanley and Barclays researchers highlighting the risk in their Spotify earnings analyses. Looking at the playing field, at first blush Spotify seems comfortably ahead.

*Estimate from Music Ally's 2020 Q1 Global Music report | **Based on Counterpoint Research's global market sizing of 358 million

More than the numbers

But a deeper look reveals some long-term competitive vulnerabilities for Spotify. dot.LA spoke with Will Page, Spotify's former chief economist and the author of Pivot — a forthcoming book on navigating digital disruption — about the music streaming landscape. He likened each of the top U.S. players to "chess pieces" and gave his view of their respective strengths:

  • Spotify: "A first mover in streaming, therefore a first mover in gathering data -- something you can't replicate. It can also scale across the Android population, which in the U.S. is twice the size of iOS."
  • Apple Music: "Ties into a valuable ecosystem of TV, books and podcasts, each with its own unique app. It's also succeeded in doubling down on hip-hop – a genre with deep roots in L.A."
  • Amazon: "Can move in many directions, from music to devices to games to films, finding value by killing friction. Acquiring IMDb, for instance, gives them perfect information about films it doesn't even carry."
  • YouTube: "They have more reach than the rest combined. Everyone who pays for the other three services will also be using YouTube. Having your foot on another player's patch is a big advantage in a game of chess."

Spotify's prodigious diversification into podcasts — there are now over 1 million titles on the service, the company says — may give it a leg up. In 2019 the company acquired two L.A.-based production houses, Parcast and The Ringer, along with Brooklyn-based Gimlet Media.

Los Angeles is poised to continue playing a big role in the ongoing growth of podcasts. Neon Hum, an L.A.-based podcast production company, recently closed an undisclosed funding deal with Sony Music. In July 2019, Wondery, another production outfit based in West Hollywood, finalized its $10 million series B, supported by Beverly Hills group Watertower Ventures. Self-funded Crooked Media boasts a loyal audience in its L.A. backyard and beyond.

It's no wonder that Spotify's head of podcast communications Kevin Turner told dot.LA that "Los Angeles is one of the most important podcasting hubs in the world and is the center of gravity for Spotify's podcasting business." Turner mentioned that Spotify's L.A. office has over 300 employees, with plans to hire more in the coming months. It will also be building podcast studios and production facilities in the Arts District.

From L.A. to Stockholm, one key question for Spotify is whether podcasts will prove to be complements or substitutes for the Swedish firm's lower-margin music assets. On today's call, Ek said podcast fans are highly engaged and "listen to more music as well." A good sign, but with the medium's relatively low barriers to entry, competitors could catch up quickly.

We'll make it, I swear

Perhaps, however, the audio streaming market is big enough to share. "Competition needn't be a zero sum game," Page noted. "Just in the U.S., by some estimates there are currently around 110 million subscribers." Considering the 220 million or so residents with a smartphone and a credit card: "to quote Jon Bon Jovi, 'we're only halfway there'."

Ek himself has wondered aloud on several occasions, including today, why the video market should be valued 10-times higher than the audio one, despite having similar levels of consumer engagement. He points to the billion-odd people still listening to radio as a key growth opportunity.

"There's no one on a global scale that's focused on audio," he emphasized. "We are."

The key question looking forward, is will that advantage last?

---

Sam Blake covers media and entertainment for dot.LA. Find him on Twitter @hisamblake and email him at samblake@dot.LA

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🤠Musk Picks Texas and 🔥Tinder AI Picks Your Profile Pictures
Image Source: Tinder

🔦 Spotlight

Tinder is altering dating profile creation with its new AI-powered Photo Selector feature, designed to help users choose their most appealing dating profile pictures. This innovative tool employs facial recognition technology to curate a set of up to 10 photos from the user's device, streamlining the often time-consuming process of profile setup. To use the feature, users simply take a selfie within the Tinder app and grant access to their camera roll. The AI then analyzes the photos based on factors like lighting and composition, drawing from Tinder's research on what makes an effective profile picture.

The selection process occurs entirely on the user's device, ensuring privacy and data security. Tinder doesn't collect or store any biometric data or photos beyond those chosen for the profile, and the facial recognition data is deleted once the user exits the feature. This new tool addresses a common pain point for users, as Tinder's research shows that young singles typically spend about 25 to 33 minutes selecting a profile picture. By automating this process, Tinder aims to reduce profile creation time and allow users to focus more on making meaningful connections.

In wholly unrelated news, Elon Musk has announced plans to relocate the headquarters of X (formerly Twitter) and SpaceX from California to Texas. SpaceX will move from Hawthorne to Starbase, while X will shift from San Francisco to Austin. Musk cited concerns about aggressive drug users near X's current headquarters and a new California law regarding gender identity notification in schools as reasons for the move. This decision follows Musk's previous relocation of Tesla's headquarters to Texas in 2021.

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  • Penguin Random House agreed to acquire comic book publisher Boom! Studios from backers like Walt Disney Co. - learn more

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Top LA Accelerators that Entrepreneurs Should Know About

Los Angeles, has a thriving startup ecosystem with numerous accelerators, incubators, and programs designed to support and nurture new businesses. These programs provide a range of services, including funding, mentorship, workspace, networking opportunities, and strategic guidance to help entrepreneurs develop their ideas and scale their companies.


Techstars Los Angeles

Techstars is a global outfit with a chapter in Los Angeles that opened in 2017. It prioritizes local companies but will fund some firms based outside of LA.

Location: Culver City

Type of Funding: Pre-seed, early stage

Focus: Industry Agnostic

Notable Past Companies: StokedPlastic, Zeno Power


Grid110

Grid110 offers no-cost, no-equity programs for entrepreneurs in Los Angeles, including a 12-week Residency accelerator for early-stage startups, an Idea to Launch Bootcamp for pre-launch entrepreneurs, and specialized programs like the PledgeLA Founders Fund and Friends & Family program, all aimed at providing essential skills, resources, and support to help founders develop and grow their businesses.

Location: DTLA

Type of Funding: Seed, early stage

Focus: Industry Agnostic

Notable Past Companies: Casetify, Flavors From Afar


Idealab

Idealab is a renowned startup studio and incubator based in Pasadena, California. Founded in 1996 by entrepreneur Bill Gross, Idealab has a long history of nurturing innovative technology companies, with over 150 startups launched and 45 successful IPOs and acquisitions, including notable successes like Coinbase and Tenor.

Location: Pasadena

Type of Funding: Stage agnostic

Focus: Industry Agnostic, AI/Robotics, Consumer, Clean Energy

Notable Past Companies: Lumin, Coinbase, Tenor


Plug In South LA

Plug In South LA is a tech accelerator program focused on supporting and empowering Black and Latinx entrepreneurs in the Los Angeles area. The 12-week intensive program provides early-stage founders with mentorship, workshops, strategic guidance, potential pilot partnerships, grant funding, and networking opportunities to help them scale their businesses and secure investment.

Location: Los Angeles

Type of Funding: Pre-seed, seed

Focus: Industry Agnostic, Connection to South LA and related communities

Notable Past Companies: ChargerHelp, Peadbo


Cedars-Sinai Accelerator

The Cedars-Sinai Accelerator is a three-month program based in Los Angeles that provides healthcare startups with $100,000 in funding, mentorship from over 300 leading clinicians and executives, and access to Cedars-Sinai's clinical expertise and resources. The program aims to transform healthcare quality, efficiency, and care delivery by helping entrepreneurs bring their innovative technology products to market, offering participants dedicated office space, exposure to a broad network of healthcare entrepreneurs and investors, and the opportunity to pitch their companies at a Demo Day.

Location: West Hollywood

Type of Funding: Seed, early stage, convertible note

Focus: Healthcare, Device, Life Sciences

Notable Past Companies: Regard, Hawthorne Effect


MedTech Innovator

MedTech Innovator is the world's largest accelerator for medical technology companies, based in Los Angeles, offering a four-month program that provides selected startups with unparalleled access to industry leaders, investors, and resources without taking equity. The accelerator culminates in showcase events and competitions where participating companies can win substantial non-dilutive funding, with the program having a strong track record of helping startups secure FDA approvals and significant follow-on funding.

Location: Westwood

Type of Funding: Seed, early stage

Focus: Health Care, Health Diagnostics, Medical Device

Notable Past Companies: Zeto, Genetesis


KidsX

The KidsX Accelerator in Los Angeles is a 10-week program that supports early-stage digital health companies focused on pediatric care, providing mentorship, resources, and access to a network of children's hospitals to help startups validate product-market fit and scale their solutions. The accelerator uses a reverse pitch model, where participating hospitals identify focus areas and work closely with selected startups to develop and pilot digital health solutions that address specific pediatric needs.

Location: East Hollywood

Type of Funding: Pre-seed, seed, early stage

Focus: Pediatric Health Care Innovation

Notable Past Companies: Smileyscope, Zocalo Health


Disney Accelerator

Disney Accelerator is a startup accelerator that provides early-stage companies in the consumer media, entertainment and technology sectors with mentorship, guidance, and investment from Disney executives. The program, now in its 10th year, aims to foster collaborations and partnerships between innovative technology companies and The Walt Disney Company to help them accelerate their growth and bring new experiences to Disney audiences.

Location: Burbank

Type of Funding: Growth stage

Focus: Technology and entertainment

Notable Past Companies: Epic Games, BRIT + CO, CAMP


Techstars Space Accelerator

Techstars Space Accelerator is a startup accelerator program focused on advancing the next generation of space technology companies. The three-month mentorship-driven program brings together founders from across the globe to work on big ideas in aerospace, including rapid launch services, precision-based imaging, operating systems for complex robotics, in-space servicing, and thermal protection.

Location: Los Angeles

Type of Funding: Growth stage

Focus: Aerospace

Notable Past Companies: Pixxel, Morpheus Space



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🚁 One Step Closer to Air Taxis in LA
Image Source: Joby Aviation

🔦 Spotlight

Joby Aviation, a pioneering electric air taxi company, has achieved a significant milestone by successfully flying a hydrogen-electric aircraft demonstrator for 523 miles with only water as a byproduct. This groundbreaking flight showcases the potential for emissions-free regional travel using vertical take-off and landing (eVTOL) aircraft, eliminating the need for traditional runways. The company's innovative approach combines its existing battery-electric air taxi technology with hydrogen fuel cells, paving the way for longer-range, environmentally friendly air travel.

For LA residents, this development holds exciting implications for future transportation options. Joby's technology could potentially enable direct flights from LA to destinations like San Francisco or San Diego without the need to visit conventional airports, offering a cleaner and more convenient alternative to current travel methods. The company's progress in both battery-electric and hydrogen-electric aircraft positions it at the forefront of next-generation aviation, promising to revolutionize urban and regional mobility.

Notably, Joby Aviation has already made strides in Southern California by securing an agreement with John Wayne Airport earlier this year to install the region's first electric air taxi charger. This strategic move sets the stage for LA to be among the initial markets where Joby will launch its electric air taxi service. With plans to commence commercial operations as early as 2025 using its battery-electric air taxi, LA residents may soon have access to a fast, quiet, and environmentally friendly mode of transportation that could significantly reduce travel times and traffic congestion in the region. In the not too distant future, LA might find itself in an identity crisis without traffic and excess smog 🤞🤞.


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