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
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?
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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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As Central Valley Farmlands Suffer Fire and Drought, a New Vertical Farm Is Sprouting — in Compton
Oct 21 2020
Tech agricultural unicorn Plenty is gearing up to hire 50 full-time employees to run a new vertical farm monitored by robots in Compton.
The farm, which will open in 2021, will grow leafy greens and Driscoll's branded strawberries, showcasing Plenty's indoor hydroponic farming. CEO and co-founder Matt Barnard says it's more efficient than traditional farming, which is weather-sensitive and requires large plots of land.
<p>"We're severely straining our environment," said Barnard, a former tech executive who grew up on a farm in Wisconsin. "Plenty farms aren't vulnerable to nature's threats, such as storms, flooding, heat, pests and pathogens the way outdoor farms are."</p><p>And they're unlike the popular images of commercial farms that stretch acre after acre of a single crop. Plenty's farm grows up instead of out. </p><p>Green walls of lettuce and arugula grow on vertically stacked beds, using less than 5% of the water required for traditional agriculture and less than 1% of the space. Since shelter-in-place began, the company has shipped out two to three times more food every week. </p><p>The San Francisco-based startup will get a boost from the $140 million Series D round it announced last week, led by Softbank, along with berry grower Driscoll's Inc., to establish its second facility. Their first farm was on Google's Mountain View campus, where the company tested hundreds of crop varieties before stocking stores with greens in the Bay Area. </p><p>The Compton facility will help Plenty supply 431 Albertsons-owned grocery stores with strawberries and greens across the state — including Safeway, Vons and Pavilions — in a deal struck this summer.</p><h2>Moving to Compton</h2><p>Barnard's team looked at over 180 site options across L.A. before settling on a location in Compton, which he calls "a perfect spot" because of the city's agricultural <a href="https://laist.com/2020/10/06/plenty_vertical_farm_compton_agriculture_technology_ag-tech_of_the_future_might_be_in_compton_warehouse_robots.php" rel="noopener noreferrer" target="_blank">history</a> that harks back centuries and is evident in Richland Farms, a still-rural area. He was also interested in the high density of households lacking access to healthy food. </p><p>The 50 new positions for growers, technicians, logistics and operations managers at the Compton farm will be posted by the end of the month, spokesperson Jane Gideon said. </p><p>The move down to L.A. is likely the first in a series of new farms Plenty is planning to build. What began in late 2018 as a line of boxed produce sold in Bay Area grocery chains can now be found in retailers such as Whole Foods. </p><p>For an industry that didn't exist seven years ago, vertical farming is thriving, Dickson Despommier, professor emeritus of Public and Environmental Health at Columbia University told dot.LA. He coined the term vertical farm in 1999.</p><p>"In Los Angeles, you don't have to go too far to get into the fire zone and once you're there you realize that it used to be farmland," Despommier said. "The Central Valley of California is doomed. And by the way, how do you think they're trying to put out those fires? They're using water that would ordinarily be used for irrigation." </p><p>He said that not everyone is sold on the idea of growing food inside. Part of the marketing challenge for companies like Plenty is reassuring consumers and buyers that their produce is just as healthy (if not moreso) as traditionally grown produce. </p><p>"They think that farming outdoors is natural and farming indoors is unnatural," he said. </p><p>Still, it's catching on. </p><p>On Tuesday, BrightFarms, which also grows produce in hydroponic farms and sells it in retailers like Kroger and Walmart, announced a $100 million raise this week. The New York-based company is currently developing three new farms in North Carolina, Massachusetts and Texas, they said in a statement.</p><p class="shortcode-media shortcode-media-rebelmouse-image">
<img type="lazy-image" data-runner-src="https://dot.la/media-library/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yNDU0NTQ1Ny9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTYwNDY1MzQ3OH0.hFlBaDNRVg6N1wpyVauLTQwDs79vRZZpK8zpNONe41U/image.jpg?width=980" id="feb8f" class="rm-shortcode" data-rm-shortcode-id="1c7eb880ec6a44b145818bbdb86cae3c" data-rm-shortcode-name="rebelmouse-image" />
</p><p>The first company Despommier heard of that was growing food indoors was Newark-based AeroFarms, which was funded by investors including Goldman Sachs as well as the city of Newark, which saw it as a hiring opportunity for its residents. A similar social mission defines Vertical Harvest in Jackson, Wyoming, a company that hires employees with developmental disabilities such as Down Syndrome and Autism.<br/></p><h2>The Indoor Model </h2><p>Plenty wants to churn out accessible produce that also tastes better, a way of encouraging consumers to buy more because it's "the most desirable option."</p><p>"One of the missions of Plenty is to move the world from a calorie-rich diet to a nutrient-rich one," Barnard said. "That means more plants that taste amazing." </p><p>The components that determine flavor in crops include light, climate, water and stress, Barnard said, which the agricultural industry can't manipulate simultaneously on outdoor farms.</p><p>"Now that we can control things like light and climate recipes, we have the privilege to control flavor," he said. "We view our competition as all the stuff in the middle of the store — highly processed foods with lots of sugar." </p><p>Back at Plenty's first farm, employees would walk the produce to the Google cafe to ask chefs for instant feedback on fresh arugula and bok choy. The startup now owns a research farm in Laramie, Wyoming, where scientists test plant varieties and growing conditions, and a production farm in South San Francisco.</p><p>Their line of pesticide-free produce like baby kale and lettuce mixes are ready to eat out of the box because human hands don't touch them. Even though robots and sensors manage daily tasks like watering plants and purifying the facility air, Plenty hasn't cut out human work. </p><p>A 4.5 ounce box of Plenty greens sells for $4.99 on Instacart, and prices will remain consistent as products are stocked in the organic sections of grocery stores across the state.</p><p class="shortcode-media shortcode-media-rebelmouse-image">
<img type="lazy-image" data-runner-src="https://dot.la/media-library/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yNDU0NTQ1OC9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTYzNDgyMzg5NX0.Cnr_Oa2ZpAi8i7OYvqURdNretlYezD2C9jzQBLh-DO0/image.jpg?width=980" id="4d141" class="rm-shortcode" data-rm-shortcode-id="9b4eac3437b848d76b5d0bdbdc9cd739" data-rm-shortcode-name="rebelmouse-image" />
</p><p>The company went with Albertsons in hopes of reaching the largest number of consumers in California. The retail giant <a href="https://investor.albertsonscompanies.com/news/press-release/2020/Albertsons-Companies-Inc.-Reports-Second-Quarter-Results/default.aspx" target="_blank">reported</a> this week that business in its retail stores rose 13.8% during its second quarter, which ended on September 12.<br/></p><p>Like most of its competitors, Plenty only sells leafy greens at the moment. But that will change with the Compton farm, which will grow strawberries as well.</p><p>Plenty and Driscolls have begun early stages of research and development for their strawberries at an indoor farm in Wyoming. Testing will be completed before the companies roll out their production in Compton, senior VP of Global R&D at Driscoll's Scott Komar said. </p><p>He added that his company, now an investor of Plenty, backs the startup for two reasons: the promise of "controlled growing environments" and the chance to move fruit production to underserved locations. </p><p>"These opportunities go beyond berries," Komar said. </p>
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- L.A.-based Output, a bootstrapped business founded in 2013 to help musicians overcome writer's block, announced its first ever fundraise, of $45 million from Summit Partners.
- The company serves a range of musicians from hobbyists to professionals, providing them a library of loops and samples that they can then manipulate into unique songs of their own.
- Immediate plans are to nearly double its staff and expand its product platform, with future goals of leading the evolution of digital music production.
Gregg Lehrman was no stranger to music composition. He had worked under world-famous composers such as Hans Zimmer writing music for film and TV and had produced big projects with BMG music publishing. But after setting out on his own, he found himself suffering from writer's block.
So, he said, "I made a piece of software for myself, as a music-maker — with no intention of starting a company."
<p>Lehrman's tool, however, ultimately became a music-tech company called <a href="https://output.com" rel="noopener noreferrer" target="_blank">Output</a>. Based in L.A.'s Chinatown district, its mission is to help people start making music. </p><p>Seven years after it was created, Output has agreed to its first ever fundraise: a $45 million minority-stake investment from Summit Partners. </p><p>"I think there will be drastic changes to come in music creation," Lehrman said, "and we want to be at the forefront of it." </p><p>His investors agree. </p><p>"We believe Output has the potential to reinvent the digital music production market," said Andrew Collins, managing partner at Summit and lead investor on the deal. Collins will now join Output's board. </p><p>"The holy grail in digital music-making is to make it super easy for musicians to find content that they like and then make it sound unique to them, and that's exactly what Output does," Collins told dot.LA. </p><p>The list of artists and projects that have used Output is impressive: Kanye West, Coldplay, Justin Bieber and Rihanna among them, as well as the soundtracks to "Game of Thrones," "Stranger Things" and "Black Panther."</p><p>The company broke $1 million in its first year with no advertising, Lehrman said: "just a viral video and a good product." That first product line – which included digital instruments and effects – was software geared toward professional musicians, who purchase it for an upfront fee.</p><p class="shortcode-media shortcode-media-rebelmouse-image">
<img type="lazy-image" data-runner-src="https://dot.la/media-library/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yNDU2MjYxMS9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTY0ODA2MTk1Nn0.ez695VAfdiWMBPUFHory8cfkG7UKwuP6H6xwxjJh9eI/image.jpg?width=980" id="ca6d9" class="rm-shortcode" data-rm-shortcode-id="40f7ba1d62064604d613adb535781d6a" data-rm-shortcode-name="rebelmouse-image">
<small class="image-media media-photo-credit" placeholder="Add Photo Credit...">Courtesy of Output</small></p><p>In 2018, the company added a software-as-a-service (SaaS) product, called Arcade, which became particularly popular among musical hobbyists and digital-music newcomers. For a $10 monthly subscription, users receive access to thousands of loops and samples created by Output, which they can then manipulate and turn into their own unique tracks.<br></p><p>Most customers today use Arcade in conjunction with a digital audio workspace like Logic, Ableton or ProTools. Songwriters, whether professional or amateur, can set their rhythm and key, pull from Output's library of sonic building blocks and mold them like musical clay. Users can also upload and work with their own digital audio files. </p><p>Over time, Output has seen both its user base and its revenue streams shift away from the pros – which Lehrman said is a customer base with a natural limit – and toward hobbyists and digital-production newcomers.</p><p>Arcade, its SaaS product, has seen a 300% increase in monthly recurring revenue over the past 12 months. In just two years, it's grown to generate about 60% of Output's income. </p><p>"In the world of SaaS, it is incredibly rare to see both exceptional growth and capital efficiency. You often see exceptional growth with a high burn. It's very rare to see over-100% growth rates and also generating cash flow," Collins said. "You don't see SaaS software growing this fast, profitably, fully bootstrapped. There's not a lot of those out there."</p><p class="shortcode-media shortcode-media-youtube">
<span style="display:block;position:relative;padding-top:56.25%;" class="rm-shortcode" data-rm-shortcode-id="0058d901c4b625d279b384a338e60ce0"><iframe type="lazy-iframe" data-runner-src="https://www.youtube.com/embed/gSpDqkikaKg?rel=0" width="100%" height="auto" frameborder="0" scrolling="no" style="position:absolute;top:0;left:0;width:100%;height:100%;"></iframe></span>
<small class="image-media media-caption" placeholder="Add Photo Caption...">ARCADE by Output - Walkthrough</small>
<small class="image-media media-photo-credit" placeholder="Add Photo Credit...">
<a href="https://www.youtube.com/watch?v=gSpDqkikaKg" target="_blank">www.youtube.com</a>
</small>
</p><p>As the popularity of Arcade has grown, Output's user base has shifted to about one-third professional musicians, one-fourth digital-music newcomers, and the rest hobbyists who are "really into making [digital] music."<br></p><p>Collins also likes the market tailwinds that Output is riding — namely, the democratization of music ideation and distribution. Output enables musicians to create new sounds, while platforms like Spotify and Soundcloud allow anyone to publish their tunes with just a few clicks. </p><p>The company's technology stack is a combination of digital signal processing (DSP) algorithms written in C++ and some machine learning. "We're going to see that continue to expand," Lehrman said. </p><p>Output also has a line of furniture and hardware products designed to help music-makers build out their home studios. It is currently working with <a href="https://barefootsound.com" rel="noopener noreferrer" target="_blank">Barefoot Sound</a> – which Lehrman called "the Rolls Royce of speakers" – to manufacture a new speaker line. </p><p>With its new cash, Output plans to grow its staff, which currently numbers about 60. "We'll grow to north of 100," Lehrman said. </p><p>It will also build out its product offering, adding new tools to Arcade like digital instruments and expanding its mobile capabilities.</p><p class="shortcode-media shortcode-media-rebelmouse-image image-crop-16x9">
<img type="lazy-image" data-runner-src="https://dot.la/media-library/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yNDU2MjYxNS9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTY2MTE4MTU2M30.YEw7CRFzIHjvdiSpcHkt28nGzaS6n7SmmYL9Pig51lQ/image.jpg?width=1245&coordinates=292%2C724%2C1%2C40&height=700" id="8f293" class="rm-shortcode" data-rm-shortcode-id="2fd561899f2712747047ae0395de0b36" data-rm-shortcode-name="rebelmouse-image">
<small class="image-media media-caption" placeholder="Add Photo Caption...">Output founder Gregg Lehrman has worked under world-famous composers such as Hans Zimmer writing music for film and TV.</small><small class="image-media media-photo-credit" placeholder="Add Photo Credit...">Courtesy of Output</small></p><p>"We feel strongly we can build a unified ecosystem that once you're in, you're familiar with everything," Lehrman said. "You don't have to learn 100 different applications; it can do 100 different things but you won't feel lost."<br></p><p>Collins pointed to several competitors, including <a href="https://splice.com" rel="noopener noreferrer" target="_blank">Splice</a>, <a href="https://www.landr.com" rel="noopener noreferrer" target="_blank">LANDR</a>, <a href="https://www.izotope.com" rel="noopener noreferrer" target="_blank">iZotope</a> and <a href="https://www.native-instruments.com/en/" rel="noopener noreferrer" target="_blank">Native Instruments</a>, but noted that "nobody else has integrated a very robust curated library of content – sounds, loops, well-organized beats – that musicians can pull from and pull into a workflow engine (the software) and manipulate those sounds to create something that is completely unique." </p><p>Lehrman and Collins separately emphasized the Output team's passion for music. 50 of the 60 employees today make music on a daily basis, Lehrman said. </p><p><a href="https://www.summitpartners.com" rel="noopener noreferrer" target="_blank">Summit</a> primarily focuses on founder-led bootstrapped companies, which it provides with on-demand services like marketing and engineering. </p><p>"Management sets the agenda," Collins said. </p><p>For Lehrman, that'll be to further leverage technology: not to create music itself, but to help people create, just like it helped him overcome his own writer's block those years ago.</p><ul class="ee-ul"></ul><p>"From the first product to the last product," he said, "it's been about helping people be creative."</p>
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