Spotify is expected to report this week a significant slowdown in the number of new subscribers in the first quarter, the latest pandemic winner to signal that the lockdown entertainment boom is over.
When the audio streaming company updates investors on Wednesday, it is not expected to maintain the blistering rate of new subscriber growth experienced last year. Spotify, which reported 6 million new subscribers in the first three months last year and 11 million in its most recent quarter to the end of December, has told investors not to expect the boom to continue at such a pace.
In total, Spotify added 31 million new paying subscribers last year, as coronavirus lockdown boredom fuelled a boom in listening to music, and podcasts from Michelle Obama and Kim Kardashian to the Duke and Duchess of Sussex. It took the number of paying customers to 155 million, and its total monthly user base – including those on its free, advertising-supported tier – to 345 million.
However, in February, Spotify forecast that in a best-case scenario it would add 29 million new paying subscribers this year while at worst it expected 17m, almost half the total last year. The news rattled investors, who sold shares and sent Spotify’s shares down 8 per cent despite the company beating Wall Street expectations on the growth rate of subscriber numbers and advertising for last year.
Pandemic bump
Spotify has forecast an operating loss of €200 million to €300 million this year, compared with an operating loss of €293 million in 2020.
Last week, Netflix reported a dramatic slowdown in subscribers in the first three months of 2021, ending a record run of growth during the Covid-19 pandemic and echoing the trend expected in Spotify's numbers on Wednesday.
Despite the expected cooling of growth, Spotify continues to experience a significant pandemic bump. The company’s share price has doubled over the past year, giving it a market valuation of more than $50bn (€41.3bn).
Spotify has spent almost $1bn diversifying beyond its core music offering into podcasting, acquiring companies in the sector and striking key talent deals.
Daniel Ek, the founder and chief executive of Spotify, has said that the strategy has worked, making it more attractive to new customers as podcasting listening has doubled and provided a new advertising revenue stream.
This success has not gone unnoticed by Apple, which effectively started the podcast 16 years ago but has ceded ground to Spotify. Last week, the Silicon Valley company announced the launch of Apple Podcast subscriptions, offering users new content and ad-free listening, in 170 regions.
"Apple has somewhat squandered their lead in podcasting," said Matt Deegan, the creative director at the radio and new media consultancy Folder Media. "They have finally woken up to the fact that Spotify is about to eat their lunch in the podcasting sector if they don't innovate. This is Apple's fightback."
Since venturing into podcasting in 2019, Spotify’s acquisitions include $340 million to buy the networks Gimlet and Anchor, and a reported $235m to buy Megaphone, which offers advertising technology for podcasts. Spotify has also spent millions on exclusive talent deals.
"Apple's podcasting subscription service is clearly both an offensive and defensive move against Spotify," said Dan Ives, an analyst at Wedbush. "Ultimately, we expect more exclusive content partnerships to be announced over the coming months to compete with Spotify in this quickly morphing podcasting arms race." – Guardian
