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Over the last 10 years, Spanish music consumption has increased an average of 70% globally, and 129% in Latin America. This month, Spotify LATAM managing director Mia Nygren celebrates the company’s 10th anniversary in the region with over 120 million of the 574 million subscribers in the world (as per third quarter figures.)
“I had pretty wild dreams, because I had already seen it with my own eyes from my previous job and from Spotify in Europe, so I knew this was going to work,” says the Swedish streaming giant executive. “But obviously today, being able to say that there are a number of users in the region that represents more than 21% of everything we have globally, which also includes paying users, I couldn’t imagine,” she adds.
This is remarkable considering that 10 years ago, “80% of the music consumption in the region was pirated,” she notes.
And not only the way music is consumed changed, but also the kind of music. According to local data provided by Spotify, in 2013 only 25% of the 100 most listened to songs in Argentina were in Spanish, while today this percentage represents 94%. In Colombia, it went from 36% in 2013 to 87% in 2023. And in Mexico from 49% to 88%.
Nygren — who was born in Stockholm, studied in Belgium and worked in Spain and Brazil before settling in Miami and joining Spotify more than a decade ago — is responsible for the company’s performance in the region in terms of active users and everything that generates revenue. She is also involved in hiring and building local teams, with presence in Brazil, Mexico, Colombia, Argentina and Miami. And she supervises the connection and collaboration between the different areas of the company, from music to public relations, marketing, sales, podcasts, and more.
She recently spoke with Billboard Español, who named her Ejecutiva del Mes (Executive of the Month) for December 2023.
What has been the biggest challenge in reaching this 10th anniversary and how did you overcome it?
When we entered the market in the world in general, but in Latin America in particular, the industry was at the edge of the precipice, because there was a lot of piracy — 80% of the music consumption in the region was pirated. So, we came here with the idea of [promoting] a lot of education, of going around all the countries and explaining what Spotify is not only to the user, but rather to the creative community. It was a tremendous job because there was a little bit of, I don’t want to say resistance, but maybe our entire business model wasn’t very well understood. We have the free part, and it was a little scary to say “How are we going to give our content for free? How is it going to be monetized?”, but we already knew that we were very good at converting these users to Premium.
The timing to enter Latin America was good for us, because we had already existed in Europe for more than five, six years, we entered the United States in 2011, and when we arrived here in 2013 the industry knew what we had done, so they were very willing to help us explain this. Furthermore, in Latin America, the adoption of streaming and the understanding of streaming was tremendously fast: When we got here, the 0% of the revenue that was generated for the recorded music industry was nothing. Ten years later, more than 95% of all revenue generated for recorded music comes from streaming.
Now, this came with a very dedicated work and conviction that we had to focus on a very particular segment of users when we entered Latin America. We identified where the centers of gravity were, first in the big cities… Mexico City, Sao Paulo, Bogota, etc. And within these cities we were also very much looking for people who had a slightly more pronounced willingness to pay. So for us it was, “we are going to go first for these users who are going to generate more money more quickly, and then we are going to go down the socioeconomic pyramids a little bit.” That has worked very well for us.
How does user behavior in Latin America differ from other countries?
They consume much more. It’s a cultural trait that cannot be easily exported, because it is within the general Latin American culture. We clearly see that, for example in Mexico, the user consumes 30% more than a global user, and all Latin American countries are at the forefront of hourly consumption on a monthly basis.
Also, when we entered here 10 years ago, more or less 70% of what was consumed on the platform at the beginning was foreign music in English. Ten years later, the tables have turned: 70% is music in Spanish.
Spotify playlists have a direct effect on the number of streams. How is this different from the old days airplay?
Playlists are extremely effective and important. You think of playlists and you think of Spotify, which ultimately is something that we have pushed for and created and we love to see, above all, how the users themselves create playlists in abundance. We have more than 5 billion playlists on the platform today. Compared to airplay, we could not measure it in the same way that we can measure the use of a playlist, so I believe that the data today is a little closer to reality.
With so many releases, how can an artist stand out in such a broad landscape?
It is wonderful to be able to offer the opportunity to any type of artist to connect to the platform and have 574 million users at their disposal. But as you say, how can one stand out there, right? Because in the end there are 100,000 songs, more or less, that enter the platform every day. We are extremely obsessed with providing them with tools [such as Spotify for Artists, or Spotify for Podcasters] so that they can analyze well where their audience is. […] It is very important to understand how users use and listen to your music, and thus create this relationship with your fan base. Obviously the talent has to be there, and there is a lot of talent, I’m not saying there isn’t; but then you have to accompany it with timing, understand very well how your social media work, when to release the songs, etc. It’s tremendous work, actually. Is not easy.
What would you say has been the greatest achievement for Spotify in Latin America and the Spanish-speaking market globally?
There is always a personal achievement and a professional achievement, but in my case the two things are very much intertwined. Being here after 10 years still with so much enthusiasm, and seeing such an important and bright future for this part of the world, I think it is the most important thing that can be conveyed today. The truth is that we feel tremendously privileged to represent the region, to see that there is a very great possibility of growth, and to see that artists are reaching places that could never have been imagined. Everything that is content in Spanish and Portuguese has been positioned in a way that could not be imagined, and of course, being part of that historic movement is a tremendously gratifying achievement.
The company has managed very well to be this global platform with the beauty that this entails, the responsibility that this entails, but it also allows us to be tremendously hyperlocal, and I believe that this is part of the success in some way. In Argentina we can be Argentine, but we can also take advantage and see what we can do for the Argentine user or for the Argentine talent so that they have the possibility of traveling further afield. So, I think we have that balance between global and local pretty well figured out.
What’s next for Spotify LATAM?
A lot of things are coming. We spend all day thinking about how we can improve the experience for the user and how we can improve it for the creator, and I believe that the most important thing that is going to come has a lot to do with the product. We are going to be investing a lot in these improvements, we are going to see possibilities of expression that could never be imagined. I know that we are talking about topics that are perhaps a little more complex to understand such as artificial intelligence, etc., but we also see that there are tremendous opportunities to make personalized recommendations. For example, we have something called AI DJ available in the U.S. and in a couple other countries that is also going to be developed in Latin America, where we can improve this recommendation engine, because recommendations is one of the features that our users appreciate the most.
Deezer shares fell 6.4% this week after France’s National Assembly approved a 1.2% tax on streaming revenue on Tuesday (Dec. 19). The new tax, which is meant to support local cultural programs, taxes effect in January and will be owed on top of existing tax obligations.
Deezer CEO Jeronimo Folgueira called the tax “the worst possible outcome of all the different scenarios” the company faced from the French government. “Adding taxes is the worst way of trying to support the industry,” he told Billboard. France is Deezer’s home and largest market, accounting for roughly 60% of its revenue in the first nine months of 2023, according to the company’s latest earnings report.
Spotify immediately pulled sponsorship support for two local music festivals to help offset the additional tax burden. France is not as important to Spotify as to Deezer, however, and the new tax was probably not a factor in the 1.3% decline in Spotify’s share price this week. Spotify would be far more affected if other countries followed France’s lead — a possibility raised by Deezer’s Folgueira. “It sets a very dangerous precedent for other markets,” he warned.
SiriusXM investors were unfazed by the news that the New York attorney general’s office had sued the company for allegedly making customers go through a “burdensome” cancellation process. The satellite radio company’s stock finished the week up 1.3% to $5.47 despite a lawsuit that alleges SiriusXM “deliberately wastes its subscribers’ time even though it has the ability to process cancellations with the click of a button.” The company said it will “vigorously defend against these baseless allegations” that “grossly mischaracterize” its practices.
The Billboard Global Music Index fell 0.3% to 1,517.98, lowering its year-to-date gain to 30.0%. Nine of the index’s 20 stocks posted gains this week; 11 stocks ended the week in negative territory.
Shares of streaming company LiveOne gained 10% to $2.21 after the company on Tuesday (Dec. 19) raised its guidance for revenue for its fiscal year ended March 31, 2024, to a range of $118 million to $120 million, up from $105 million to $110 million. The company also said that it’s finalizing a restructuring of its merchandising business, first announced on Dec. 14, that will reduce headcount by 75 to 100 staffers and result in $5 million to $10 million of cost savings.
Three other companies in the Billboard Global Music Index posted gains of 5% or more this week. Sphere Entertainment Co. rose 5.4% to $34.32. Warner Music Group improved 5.1% to $35.29. And K-pop company SM Entertainment gained 5% to 90,100 won ($69.32).
Major indexes fared better than music stocks as investors reacted positively to Friday’s announcement by the Federal Reserve that U.S. prices rose less than expected in November. In the United States, the Nasdaq composite gained 1.2% to 14,992.97 and the S&P 500 improved 0.8% to 4,754.63. In the United Kingdom, the FTSE 100 rose 1.6% to 7,697.51, while South Korea’s KOSPI composite index climbed 1.4% to 2,599.51.
Each week we’ll be sharing the most important news from the north with Canada’s top music industry stories, supplied by our colleagues at Billboard Canada.
For more Canadian music coverage visit ca.billboard.com.
Bryan Adams Splits With Longtime Manager
After a memorable handshake agreement in Vancouver 44 years ago, manager Bruce Allen and client Bryan Adams have broken up. As confirmed by a source with direct knowledge of the situation, Adams is now self-managing his career.
Bruce Allen
There has been no public announcement of the falling-out, but Bruce Allen Talent’s website no longer lists Adams as a client, and the “Run to You” rocker’s website similarly strikes any mention of Allen as his manager. Insiders say that Adams, short-term, is handling his own affairs.
Allen, now 78, has earned his mostly Canadian client list untold millions of dollars. Among them include some household names such as Bachman-Turner Overdrive, Loverboy and, more recently, Michael Bublé and Jann Arden.
The breach in the handshake agreement is believed to be over artistic direction, in particular Adams’ insistence on investing heavily in new music and videos in recent years. READ MORE
Spotify’s Global Job Cuts Hit Canada
On Dec. 4, Spotify announced it would be slashing its global workforce by 17%. Billboard Canada has learned that Nathan Wiszniak, Head of Artist & Label Partnerships at Spotify Canada, was among those laid off.
At the time of Spotify’s announcement, just a few days after unveiling its popular Spotify Wrapped campaign, it was unclear how many of the roughly 1,500 jobs cut would come from Canada. A spokesperson from Spotify Canada declined to share, but confirmed that Wiszniak was part of the layoffs.
Wiszniak has worked at Spotify Canada for nine years and was one of the founding members when the music streaming company expanded to Canada in 2014. In his role in Music Partnerships, he worked to promote Canadian music and artists and give them a global platform on Spotify.
“From the outset, my mission was to establish and promote an ecosystem that would propel the growth of our industry,” Wiszniak writes in an email to Billboard Canada.
Asked about his accomplishments, he highlights his role in championing Punjabi-Canadian artists like Ikky, Karan Aujla and AP Dhillon (all three appeared on Billboard Canada’s inaugural Punjabi Wave cover) and contributing to their exponential growth and in nurturing the early careers of breakout Canadian artists like Jessie Reyez, Daniel Caesar and Charlotte Cardin.
In the last two years however, he says, Wiszniak’s primary role has been “educating government stakeholders about the intricacies of streaming…during a regulatory phase that occurs once in a generation.” He’s likely referring to Bill C-11, the Online Streaming Act, which will update Canada’s media policy for the first time in decades. Spotify is at the heart of that bill’s implementation, which could require the company to make more direct and mandatory financial contributions to the Canadian music industry via government regulations.
On Nov. 30, just a few days before the layoff announcement, Wiszniak spoke at the Online Streaming Act hearings, arguing that “imposing initial base contributions on platforms before defining critical elements of the broadcast policy is premature, and risks overlooking the many ways that Spotify already contributes to and supports Canadian and Indigenous artists.” READ MORE
New IFPI Report Reveals Canadian Distrust of AI
The International Federation of the Phonographic Industry (IFPI) has released a new report detailing how music fans all over the world listen to music, with specific stats for participating countries. Music Canada has shared new data about Canadian listening habits from the report.
Most notably, it includes some vital Canadian perspectives on one of this year’s hot-button topics in the music industry: artificial intelligence. Many are not in favour, at least not of the wild west version of AI that has flooded the internet this year. 76% of Canadians believe that AI shouldn’t be employed to impersonate or clone a musician without their approval.
Even more Canadians — 85% — believe that music created solely using AI should be labelled as AI-generated, and also that human musicians are an essential part of music creation. The data indicates that in ongoing debates over the role of AI in music, Canadian consumers could support certain amounts of regulation and protections for artists.
AI music is already flooding streaming services, and Spotify allegedly removed tens of thousands of AI-generated songs from its platform earlier this year, to prevent those songs from acquiring fake streams and inflated royalties. Meanwhile, TikTok user @ghostwriter977 released an AI-created fake Drake and The Weeknd song earlier this year, gathering millions of streams before the song was taken off streaming platforms. According to the IFPI report, 77% of Canadians agree that AI systems should list which music has been used to train their tools.
The report included over 43,000 respondents from 26 countries, and concludes that globally, we’re listening to more music in more ways than ever. People around the world listen to an average of 20.7 hours of music per week — up from 20.1 hours in 2022 — and the use of paid streaming platforms is rising. For the 16-24 demographic, though, short-form videos are the top method of music listening, not audio streaming services.
On average, Canadians use 7.2 different methods to encounter music and hop between eight different genres. Half of Canadians subscribe to audio streaming services, while a quarter access music through unlicensed methods. In addition to how we listen to music, the report also highlights what music does for us: 83% of Canadians say that music is important to their mental health. READ MORE
Last Week’s Headlines: Top TikTok Tracks, Montreal’s Music and Noise Laws
The French government’s decision to impose a new tax on music streaming platforms will be highly damaging for the country’s music industry and sets a “dangerous precedent” for other markets, warn streaming executives opposing the levy.
France’s National Assembly officially approved the tax charges on Tuesday (Dec. 19) as part of the country’s 2024 finance bill.
It specifies that streaming services such as Spotify, Deezer and Apple Music earning above 20 million euros ($22 million) in annual turnover will have to pay a new tax charge of 1.2% on all streaming revenue generated in France in addition to their existing tax duties. Social media platforms like Facebook and TikTok which license and feature music will also be subject to the tax charges.
The money will be used to help fund a national body to support the French music sector, The Centre National de la Musique (CNM), which was created in 2020 and is already partly financed by the live music industry.
The new levy comes into effect from Jan. 1, although music streaming services are still waiting for confirmation of when the first payment will be due to the French authorities.
‘A REAL BLOW’
Deezer CEO Jeronimo Folgueira says the tax on streaming platforms’ earnings will have “negative consequences for the entire music industry in France.”
“It is the worst possible outcome of all the different scenarios that we could have ended up with,” Folgueira tells Billboard. “Adding taxes is the worst way of trying to support the industry. It sets a very dangerous precedent for other markets.”
In a statement, a spokesperson for Spotify France called the tax “a real blow to innovation, and to the growth prospects of recorded music in France.”
The company said it is “assessing the implications of such a tax” and “strongly remain opposed to this unfair, unjust and disproportionate measure.”
On Wednesday (Dec. 20), Spotify France announced that it was pulling financial support for two local music festivals, the Francofolies de la Rochelle and the Printemps de Bourges, to help offset the extra tax burden.
Plans to tax music streaming platforms’ earnings in France have long been mooted by authorities and were first proposed in April by then-senator Julien Bargeton, who initially suggested a tax rate of 1.75% for services like Spotify, Deezer, Apple Music, Amazon Music and YouTube Music to support the French music industry.
In response, streaming executives and stakeholders from across the country’s music industry put forward a number of alternative funding solutions, including making a voluntary annual contribution of 14 million euros ($15 million) towards The Centre National de la Musique.
Executives closely involved in those talks tell Billboard that the voluntary contribution proposal — which involved the participation of collecting societies and music producers and was tiered depending on a company’s business and turnover — received “near unanimous” backing from across the sector, apart from Amazon, which refused to commit. (Amazon Music, Apple Music and YouTube Music all declined or didn’t respond to requests to comment when contacted by Billboard).
With the music industry unable to agree on an alternative offer, the French Senate voted in November to approve the new tax measures, which were formally ratified earlier this week.
TAX BURDEN
President Emmanuel Macron’s decision to tax music streaming companies to fund cultural programs follows the same principles the country already applies to the film industry. For many decades, the French government has imposed a tax levy on cinema ticket sales (currently amounting to 10.7% of the ticket price) to fund public body The French National Centre of Cinema (CNC).
Since 2010, publishers and distributors of television services, including streaming platforms like Netflix and ad-funded videos platforms such as YouTube, as well as DVD and Blu-Ray retailers, have paid a similar mandatory contribution set at 5.15% of turnover.
Like its cinema counterpart, funding for The Centre National de la Musique will come from across the French music industry, but executives at Spotify and Deezer believe it places an unfair burden on streaming companies who already pay out around 70% of their revenues to rights holders alongside their existing tax commitments in France. They include sales tax (VAT) at 20% and a 3% tax on digital services.
At present, the French live music industry pays a higher rate of tax contribution (3.5% on concert tickets) towards the CNM, but ticketing companies pay a lower rate of VAT sales tax (around 5%) compared to digital music platforms.
Physical music retailers, recording studios, radio services and labels are exempt from paying the new 1.2% levy.
“We’re not questioning the need to finance The Centre National de la Musique or be taxed. What we’re questioning is the decision to only target one distribution format – DSPs,” says one France-based music executive, speaking to Billboard anonymously.
Folgueira says the tax unfairly impacts on European streaming platforms like Deezer and Spotify, which have heavily invested in developing the local market, and disproportionately advantages American tech giants like Google, Apple and Amazon who have a smaller on-the-ground presence and “can easily absorb the costs.”
Paris-based Deezer is the market leading subscription streaming service in France and generates around 60% of its 451 million euros ($478 million) yearly revenue in the country. A tax rate of 1.2% on domestic turnover works out at around 3.2 million euros ($3.5 million), according to Billboard’s calculations.
CUTS COMING?
Folgueira says the new tax burden could possibly mean that Deezer is forced to pass on the extra costs “along the value chain,” which could include reviewing agreements with labels and rights holders.
The CEO says that it’s likely to mean Deezer cutting spend on domestic music projects and marketing, while price rises for subscribers is another possible outcome. “None of which is a good outcome for boosting the French market,” cautions Folgueira.
France is the world’s sixth largest recorded music market with €920 million in revenue in 2022, up 6.4% on the previous year, according to IFPI’s Global Music Report.
Folgueira’s concerns are shared by executives at Spotify. Speaking last week to local news network France Info, Antoine Monin, director general of Spotify France said that the company will reduce its investment in the market as a result of the taxes and said “France will no longer be a priority for Spotify.”
Billboard understands that Spotify France will be making further cost saving announcements in the coming weeks with subscription price rises among the options on the table.
Confirmation of a new tax charge for streaming companies in France comes at a pivotal time for Spotify, which posted an operating profit of 32 million euros ($35 million) in the third quarter of 2023 but has also undergone three rounds of job cuts this year.
Earlier this month, Spotify co-founder and chief executive Daniel Ek announced that the company was to close more than 1,500 posts internationally, representing around 17% of its global workforce.
“For many months now, we have been denouncing the risks underlying the creation of such a tax, particularly in terms of the loss of attractiveness for platform investments in France,” says Alexandre Lasch, managing director of French labels body SNEP. “It is precisely the artists produced in France who will be the victims.”
Despite streaming companies’ opposition to the levy, other sectors of France’s music business have welcomed the increased funding towards domestic culture.
Guilhem Cottet, managing director of the French association of independent music companies UPFI, says the establishment of a mandatory contribution to the CNM from streaming companies will help drive diversity and innovation in the sector.
“The current remuneration model is unjust towards a lot of musical genres which are not heavily listened to by young people — mostly rap and electronica — in France. And if there’s no decent remuneration, labels will cease producing these genres,” says Cottet.
“The tax is a regulation tool to ensure the CNM is able to finance them and make sure diversity prevails.”
When reaching a notable milestone, some people are honored with a certificate, trophy or plaque. Sometimes, there might even be some music and a meal as part of the celebration. But when it comes to surpassing the one billion streams mark on Spotify, some musicians have a little extra fun marking the moment. Artists who […]
Jung Kook is the ARMY’s favorite foodie, and the 26-year-old superstar enjoyed some of his favorite snacks while celebrating his Latto collaboration, “Seven,” reaching one billion Spotify streams.
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In a video posted to Spotify’s Instagram account on Monday (Dec. 18), Jung Kook finds his plate-shaped plaque honoring the milestone underneath a pile of his favorite foods — fittingly, seven of them. Among the BTS star’s picks are soy sauce eggs, banana milk, tuna kimbap, shrimp crackers, turtle chips, japchae and castella.
“Producer Bang Si-Hyuk sent a song to me to listen. It was so great. I thought, this is such an amazing song, what if I mess it up?” Jung Kook recalled of the song’s inception. “I wasn’t working on an album, but after listening to ‘Seven,’ I came out of a break. We rushed to record the music, shoot the music videos, and album photos. Since ARMY have been waiting for so long, we worked very fast.”
He continued, “Because I felt the song needed a rapper — Latto has a great voice and cool presence — so, we reached out to her and everything worked out.”
Latto even sent in a clip to thank Jung Kook for putting her on the song and allowing her to “make history” with him. “Seven” became the fastest song to reach 1 billion streams in Spotify history, achieving the record in 108 days since it was first released.
It’s hardly the only record Jung Kook’s Latto collaboration has broken, as it landed upon its release at No. 3 on the Official U.K. Singles Chart, published July 21, for the highest-charting debut by a solo Korean act. Additionally, “Seven,” launched at No. 1 on both the Billboard Global 200 and Billboard Global Excl. U.S. charts (dated July 29). The song marked the first leader on the lists for a member of BTS as a soloist, as well as Latto’s first No. 1.
Watch Jung Kook eat his seven favorite snacks off his billion streams plaque here.
After Spotify said it would begin to phase out service in Uruguay on Jan. 1, 2024, the streamer reversed course on Tuesday (Dec. 12). “We can say with great confidence, they transmitted it to us today: Spotify is going to continue operating in Uruguay for the benefit of all users,” Secretary of the Presidency Álvaro Delgado said in a press conference, according to El Observador.
The origin of the dispute: Uruguay’s parliament passed a bill in November that changed the country’s copyright laws and demanded “equitable remuneration” for artists. Spotify objected to the lack of “clarity” in the new bill’s language because it was unclear where that additional “remuneration” would come from. “Changes that could force Spotify to pay twice for the same music would make our business of connecting artists and fans unsustainable,” a Spotify spokesperson warned, “and regrettably leaves us no choice but to stop being available in Uruguay.”
However, as El Observador reported on Tuesday (Dec. 12), Delgado told the press that “after several days of exchange and interaction, especially with legal aspects, the President of the Republic, the Minister of Education and Culture and the Minister of Industry” have come together to “make it clear that there will be no double payment by the platforms.”
Spotify welcomed the news. “The Uruguayan government has issued much-needed clarification of the recent music copyright law changes, specifically that rightsholders are responsible for ensuring artists are fairly paid, rather than requiring Spotify to pay multiple times for the same content,” a spokesperson said in a statement.
“We are pleased that this clarification will allow Spotify to remain available in Uruguay so that we can continue giving artists the opportunity to live off their art and billions of fans the opportunity to enjoy and be inspired by it,” the spokesperson continued. “We thank President Lacalle Pou and his team for recognizing the value Spotify provides to local artists, songwriters and fans.”
It has been a tumultuous month for Spotify: Earlier in December, the company announced it was cutting around 1,500 employees in an effort to close “the gap between our financial goal state and our current operational costs,” as CEO Daniel Ek wrote to staff. This marked Spotify’s third round of layoffs in 2023.
Ek acknowledged that a “reduction of this size will feel surprisingly large given the recent positive earnings report and our performance.” But he added he was “convinced this is the right action.”
A few days later, Spotify announced that CFO Paul Vogel would leave the company at the end of March.
If YG Entertainment’s re-signing of all four BLACKPINK members is any indication, investors can worry less about K-pop companies’ ability to retain their artists.
YG Entertainment gained 17.2% this week to 59,300 won ($45.00) as investors reacted to news that the four members of BLACKPINK signed to new, exclusive contracts with the agency. (The share price rose 29% the morning the announcement was made.) Uncertainty about contract renewals had caused the company’s share price to decline 16% in the week ended Sept. 22, as news reports out of South Korea said three BLACKPINK members would leave YG and spend just six months out of the year with the group. At the time, the company denied the news and insisted that the deals were still being discussed.
The BLACKPINK renewal appeared to have a positive impact on the stocks of other K-pop companies. Shares of HYBE gained 12.3% to 237,500 won ($180.24), while SM Entertainment shares rose 3.6% to 88,200 won ($66.94). Those improvements far exceeded the 0.5% gain posted by South Korea’s KOSPI composite index.
The Billboard Global Music Index gained 2.2% to a record 1,481.56, surpassing the previous high of 1,426.49 set four weeks earlier. That brought the index’s year-to-date gain to 26.9%. Half of the index’s 20 stocks finished the week in positive territory.
This week’s 2.2% gain outpaced major indexes around the world. In the United States, the Nasdaq improved 0.7% to 14,403.97 while the S&P 500 rose 0.2% to 4,604.37, reaching an all-time high of 4,609.23 on Friday (Dec. 8). In the United Kingdom, the FTSE 100 gained 0.3% to 7,554.47.
Spotify was the biggest contributor to the Billboard Global Music Index’s gain this week. The streaming company — the largest component of the 20-company, float-adjusted index — enjoyed a double-digit increase this week, gaining 9.6% to $198.05 after Monday’s news the company will lay off 17% of its workers. Following Thursday’s news that CFO Paul Vogel will leave the company in March 2024, Spotify shares rose 1.1% on Friday.
Another stock to react to financial news was Sphere Entertainment Co., which announced the sale of $225 million in convertible senior notes that mature in 2028. That sent the company’s shares down 15.5%, but the stock recovered most of its losses and finished the week down only 5.3% to $32.66. Following the debt announcement, Sphere Entertainment was upgraded by Seaport to a “buy” with a $38 price target, representing a 16.4% upside over Friday’s closing price. U2 concerts were doing $500,000 more per show than expected and the $99 average ticket price to the Darren Aronofsky film Postcard From Earth was above analysts’ $84 estimate.
The smallest stock on the index, Abu Dhabi-based music streamer Anghami, dropped 41.3% to $1.35 without any regulatory filings or other news. The stock was trading below $1.00 per share as recently as Nov. 15 but jumped to $3.49 on Nov. 21 on trading volume of 57.7 million shares, or about 50 times the daily average.
Spotify’s announcement this week that it was laying off 17% of its global workforce surprised a music business enjoying a renaissance. After all, Spotify ignited the subscription-streaming boom that saved the industry. And while the companies that depend on the online advertising business go through booms and busts — think of Meta cutting 21,000 jobs since 2022 — music business jobs have been relatively safe.
Spotify’s decision to eliminate about 1,500 full-time staffers shouldn’t have come as a surprise, though. As CEO Daniel Ek put it in a letter announcing the layoffs, “Today, we still have too many people dedicated to supporting work and even doing work around the work rather than contributing to opportunities with real impact.”
Over a decade and a half, Spotify pioneered a new model for music subscriptions by prioritizing growth over profit. While on-demand video streaming services such as Netflix frequently raised prices, Spotify left most of its prices unchanged until July. Digital music platforms have a notoriously tricky path to profitability, but Spotify’s share price soared thanks to a pandemic-era boost to streaming companies as well as high expectations for its nascent podcasting business. By February 2021, as Spotify poured money into acquisitions and pricey podcasting content, the stock was trading at $364.59 per share, valuing the company at roughly $71 billion.
By 2022, however, Spotify’s investors had run out of patience. The stock was trading at $110 on June 8 when Ek and CFO Paul Vogel shared their ambitious plan at the company’s Investor Day presentation: $100 billion in annual revenue, 40% gross margins and 20% operating margins. To get there, Spotify would continue to scale its podcasting business and lean on its audio content acquisitions — The Ringer, Parcast, Megaphone and Anchor — to help the format reach larger audiences. Now, Spotify also wants to do for audiobooks what it did with podcasts: piggyback on its massive base of music listeners, develop innovative products and build a bigger market.
Podcasts and audiobooks, as well as services sold to artists and record labels like merchandise listings and Discovery Mode, are important to reaching the targets of 40% gross margin and 20% operating margin. Given the nature of licensing deals with record labels and music publishers, music margins have little room to improve. Whereas video streamers like Netflix pay fixed costs for much of their content, Spotify pays a percentage of revenue to record labels and music publishers. That means as revenue increases, so do its content costs. And that’s not likely to change. “Our strategy is not predicated on trying to extract margin by negotiating better terms with the content partners we have,” Ek said at the 2022 Investor Day.
Over a year later, however, Billboard’s analysis of Spotify’s financial statements shows the company is still nowhere near its target margins. Since the first quarter of 2020, its gross profit margin has fallen between 24.1% and 28.4% while its operating profit margin has ranged from –8.8% to 3% and was below zero in 11 of 15 quarters.
Merely adding subscribers isn’t enough. (The company reported 226 million at the end of Q3 2023.) Reaching its targets requires Spotify to cut costs while investing in new growth opportunities such as podcasts and audiobooks. Ek said as much when explaining Vogel’s upcoming departure on Thursday. “I’ve talked a lot with Paul about the need to balance these two objectives carefully,” he said in a statement. “Over time, we’ve come to the conclusion that Spotify is entering a new phase and needs a CFO with a different mix of experiences.”
Spotify’s cost-cutting started in 2022 with a pause on new hires, layoffs in October and the cancellation of six live audio shows in December. This year, it laid off 6% of its global staff in January and in June merged two podcast production houses, Gimlet and Parcast, and further cut its podcast workforce by 2%. In August, it shut down Spotify Live, a short-lived live streaming app. Then on Monday, Spotify announced it would lay off 17% of its workforce. It also canceled two in-house podcasts, Heavyweight and Stolen.
As the graphs show, recent trends in Spotify’s financials made it clear larger cuts were necessary to meet the company’s ambitious targets. Personnel costs as a percentage of revenue rose from 13.8% in 2021 to 16.2% in 2022. Research and development expenses — which include some salaries — jumped from 9.4% of revenue in 2021 to 11.8% in 2022.
As Ek explained in the memo to employees, Spotify grew in 2021 and 2022 to take advantage of lower-cost capital. Today’s environment is different, however, and Ek believes Spotify’s “cost structure for where we need to be is still too big.” Indeed, Spotify’s head count steadily increased as it acquired companies, developed new formats and created product innovations that both resonated (Spotify Wrapped) and flopped (Spotify Live) with users. The number of full-time employees increased nearly 50% from 2020 to 2022.
This growth came without added efficiency, however. The revenue generated per employee peaked at 1.54 million euros ($1.66 million) in 2019 and declined to 1.4 million euros ($1.51 million) in 2022 — the lowest since 2017. The July price increase will help Spotify bring in more revenue without additional staff or resources, though the effectiveness of those increases won’t be known until Spotify releases full-year results in late January.
What’s more, Spotify’s gross profit per employee fell to a five-year low in 2022. Gross profit is what’s left after cost of sales — primarily royalties to labels and publishers — is deducted from revenue. It goes toward personnel costs, sales and marketing expenses, and general and administrative costs. But as Spotify added employees in recent years, gross profit per employee fell to 350,000 euros ($377,000) in 2022 from 391,600 euros ($421,000) in 2021.
An obvious way for Spotify to reach its target margins was to make larger cuts to its workforce and, as Ek phrased it, “become relentlessly resourceful.” Cutting 17% of its personnel costs would have resulted in savings of 323 million euros ($349 million) in 2022, based on total personnel costs of 1.9 billion euros ($2.05 billion). That savings would have halved Spotify’s 2022 operating loss of 659 million euros ($711 million).
Ultimately, the multi-billion-dollar question is simple: Can Spotify continue adding subscribers as fast as it has in previous years and develop its spoken word products into the higher-margin businesses it needs with far fewer employees? That’s the high-stakes situation the new CFO will walk into in 2024 and that will determine the company’s future from here on out.
Paul Vogel will step down as Spotify’s chief financial officer on March 31, 2024, the company announced Thursday (Dec. 7). As the streaming giant searches for a replacement, Ben Kung, vp of financial planning and analysis, will take on expanded responsibilities to support “the company’s realignment of its financial leadership team,” the announcement stated. Vogel […]