Spotify announced today that it exceeded expectations for the third quarter and posted an operating result of € 54 million (approximately $ 60 million). This marks the third time in its history that the company has made a profit, but one of those profits was the result of one fiscal windfall in 2018 that pushed it in black.
Spotify's shareholder letter outlines several reasons for this turn to profitability – a faster new subscriber rate that has encouraged the company to 248 million monthly active users (of which 113 million pay, Premium users), less money spent on promoting original content and artist marketing and new tools for artists such as sponsored recommendations that will expand Spotify's "two-sided marketplace".
All this (along with a number of other decisions mentioned in the document (such as buying back shares) means that the company is sharpening its activities and expanding in different ways at the same time. It continues to bet heavily on podcasts, purchased music production marketplace SoundBetter, and has advanced to new areas such as India.
In addition, Spotify introduced a new bundle plan this year in a handful of Latin American and European countries called Duo, which is a two-person discount plan. Just like the family plan, Duo members must live at the same address to take advantage of the deal. In short, all these movements put Spotify on a route that could attract more subscribers and lower costs for consumers and the company.
But although Spotify seems to be on a good track and keeping pace with registering a large number of subscribers, it remains to be seen how this will all erupt for the songwriters whose music is on the platform. Discounts and cheaper Premium subscriptions influence how much songwriters are paid, because Spotify does not pay royalties at a fixed rate per stream. Instead, various factors are taken into account, such as the country where the song is streamed, the number of active paying users as a percentage of the total number of active users and the relative Premium prices in different countries. Here in the US, how many streaming platforms songwriters pay in mechanical royalty is one controversial, constant struggle that currently has no resolution.
To this end, the shareholder notes that "royalty costs were more favorable than expected due to the product and sales mix," which probably points to the diversification of discount plans and extensions to emerging markets that do not pay that much for Premium accounts. As a result, Spotify's average revenue per user continues to decline. At the end of 2015, the average revenue per user was € 6.84 (~ $ 7.59). Today it says that this number is € 4.67 (~ $ 5.18). That's great for consumers who get cheaper deals, but maybe not so good for royalty from songwriters. The downside is a potential makeup in consumption. The ever-increasing global reach of Spotify can give artists more publicity and more streams for songs that would otherwise not be listened to.