Spotify has reported that premium subscribers hit 108 million, a year-on-year increase of 31%.
The company also confirmed it has reached agreement with two major label partners on the renewal of global licences. Spotify is in “active discussions with the other two”, although the labels are unnamed and it’s not clear which music company it’s elevated to be among the big three. Merlin declined to comment on whether it was the fourth partner and whether it had a deal in place.
“This is the sixth round of label negotiations we’ve worked through in our 13-year history and, while it is typically a long drawn-out process, it has become part of the normal cadence of the business,” said the company.
“I can't disclose specifics about the deal terms that we have with any single partner,” said CEO Daniel Ek on the earnings call. “What I can say is that the primary focus for this round of negotiations has really been about enabling the marketplace strategy. And that marketplace strategy enables more from each and every one of our content partners and creators on the platform. You can see already early evidence of that when we have vertical videos, where creating the Spotify Singles is a great example where it's a format where artists are covering songs of other artists, including some of their own in acoustic settings. So the whole purpose of that is just enabling artists to directly connect with fans in much bigger ways than what they're doing today.”
While there was much fanfare surrounding the 100m result in the prior quarter, the Q2 result on subscription growth was actually at the lower end of expectations. Apple Music is on around 60m.
“The good news is that the shortfall was execution related, rather than softness in the business, and we expect to make up the lost ground before year-end,” said Spotify in its note to investors.
But the uptake from Spotify’s latest promotional offer was in line with expectations, while monthly churn is at a record low of 4.6%. The results of its student offer were below expectations.
Overall, though, the streaming giant outperformed expectations in key metrics and financial results. It also highlighted user retention, particularly in emerging markets, following product innovations such as no-frills service Spotify Lite, which takes up less storage.
Two markets that have been long tied to physical music distribution, Germany and Japan, both hit milestones during Q2
Spotify also noted its gains in Germany and Japan – markets with a strong physical sales base.
Total monthly active users increased by 29% year-on-year to 232m, ahead of the high range of guidance.
“Outperformance was broad based, with most of our geographic regions growing faster than our expectations,” said the company. “Timing of certain global music releases yielded some incremental benefit, as did our launch on PlayStation consoles across the Middle East and Latin America. Of note, two markets that have been long tied to physical music distribution, Germany and Japan, both hit milestones during Q2, performing materially better than forecast. Additionally, our newest market India performed well and in line with expectations.”
Total revenue was €1.667 billion (£1.527bn) in Q2, up 31% year-on-year. Premium revenue was €1.502bn (£1.375bn) and grew 31%. Ad-Supported revenue was €165m (£151.1m) and grew 34% as a result of a strong US performance.
Operating loss was €3m (£2.75m).
For the premium business, average revenue per user was €4.86 (£4.45) in Q2, down less than 1%.
“Downward pressure on ARPU continues to moderate, and we continue to expect that ARPU declines through the remainder of the year will be in the low single digits,” the company said.
The forecast for monthly active users is 240-245m in Q3 and 250-265m by Q4. Subscribers are heading for 110-114m in Q3 and 120-125m in Q4.
Asked about Apple Music, Ek said: “I don't know the specifics about what numbers they claim to have in the US relative to ours. The only thing we can say and do is really that we're focusing on our own growth. And we're still seeing great numbers in North America and across the board.”
CFO Barry McCarthy added: "We think we're growing at roughly twice the rate on a monthly basis. That's based on the last public disclosure from our next-largest competitor, how they are tracking as compared with their previous public statements as compared with our own. I know relative market growth was a concern for investors a couple of quarters ago. I think at least the most recent comparison shows that we've got very strong traction in the business."