Spotify's Streaming Slump

Spotify's shares have tumbled after the company reported subpar results in its Q1 earnings report. Although subscriber growth was relatively strong - 3 million new "premium" users joined over the quarter - total "active" users missed expectations and guidance was revised lower. In Spotify's own report, they stated that the number of active users were "modestly below our internal expectations" reflecting a negative sentiment for the next quarter. Their previous guidance suggested anywhere from 356 to 364 million "active" users; the real result for Q1 was around 356 million.

Although Spotify has enjoyed tremendous growth since its IPO in 2018, most analysts are projecting that "active" user growth will slow over the upcoming quarters and years. Furthermore, Spotify's recent foray into a subscription-based podcast service has cost them dearly as they signed headliners like Joe Rogan, the Ringer, Kim Kardashian, Michelle Obama, and the Duke and Duchess of Sussex among others. The issue with Spotify's new podcast content is the price; depending on the podcast creator, active listeners will be required to pay $2.99, $4.99, or $7.99 a month to tune in.

As someone who has subscribed to Spotify premium for the past few years, I have been underwhelmed by the company's new strategy moving forward. Podcasts were considered to be the "next-big-thing" when I was a kid as Apple spent millions developing their iTunes platform to accommodate the new fad. 15 years later, however, podcasts have failed to show meaningful growth among consumers from a variety of backgrounds. Today, the interest in podcasts has shown a resurgence from what I believe to be the COVID "renaissance". This interest, however, has only been shared by the CEO's of top companies and not anyone that I actually know.

The question Apple, Spotify, Google, and other streaming service companies really need to be asking themselves is, "Why would people pay for podcasts now if they didn't 5/10/15 or even 20 years ago?". The answer is simple: people don't like paying for a non-music product that they can't see or touch. People become less interested when that product comes with additional fees, some of which could entitle them to another streaming service subscription entirely.

To the average consumer, streaming services have offered tremendous value. Whereas in the past companies would charge $0.99 - $1.29 per song, users can now enjoy as many streams as they want produced by millions of artists worldwide. For just $9.99 per month, or $4.99 per month as a student, I can listen to more music per dollar than at any time in the history of humankind. What I, and others, will not pay extra out of pocket for are podcasts - most of which I'm not actually interested in. Additionally, most of these podcasts are already available for free online from YouTube or other video sources.

Although I enjoy listening to the Ringer's NFL Podcast and might spring for a Joe Rogan episode here and there, I use Spotify almost exclusively for music. To pay for yet another subscription bundle will provide little to no value for me as a customer. The subscription model trend which has taken over the consumer product market over the past 3-5 years has created a glut of options which has ironically brought us full circle on the matter. Consumers wanted to pay a-la carte for the media options of their choice; today, Spotify and other companies have created subscription bundles which include many things they might not want.

Long term, Spotify would do well to invest more resources into its original project which aimed to create a competitive music-streaming service. The Discovery Weekly feature was neat at first but I find more often than not that many new recommendations are just rehashes of songs I've listened to long ago. Part of what made me a Spotify convert was my ability to find new music, and although I can still do that, I don't feel as if its evolved as much as it should have by now. The Radio feature suffers from similar problems. Perhaps an idea would be to have a selectable option for radio that allows users to listen to more music they haven't heard yet or just the classics. To keep subscribers like me and others on the ticket, Spotify must continue to find innovative ways to keep its music streaming product as competitive and ambitious as possible.

Trust me, we really don't want podcasts as much as you think we do.