Spotify Hits 108 Million Paid Subscribers, Renews Two Major Label Deals

Spotify CEO Daniel Ek

The music streaming giant, led by CEO Daniel Ek, reports 232 million active monthly users, a narrowed operating loss and new licensing deals with "two of our four major label partners."

Music streaming giant Spotify on Wednesday reported a smaller second-quarter operating loss and said it grew its user base to 108 million premium, or paid, subscribers and 232 million total active monthly users as of the end of June.

That compared with 100 million premium subscribers and 217 million total active monthly users as of the end of March and 96 million and 75 million, respectively, as of the end of 2018. 

The company's second-quarter user figures exceeded Wall Street estimates, while its paid subscriber result came in below the midpoint of its own forecast, with management citing lower-than-expected student subscriptions.

In comparison, Apple Music had 60 million subscribers as of June, including people on a three-month free trial. (Spotify's figures include people on a 30-day free trial.) 

Asked about Apple's U.S. subscriber strength, Spotify CEO Daniel Ek on the company's earnings conference call said he couldn't comment on what U.S. subscriber figures Apple has claimed to have. "The only thing we can say is really that we are focusing on our own growth, and we are still seeing great numbers in North America and across the board."

All of our competitors have their relative strengths," Ek said. "Ours is our investment in freemium, in personalized stations and in ubiquity." He said overall the company was still in "the growth phase of the business, very early on" given the growth of the streaming space, adding that "we are actively investing a lot."

On Wednesday, the company also announced two new deals with major music labels. "We have reached agreement with two of our four major label partners on the renewal of our global sound recording licenses, and are in active discussions with the other two," it said without disclosing which labels it has struck deals with. "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." 

Asked about the new music label deals during the earnings call, management declined to comment beyond Ek, saying, "the primary focus for this round of negotiations has really been about enabling the market place strategy," particularly "enabling artists to directly connect with fans in much bigger ways." He cited Spotify Singles as an example, which sees music stars covering other artists' songs in acoustic settings.

Spotify said its second-quarter operating loss amounted to $3.3 million (3 million euros), compared with 90 million euros. The firm's net loss narrowed to $84.7 million (76 million euros) from 394 million euros in the year-ago period. Quarterly revenue rose 31 percent to $1.86 billion (1.67 billion euros), while operating expenses increased 4 percent.

"We finished the second quarter with 108 million premium subscribers globally, up 31 percent year-over-year, but below the midpoint of our guidance range of 107-110 million," the company said about its subscriber performance. "Intake from our bi-annual campaign was in line with our expectations, monthly churn declined both sequentially and year-over-year to a record low 4.6 percent, and our winback percentage on gross ads reaccelerated quarter-over-quarter. However, intake into our student product was below plan. As we have discussed previously, our goal is to perform at roughly the 70th percentile of our guidance range and we missed on subs. That’s on us. 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."

On the earnings call, Ek was also asked about the company's push into the podcasting space, saying that true crime content was "a massive category for us" in the space and growing fast.

Spotify earlier this year filed an antitrust complaint against Apple in Europe. "In recent years, Apple has introduced rules to the App Store that purposely limit choice and stifle innovation at the expense of the user experience — essentially acting as both a player and referee to deliberately disadvantage other app developers," Ek said back then, adding that Spotify was looking to avoid a marketplace with a "small group of dominant platforms."

On Wednesday's call, Ek said he had no update on the Apple situation. "It is a process that takes quite a lot of time, so you shouldn't expect a speedy response," he said. "This is really a multiyear effort."

Spotify shares were down 4.1 percent at $148.89 before the market opened as investors seemed to focus more on the student subscription shortfall than other factors.