Guys, we have a window.
Barry McCarthy, the most outspoken senior Spotify executive working at the company today, stands down as CFO in January. (He will remain on the SPOT board.)
Right now, however, McCarthy (pictured) very much remains Daniel Ek’s No.2. And at an RBC Capital Markets conference in New York today (November 20), he opened up on Spotify (and its rivals) with the freedom of a man who literally cannot lose his job.
Take, for example: (a) McCarthy’s admission that he has seen screenshots of the beta version of new on-demand music streaming service from Bytedance – parent of TikTok – which will reportedly launch in India and Indonesia next month; and (b) that he was full of praise for TikTok more generally.
McCarthy nodded to the “phenomenal growth” of the TikTok app, noting that Bytedance had “[developed] social features from a different perspective than we have in the Western world”.
Specifically discussing the upcoming audio service from Bytedance, and the snapshots he’s seen so far, McCarthy applauded “some really clever social features”.
As for its potential to take on Spotify in key regions? “We’ll see,” said McCarthy, who noted that Spotify certainly isn’t sweating the power of TikTok in China.
That’s because, according to McCarthy, Spotify’s “strategy” in that market “is our investment in Tencent Music”. (i.e. He’s saying that Spotify’s circa 9% stake in Tencent Music Entertainment precludes the need for – or forbids the ability of – Daniel Ek’s company to launch in China).
McCarthy was joined on stage by the man who will fill his shoes as CFO of Spotify, Paul Vogel – currently the firm’s VP of FP&A, Treasury and Investor Relations. Between them, Vogel and McCarthy talked up Spotify’s power for artists and record labels… while comparatively trashing the service’s current competitors.
Actually, to be more accurate: Vogel and McCarthy talked up why artists and record labels should spend money to take advantage of Spotify’s power… while comparatively trashing the service’s current competitors.
“If you look at us relative to our closest competitor [Apple Music], we’ve got twice as many premium users. We also believe we have twice the amount of engagement on our platform than they do… So [that’s] four times the amount of listening relative to them.”
Paul Vogel, Spotify
McCarthy discussed SPOT’s recent move to allow rightsholders to pay to advertise new releases via pop-up units to fans who are engaged with their artists.
“These tools haven’t previously existed,” said McCarthy, adding: “[They] give the opportunity to promote to fans who, algorithmically, [will be likely to] like your new upcoming release.
“Then we can track and report back to you data that you’ve never seen before, [namely] how many of those people actually streamed the content, how many people added it to [a] playlist, how many people forwarded it to a friend, etc. You can calculate your ROI.”
Vogel then reiterated a point made by Spotify in its letter to investors for Q3, when the company confirmed it had 113m paying users worldwide and 248m total active users.
“If you look at us relative to our closest competitor [Apple Music], we’ve got twice as many premium users,” said Vogel. “We also believe we have twice the amount of engagement on our platform than they do. So [that’s] four times the amount of listening relative to them – and [those numbers don’t] even include the amount of listening done on our free tier.”
McCarthy then asked Vogel: if Spotify’s premium listening hours per month are double that of Apple, where is that stat in relation to Amazon‘s music streaming services?
“[Spotify’s premium listening hours are] like three times Amazon’s. So if you think about that from an artist perspective, from a label perspective, you need to break on Spotify first.”
Paul Vogel, Spotify
“It’s like three times Amazon,” replied Vogel. “So if you think about that from an artist perspective, from a label perspective, you need to break on Spotify.”
He repeated: “Number one: you need to break first on Spotify.”
(Ahem… try telling that to those artists who feel they have been recently blacklisted on Spotify’s playlists for giving music and content premieres to online media publications.)
Vogel added: “We have the most reach, not just in total number of users – which is a big part of it – but then when you add in twice [the amount of] engagement, the number of streams we get [versus the competition] is significantly higher.”
He later continued: “Globally, it is our belief is that we’re adding twice as many subscribers every month compared to Apple, who [are] our nearest competitor… When you add in our free business as well, we believe we’re, again, twice as big as Apple in the US.”
Vogel also laid down the gauntlet to Pandora, saying: “They keep losing listeners, we’ve been gaining listeners in the US, and so we feel pretty good about that [rivalry].”
Most of the chat between McCarthy, Vogel and RBC’s Mark Mahaney revolved around (surprise, surprise) podcasts, with ex-Netflix exec McCarthy making the bold prediction: “There will be more users of audio than users of video [in five years’ time] because there are more occasions for use. It touches more parts of your life.”
Perhaps the most interesting part of this podcast discussion revolved around Spotify’s ad revenues, which currently sit at just under 10% of its overall sales (with the remaining 90% contributed by premium subscriptions).
McCarthy said it was Spotify’s aspiration to push this percentage figure up to 20%, which he said would be driven by two specific catalysts: (i) better ad tech, especially regarding programmatic and automated advertising that targets specific audiences; (ii) and the fact that, in podcasting, unlike in music, Spotify can serve ads to both free and premium users for the first time.
Vogel also explained that Spotify’s global expansion prospects had been helped by the growing worldwide recognition of its brand.
“The [label] re-negotiations will never end; they do never end. Even when deals are are signed, we’re immediately back at the table, negotiating an amendment.”
Barry McCarthy, Spotify
“India is the most recent example where I would say the first couple of quarters out of the box were pretty much in line with expectations,” he said. “And then we saw some even better growth, somewhat behind [on] marketing spend but in general, it’s been really well received.”
Added Vogel: “If you take an example of a market that maybe didn’t go as well to start, Japan would be a good example. It was a market where we probably didn’t have enough of the content, particularly some of the local content, we needed [at launch].
“Then we started get a little bit of traction. When we got some traction, we got more of the content. [And when] we got more of the content, we got even more traction. Now you’re starting to see that market really do well.”
McCarthy also addressed Spotify’s negotiation with the major record companies. According to MBW’s sources, the firm has renewed multi-year licensing deals in place with both Sony Music and indie body Merlin, but has not yet agreed new deals with Warner Music Group or Universal Music Group.
When asked when we could expect those agreements to get inked, McCarthy joked “there’s no end in sight”, before clarifying: “The [label] re-negotiations will never end; they do never end.
“Even when deals are are signed, we’re immediately back at the table, negotiating an amendment to provide for the launch of some new product and/or feature in the marketplace that didn’t exist when the [prior] deal was signed… and can’t be launched without an amendment of the language.
“The two sided marketplace is a perfect case in point. All the contracts [now] have to have language amended so that actually there can be a payment of a revenue stream, without a rev share back to the label, who’s making the payment in the first place.”Music Business Worldwide