Audio giant Spotify spent more than €40 (£34) million on terminating podcast contracts in the last quarter, according to its Q2 2023 financial report, reflecting a downsizing strategy which has seen a number of high-profile show cancellations.
Overall, Spotify’s operating loss grew by €91 (£78) million last quarter to a total of €247 (£212) million, which is up by 58% since Q1. This was partially a result of €53 (£45) million in total going towards employee severance charges, content asset write-offs and contract termination costs related to podcast operations.
This follows a number of expected podcast cost reduction measures that Spotify implemented in Q2 2023 in an effort to improve its overall efficiency. This includes ending its multi-year exclusive contract with Meghan Markle and Prince Harry and downsizing its podcast division with a round of layoffs affecting 2% of its global workforce in June, as well as relinquishing exclusivity over some of its hit shows from Gimlet and The Ringer, and Emma Chamberlain’s Anything Goes.
“As I previewed during the Q1 call, we expected to incur charges in Q2 related to our ongoing efficiency efforts,” said Spotify chief financial officer Paul Vogel. “In the quarter, we took steps to shrink our real estate footprint and rationalised certain areas of our podcasting business.”
“We expect all of these moves to have a positive impact on our rate of profitability on a go forward basis, however they did result in roughly €135 million of net charges in the quarter.”
Other costs that contributed to the higher operating loss related to discontinuing the production of its Car Thing smart player, charges related to real estate optimisation, and further severance charges related to Spotify’s workforce reduction plan. Without including these costs, the adjusted operating loss income is €112 (£96) million which is lower than the guided number for Q2 at €129 (£110) million. The projected operating loss income for Q3 2023 is also expected to significantly decrease to €45 (£39) million.
On the profit side, Spotify’s total revenue was up by 4.2% in Q2 since the previous quarter. Podcast advertising revenue specifically grew by more than 30% year on year in Q2, with double digit growth in participating advertisers and publishers, quarter over quarter.
The number of total monthly active users also went up to 551 million, which is a new record for the company, and 21 million above guidance. Spotify CEO Daniel Ek attributed this achievement to both investments into new podcasts such as the upcoming original show with Trevor Noah that was announced during the Cannes Lions Festival 2023, as well improving the platform with a redesigned desktop experience, 11 new languages added to the platform, and the launch of Spotify Ad Analytics which provides advertisers with audio advertising measurement services.
As part of its changes going forward, Spotify recently announced that it is increasing Premium prices across a number of markets around the world including most of Europe and North America as it adapts to the changing market landscape. Ek said in the Q2 earnings prepared remarks that Spotify expects this to have a meaningful impact on the company in Q4 and beyond, although it won’t significantly impact revenue per user in Q3.
“There are three ways for us to drive revenue growth: growing our users, creating new businesses with new revenue streams, and increasing revenue per user,” said Ek. “Our preference among them is to focus on growing the overall number of consumers on our platform, as this gives us scale advantages and retains optionality for the future.”
“However, we've also been clear that there will come a time when price increases become a more important tool in the toolbox. We’ve carefully weighed this decision but felt the timing was right. We’ve expanded value to price significantly by meaningfully improving our content offering, and we continue to enhance the user experience and lower churn.”