The messy reality of today’s music-streaming business is that having all the music in the world still isn’t enough.
Take Spotify Technology, the undisputed king of the field. The company’s fourth-quarter results Wednesday were decent on some counts. Monthly active users grew 31% year over year to 271 million. Spotify added about 11 million new paying subscribers during the quarter—its best growth ever for this important metric.
Paying...
The messy reality of today’s music-streaming business is that having all the music in the world still isn’t enough.
Take Spotify Technology, the undisputed king of the field. The company’s fourth-quarter results Wednesday were decent on some counts. Monthly active users grew 31% year over year to 271 million. Spotify added about 11 million new paying subscribers during the quarter—its best growth ever for this important metric.
Paying subscribers to the service now number 124 million. Apple Inc., Spotify’s largest rival, disclosed passing the 60 million mark in subscribers to its Apple Music service last summer.
Spotify, of course, doesn’t have the luxury of selling $1,000 iPhones at a high markup to fall back on so it still loses money. Its operating loss widened 70% to €73 million ($80.7 million) for 2019. And streaming music isn’t cheap given the need to pay labels, artists and publishers based on consumption. Spotify’s gross margin for 2019 came in at 25%—down slightly from 26% the prior year. Netflix , the king of TV and movie streaming, closed 2019 with a gross margin of 38%.
The harsh realities of music licensing give Spotify a clear need to fill its stream without blowing up its variable costs. Hence, podcasts. Spotify has acquired four podcasting companies in the past 12 months, including the purchase of the Ringer that was announced on Wednesday. None of the prices were announced, though Spotify said during its first two deals last February that it intended to spend as much as $500 million on its podcasting effort. FactSet estimates last year’s acquisition of Gimlet Media cost about $230 million, which would make it the biggest deal in Spotify’s history.
Investors should expect more ahead. Spotify said Wednesday that it expects 2020 to be “an investment year.” That, plus disappointing fourth-quarter revenue, took the stock down nearly 5% Wednesday. Notably, it drove the stock back to the range from its direct listing in April 2018.
The underlying logic behind podcasts is sound enough given how the format is exploding in popularity. Whether it will pay off for Spotify is another question. Todd Juenger of Bernstein notes that revenue models for podcasts are “still evolving.”
Spotify also will be limited in how much of its podcasting content it can make exclusive. High-quality podcasters—like any other media talent—tend to want the largest audience possible. Spotify still has a way to go to prove its own podcast talk is more than just hot air.
Write to Dan Gallagher at dan.gallagher@wsj.com