Bryan Goldberg: Okay. Next question from Doug Anmuth on podcasting. With a decent amount of hit podcast content deals seemingly up for renewal in 2023 and ’24, what gives you confidence you can retain exclusive talent while not overpaying and overinvesting?
Daniel Ek: Yes. I think you’re right in calling out the overpaying and overinvesting. And what I can start out by saying is we’re not going to do that. And we’re going to be very diligent in how we invest in future content deals. And the ones that aren’t performing, obviously, we won’t renew. And the ones that are performing, we will obviously look at those on a case-by-case basis on the relative value. And I would say two things here. One, we have very sophisticated tools for measuring impact on the platform where we talked about this at the Investor Day, where we do understand the relative impact on lifetime value in our subscribers and so on and so forth. I think that helps us paying a fair price or understanding what a fair price would be.
But then the second part also, because we are now the largest podcasting platform that means we have a great opportunity to amortize across a larger base. So relative to someone that’s smaller, we should be in a better position should we want to renew a deal because we obviously can amortize that against a larger base of users.
Bryan Goldberg: Okay. Question from Benjamin Black on subscription pricing. Since you haven’t raised pricing, are you seeing any benefit from being the lower-cost distributor?
Daniel Ek: One would think so, given the outperformance in the quarter. But again, it is important to note that it’s been fairly broad-based the outperformance. And just by way of context, we did raise prices in 46 different occasions and markets last year. So it’s not like we haven’t raised prices. And even in those markets, we were still outperforming. So I’ve said this before and I’ll say it again, I feel really good about our ability to raise prices over time that we have that ability, and we have lots of data now that backs that up. We may have been marginally helped by being a lower cost provider, but it isn’t a primary part of our strategy, and it’s not something that we’re thinking about. Instead, we’re working with our label partners to really work with them to figure out what’s the best opportunity for us to do that.
And that’s obviously a more complex trade with many other variables. And I’ve talked about that before. But when the timing is right, we will raise it. And I think that price increase will go down well because we’re delivering a lot of value for our customers.
Bryan Goldberg: Okay. Another question from Rich Greenfield on advertising. You’ve talked about advertising revenue scaling to be 20% of your overall revenue. While it’s growing faster than subscription revenue, the mix hasn’t moved a lot. How should we think about the timing of getting to 20%, let alone 30% of your revenues?
Paul Vogel: Yes, Rich, I think we still feel really good about the ability for advertising to grow and be a larger part of Spotify’s revenue mix. Right now, there’s one part of what we can control and one part we can’t control. So the part we can control is to continue to build out the tools, the services, the measurement, the attribution, all of the things that we think we’re doing to bring an even better advertising product to Spotify and that continues on, and we feel really good about the advancements we’ve made there. Obviously, in the last quarter or two, we’ve been somewhat impacted by macro. Again, we feel like we’re growing nicely and outperforming the market and our peer group overall, but the macro has probably slowed us down.
So I don’t really think that a couple of quarters of macro uncertainty is going to change our long-term view of how we get to 20% or even beyond that. And for us, it’s really just heads down, making sure that the product and innovation is there. So that when the macro does come back, where you can benefit as much as we possibly can.
Bryan Goldberg: Okay. A question from Doug Anmuth on AI DJ. Could you give us your thoughts on how AI DJ plays out given your launch of the beta version at Stream On and subsequent copyright pushback from some of the major labels?
Daniel Ek: Yes. I do think it’s important to kind of separate AI DJ from the sort of AI conversation. So AI DJ, in and on itself, I think we’ve had nothing but positive reactions from across the industry. I think the AI pushback from the copyright industry or labels and media companies. And it’s really around really important topics and issues like name and likeness, what is an actual copyright, who owns the right to something where you upload something in claim it to be drain, it’s really not and so on. And those are legitimate concerns. And obviously, those are things that we’re working with our partners on in trying to establish a position where we both allow innovation, but at the same time, protect all of the creators that we have on our platform.
Bryan Goldberg: Okay. Next question from Michael Morris on subscription pricing. Do you plan to raise price on any of your current plans during 2023? And what are the current considerations to changing pricing?
Daniel Ek: I can start and then maybe Paul can chime in. So I think it’s important perhaps to just add as a context here. As I mentioned in my prior response, we raised prices in 46 places last year. I would like and hope for us to do that in 2023 as well, but we’re in discussion with our partners around that. So that’s a really negotiation thing. But I think maybe to up-level it. What we’re trying to do is we’re just really trying to focus on how can we optimize for growth. And there are many ways to achieve growth. You can grow top line users that then subsequently will turn into conversion to premium subscribers that then subsequently would turn into revenue, or you can increase ARPU on a lower set of base and you can still achieve that top line growth.
So we have many tools at our disposal as we’re thinking about how to increase growth. And the industry realizes that and our label partners realizes that as well. So that’s the constant dialogue that we’re in. But yes, we would like to raise prices in 2023, but it’s really a discussion with our partners.
Bryan Goldberg: Okay. Another question from Doug Anmuth on Marketplace. How should we think about the outlook for marketplace growth this year following approximately 40% growth in 2022?
Paul Vogel: Yes. I think we’re still very optimistic about marketplace. It had a really strong Q1. It continues to be a driving force for engagement with the creator community. They’re loving the tools and services. So we haven’t given a target out for 2023. But Q1 was very strong, and we’re optimistic that we’ll continue to sort of be able to advance all the offerings we have in marketplace.
Bryan Goldberg: Okay. Next question from Deepak on podcasting. Can you provide some recent — some color on recent engagement trends on the podcast side? Revenue growth is healthy, even as you optimize the content portfolio, we’re curious on the recent engagement trends within podcasts.
Daniel Ek: Yes. So overall, Q1 has been a phenomenal quarter when it comes to engagement. So engagement is up more than predicted on pretty much every front. So retention is higher, the DAU over MAU is higher than before, and the actual engagement is higher. And that’s across music, but it’s certainly true on podcasting as well. And we’ve seen a healthy trend sort of up to the right on podcasting for now many, many, many quarters. And we’re seeing how both podcast and music is acting in great symbiosis together to drive an overall healthier user funnel on Spotify. So I feel really good about the mix. And obviously, that’s a testament to the great catalogue and content portfolio we have on both music and podcasts.
Paul Vogel: Yes. I would just add, the one other metric, listening hours for MAU was really strong in the quarter, both across music and podcasting. So to Daniel’s point, on the engagement side, we’re seeing a number of our engagement metrics, really uptick in Q1.
Bryan Goldberg: Okay. Another question from Doug Anmuth on users. Given the first quarter upside and the first half outlook, how do you think about overall net adds and growth for MAUs and Premium subscribers in 2023 relative to the 83 million and 25 million added, respectively, in 2022?
Paul Vogel: Yes. We don’t obviously give full year guidance anymore, but implied in the question is sort of where we already are. So if you think about between Q1 and our outlook for Q2, we’re just over 40 million net additions on the MAU side. So we’d be halfway to last year through half of this year, and the same thing on the sub side. So about — if we hit our guidance for Q2, that’s about 12 million sub additions. So again, about halfway to next year. So nothing really to add other than we feel really good about the trends and the trajectory we’ve seen on both the user side and then subside for the — for Q1 and our expectations for Q2.
Bryan Goldberg: Okay. Next question is from Deepak on AI. Daniel, can you discuss your thoughts on what opportunities and risks there are from generative AI, specifically on music creation? Do you think these developments have potential to materially shift economics towards distribution platforms like Spotify over time?
Daniel Ek: Yes. Well, so again, to caution everyone, this is very early days, and it’s an incredibly fast developing space. As I mentioned before, I don’t think I’ve ever seen anything like it in technology, how fast innovation and progress is happening in all the really both cool and scary things that people are doing with AI at the moment. But I think it’s important. I guess on the risk side would be not just for Spotify, but I think for our — the entire creative ecosystem is obviously the question around copyrights and who owns what copyrights and what the fairway would be to attribute value when you’re doing things in name and likeness situations or inspired by a certain artist, et cetera. I think the whole industry is trying to figure that out and trying to figure out training and I would definitely put that on the risk account because there’s a lot of uncertainty, I think, for the entire ecosystem.
But on the positive side, to flip on that for a moment because I don’t think that’s been as highlighted as part of the story. One, I think this could be potentially huge for creativity on the positive side. I go in and talk a little bit more in detail about this on for the record podcasts. So that’s a little bit of a plug for you guys to listen to that if you’re interested in understanding more. But the short of it would be, if you really think about it, with that now these conversational interfaces, it will allow people that perhaps don’t know anything about how to play a music or even know these complex software’s music production software tools to now create just using their voice, instruct the AI to make something to sound a little bit more upbeat, make something sound a little bit more like add some conges into the mix when you’re creating a drum pattern or something like it.
And that has the chance, I think, to meaningfully augment that creative journey that many artists to do. And you could even imagine someone just humming something and then the AI helping you out by creating a backdrop that you then can add it and alter into your existing DAW , which is the music sort of software environment that many producers and music creators are doing. And that should lead to more music. And that more music, obviously, we think it’s great culturally, but it also benefits Spotify because the more creators we have on our service the better it is and the more opportunity we have to growing the engagement and growing the revenue. So that would be on the upside, which a lot of people aren’t talking about. And then, of course, there’s entirely new potential products that perhaps can happen where you can have users creating their own music and perhaps Spotify could be a conduit of that, but I think it’s way too early to speculate on those types of things at present moment.
Bryan Goldberg: Okay. Another question from Rich Greenfield. At the Investor Day last year, you talked about introducing three new verticals looking beyond music, podcast and audio books. When should we expect to hear more?
Daniel Ek: Yes. So obviously, I don’t have anything to announce at this moment. But in the pipeline, there’s two that’s progressing very nicely out of the three. And then there’s a few candidates of the third that’s in a little bit of an earlier stage than that. So again, this just be kind of more hinting at that — we have things in the work. I mentioned this prior in my opening remarks, many of these things that we are working on is not the product of something that we started three months ago or six months ago, but we have projects that’s being worked at Spotify by teams for sometimes 2, 3, even 4 years before we are ready to announce them for the world. So we have a very good sense of what those are, those three, two of them are right now progressing very nicely, not ready yet to announce them. So we’ll see when they’re ready for prime time.
Bryan Goldberg: Okay. Question coming from Benjamin Black on advertising. Could you give us an update on the advertising backdrop? How have ad sales trended so far in April? Shouldn’t you benefit from easing year-on-year comparisons as the year progresses?
Paul Vogel: So on the second part of the question, yes, the comps do get easier throughout the year, which will definitely benefit us. And in terms of April, we feel like we had some momentum coming out of March and April, so that’s positive. That being said, I think we felt that there was some momentum in Q1 and ended up being pretty choppy as well. So I think we’re optimistic but also cautious — maybe cautiously optimist would be the right word because I think we feel like there’s some momentum there. I think we feel good about where we’re positioned on an advertising standpoint. But just given the macro uncertainty, I think we’ll — caveat is cautiously optimistic.
Bryan Goldberg: Okay. Another question from Doug Anmuth on podcasting. Can we get an updated view on timing for podcasting profitability? And when should we expect to see a meaningful inflection in ad-supported gross margins?
Paul Vogel: Yes. So no change to what we said. Look, we think we continue to see the loss — the podcasting loss continue to get better throughout the year and the targets we gave at the Investor Day with respect to podcasting breakeven and then profitability have not changed. So we still feel good about that. And then the ad-supported gross margins, I mean, there’s really 2 factors that are impacting that, which we’ve talked about. Podcasting is a big part of that. So as the podcasting loss turns to breakeven and then profitability that will obviously help the ad-supported gross margins a lot. And then we do have some markets in regions where our ads gross margins are quite where they are in some of our more established and developed advertising markets.
And so we’re still working on getting some of those markets kind of at parity with our more developed ad market. So it’s a combination of the two, but obviously, the transition from the podcasting business from being a drag to a breakeven and profitability will be a big help.
Bryan Goldberg: All right. We’ve got time for a couple more questions. And it looks like Doug Anmuth has a follow-up on operating expenses. You had 36% growth year-on-year in OpEx in the first quarter with roughly half of that driven by social charge movements and severance. How should we expect that to improve throughout 2023? And what are the key areas of leverage?
