Bryan Goldberg: All right. Thanks, Ben. And again, if you’ve got any questions, please go to slido.com #SpotifyEarningsQ124. We’ll be reading the questions in the order they appear in the queue with respect to how people vote up their preference for questions. And our first question today is going to come from Agnieszka Pustula on music profitability. Can you please give us some detail on the improved music profitability in the quarter? Which marketplace product was the key driver behind better margins and how much of extra cost did audiobooks add?
Daniel Ek: All right I’ll start and maybe Ben you can add to the answer. So I think maybe to uplevel the answer a little bit and talk about gross margin in general. This was a real outperformance on many levels and there were many things that contributed to that. So you mentioned Marketplace. Marketplace did really well in the quarter and it continues to have a great position on really all of our Marketplace products growing nicely. So I feel really good about Marketplace and that was a big contributor. In addition to that, obviously on the gross margin side, we saw lower non-music costs. Some of that was aided by both our audiobook side, but also on a podcasting side. Last year, if you remember, that was a bit of a drag on our gross margin.
And this year we expect profitability for the podcast segments. So that’s adding to that. Also you saw lower streaming delivery costs and overall cost is — sort of other cost of revenues, due to some of that sort of resourcefulness and that culture. So I think from my side, it is really a new Spotify, you’re seeing where we are being relentlessly and resourceful in all of our costs and in driving improvement in efficiency on all our different drivers that are adding up to this gross margin number.
Ben Kung: Yeah, I think you covered it well, Daniel. I think I would just add that — that resourcefulness that you highlight is spanning a diversified set of levers that are all adding up to this narrative. So I think it’s really sort of firing across many cylinders for our business.
Bryan Goldberg: All right. Our second question is also going to come from Agnieszka on royalties. For the bundled music and audiobook plans, are royalty payments for each category based on a fixed allocation of relative value of music versus audiobook plans or is it based on the actual share of consumption i.e., would increased audiobook consumption reduce music royalty?
Daniel Ek: Thanks, I’ll take this one. I think this is a great question. We won’t be able to get into the specifics here, but I think you are touching upon a very important point that I’ll try to uplevel towards. It’s a fairly complex machine across our content types, and we do have a concept that I’ll refer to as shifting profit pools now. So across our content types, we have all types of cost models. We’ve got variable ones so that could be anything from revenue shares, per user models, per hour models. We also have fixed cost models. It’s a fairly complex machine and the concept of bundling things together allows us to tap into a strength of ours, which is leaning into this complexity across profit pools and managing it efficiently as we look to meet and serve customer demands where we see it. So I think it’s as simple as that.
Bryan Goldberg: All right. Our next question is going to come from Justin Patterson on capital allocation. Daniel, the balance sheet’s in a solid position and you could be approaching over EUR2 billion in free cash flow in 2025. Given this, how will you and incoming CFO Christian Luiga, look to re-evaluate your capital allocation policy?
Daniel Ek: Yeah, I do appreciate the question, Justin, and it’s certainly a new type of problem for Spotify to be dealing with. I think, it’s a little bit too early to draw any sort of real decisions yet on our side. And obviously Christian hasn’t started yet, but this will be on his table to look at and to work with myself and the Board around what we do. I do want to note to investors though, that we do have the upcoming convert, so that’s certainly one use of capital we could use into the future but we have many, many tools at our disposal, so we look forward to discussing those as the year progresses.
Bryan Goldberg: All right and a follow-up question from Justin this time on product Daniel you appear to be shipping product at a faster rate. How do you view this as sustaining the 20% plus revenue growth rate over time? And do you believe the improved product capabilities can make you less reliant on marketing over time?
Daniel Ek: Yeah, I mean, you’re exactly right, Justin. We are focused on shipping more product and better products for consumers. And the way you should think about this as investors is the better we can improve the product, the more people engage with our product and the more value we ultimately create. And the more value we create, the more ability we will have to then capture some of that value by price increases. So I’ve mentioned this concept before, but we’re really, really focused as a company on this value to price ratio. And the way we’re thinking about it is we’re constantly trying to improve the value we offer to consumers. And every now and then we look at that sort of value to price ratio and try to capture some of that value through price increases.
And when we do not only Spotify benefits, but the entire creative ecosystem benefits too. And that’s obviously, you know, everything from artists and songwriters to authors and podcasters now that are part of this strength or this bundle, so to speak, where everyone sort of all the rising tide helps all boats, so to speak. So long term you should definitely say that the better the product is, of course, the less reliant we will be on marketing because the more viral the product will be and of course, the less we have to reactivate consumers to come back to the service as well.
