Paul Vogel: Yes. And I would just add, we’re obviously very pleased to see some of the initial success with an operating profit in Q3 and guidance for operating profit in Q4 as well. And our expectations are now that we will consistently be in the black moving forward. Obviously, you never know what can happen in any one quarter, but we feel good that we’re on a different trajectory, and we’ve hit an inflection point with respect to profitability of the business.
Bryan Goldberg: Great. Next question is going to come from Justin Patterson, a related question on efficiency. Daniel, you began the year restructuring business units with the goal of greater efficiency and product velocity. As we head towards 2024, where do you see the next areas to be more efficient while driving innovation? And Paul, how should we think about expense, puts and takes of audiobooks scaling?
Daniel Ek: Yes. As I mentioned in my last response, it’s very much a focus, I think, across the base. And maybe just to highlight one example. So as the product and technology teams are working on this focus of efficiency, everyone at the company’s tasked at it, everyone has their own deliverables. So we constantly end up finding ways where, for instance, we are on the compute side on our infrastructure side finding from engineers that there are better utilization patterns doing that, and they’re able to save expenses as we’re doing that. And that’s then improving on the streaming delivery cost that we’re ending up having. And this is just one example where it’s not that we’re looking for top-down initiatives as much as we’re seeing a lot of bottom-up initiatives that are adding up to the numbers.
You saw it also very clearly in our marketing spend. We were able to deliver better top line numbers, but with less spend because we’re now focused on this efficiency goal and I think that’s the power of the Spotify team and the work that everyone is doing. But that also gives Paul and myself great comfort in that there’s great opportunities out there as long as we get the teams focused on it.
Paul Vogel: Yes. And then with respect to kind of the audiobook side of the question, let me take a step back for a second. If you look at 2023, we said from the start of the year that we expected to see gross margins sequentially improve every quarter 2023. Obviously, we have the benefit of knowing what we’re planning to do throughout the year. And so we knew all the initiatives we’re going to come in play, both the price increases and the launch of audiobooks. And so all that played into the commentary we had that we would see that sequential growth. And we’re glad that, that’s what we actually were able to realize and expected to realize in 2023. As you look into 2024, we expect to see a continued improvement in our gross margin trends and a continued improvement in our operating income trends as well.
Obviously, there’s some investment when it comes to the audiobooks business, but there’s nothing about the launch that will derail our progress on the gross margin side or our progress on the operating income side are probably just as important, our progress on the free cash flow side. So hopefully, everyone noticed, we did EUR200 million of positive free cash flow in Q3. We feel good about the free cash flow trajectory as well in the business. And so we’re very encouraged with kind of how 2023 is forecast to end and we’re very optimistic with respect to the early indications of where we think 2024 will be.
Bryan Goldberg: All right. Next question from Rich Greenfield on our subscribers. Is this your first-ever North American subscriber loss? And is that due to churn from the price hike? And how does this inform future price hikes? And did premium churn subs shift to the free ad-supported tier?
Paul Vogel: Yes. So the first part of your question, we actually did not lose subs in North America. So I think what’s going on here is the math is your coming up with a number that’s based on three rounded numbers, right? So you’ve got a prior quarter number, a current quarter number that are both rounded as well as a percentage number that’s rounded. So we actually grew subscribers in North America in line with expectations. Actually, all of our regions performed well from a subscriber perspective and relative to expectations, it was pretty broad-based across the board. So we did not lose any subscribers in North America. It was actually a good quarter there. And so I think it’s just rounding. And if that’s unclear, for anyone, please reach out to the IR team after and we can kind of walk through how that works.
And then with respect to the price increase, as Daniel mentioned in his opening, we feel really good about how that went down. We have — when you think about a price increase, there’s really the two components you’re always going to be focused on. One is anything that elevates churn. And then two, anything that impacts the gross intake in any way. And so what was great was the churn was right in line with expectations. And we talked about in the past when we’ve raised prices that churn had never been that material, and it was similar to this go around. And then I guess even just as importantly, we outperformed on the gross intake side, which is one of the reasons why we outperformed on overall subs. So churn from the price increase is right in line with expectations and then gross intake even better than expected, which led to the outperformance.
Bryan Goldberg: All right. Another question from Justin Patterson on AI. Daniel, Spotify has made a lot of progress with AI through DJ and the AI voice translation pilot. Could you talk about how you view these products affecting listener engagement and creating opportunities for creators? In turn, what type of monetization opportunities does this create for Spotify?
Daniel Ek: Yes. I think the primary way we look at AI is that and certainly, through the tools that you’re mentioning, it is about increasing engagement with the service by creating even more compelling value. And the primary way we think about that is, of course, leveraging AI to create or augment already amazing content. So a great example would be through AI DJ, which mimics some of the behavior on radio, that’s — that companion that provides context around the music you’re hearing and X is doing an amazing job in providing context, cultural context all of the things that you love radio for, but now coming through a personalized DJ for you. I think that nicely scales what AI can do. It can personalize things. It can contextualize things.
