Paul Vogel: Great question, Michael. In terms of the progress on the music margin goals, we see a lot of potential in the growth of our marketplace products as we continue to focus on driving adoption of those and adding value to our label partners and therefore sort of building upon the progress that we’ve already made to date in that area. In terms of 2024, I think you’ve called out some of the key levers with respect to your comment on Q1. Really, the story of 2024, I think, can be broken into sort of these three parts. It’s a continuation of the journey on profitability and podcasting. It’s the continuation of marketplace growth, as I mentioned, and also just gaining greater efficiency and leverage in our other cost of revenue areas such as cloud cost and streaming delivery. We think all three of them are equal parts importance to the story in 2024. And so we’re looking forward to building on that progress there.
Bryan Goldberg: Okay. We’ve got a question now from Rich Greenfield on advertising. With advertising revenues still under 14% of your revenues. I’m surprised to see it’s not growing faster than subscription revenue. How do you accelerate advertising growth to reach your goals of it becoming 20% plus of your overall revenues?
Paul Vogel: Yes, I’d say a couple of things here. So first, I think, we’re very pleased with how advertising is growing. Obviously, the market, a lot of ways continues to be choppy, but our FX-neutral high-teens growth on the advertising side, we think is really strong and really strong relative to the industry overall. So we feel good about kind of the advertising growth. That’s number one. Number two is, we’ve obviously seen on the subscriber side, it is faster growth on subscribers in general, plus we’ve had a price increase. And so just the overall growth on the premium side has probably been even faster than maybe we would have thought and others would have thought when you factor in both the outside subscriber growth and the price increase.
And the last thing I’d also just remind you of the advertising business does get impacted more significantly by FX than the premium business. And so when you’re thinking about just reported numbers, that also has an impact on sort of the progression. But I think we feel really good about both sides of the businesses right now. So everything is progressing as planned.
Bryan Goldberg: All right. We’ve got a follow-up from Rich Greenfield on podcasting. How should we think about the revenue opportunity and gross margin impact of shifting from an exclusive podcast like Call Her Daddy or Joe Rogan to nonexclusive?
Daniel Ek: Yes, Rich. So I think to kind of up level and talk about it generally and remind people. So when we walked into podcasting, we actually went in with multiple strategies at once. We did exclusives that you’re referencing to, but we also did our own and original programming, and we also did licensed nonexclusive deals, too. And what we said at the time, I think many people mostly sort of make a reference to thinking that this was an all-out exclusive effort similar to that of Netflix. But we said we take much more of an opportunity approach to the strategy and we’re going to try many different things. And for some shows, exclusive matters for some others, it don’t. So I think the general story, just to be candid here with all of you on the line is that, what we’ve seen is that while exclusivities were net positive on the side, it’s not driving as much as the opportunity that we see on the ad side.
And so by broadening distribution, we think we can accomplish a number of different goals. Most notable among them, we are going to be more aligned with the creator. The creator obviously wants to be on many different platforms and wants to have as big of an audience as possible. So that’s important. And then the second part is, when you think about the revenue growth story on advertising, we’re very excited with what we’ve been seeing in early 2023 with these new types of deals that we’ve been structuring because we really become aligned with the creator. And long-term, that is the reason why I started Spotify. We care equally about consumers, and we care equally about creators. So I feel like with this new strategy, we’re actually even better aligned with the creator because we’re not asking the creator to trade one for the other.
And because advertising is in such a strong growth position for us, I feel I’m really excited about the opportunity we can bring both the creators and to Spotify itself with that strategy.
Bryan Goldberg: Okay. Our next question comes from Zach Morrissey on Marketplace. Can you provide an update on marketplace and how that performed in 2023? And how should we think about momentum into ’24?
Paul Vogel: Yes. Marketplace performed really well in ’23. The growth rate, basically the contribution to gross profit grew at similar rates to 2022. So really strong growth in ’23. And then just to reiterate what Ben said prior about overall gross margin, when you think about the improvements and gross margin moving to 2024, marketplace will be a key contributor, again, along with the podcasting flip and some of the other costs of revenue.
Bryan Goldberg: Okay. We’ve got a follow-up from Zach. You saw strong subscriber growth and marketing leverage in 2023, how are you thinking about marketing spend in 2024? And do you see more room for further efficiencies?
Daniel Ek: Yes. And just as a reminder to everyone, this is something I talked about, I believe, during the Q1 earnings call in 2023, where I was positively surprised in some of the efficiencies we were seeing and still sort of healthy top line growth. And that trend has been continuing for much of 2023. And the reality is we don’t know how far that will go. I feel good about the efficiencies we’re seeing so far. The big concern always when you’re making these things is you may see some healthy positive responses intra quarter, but then long-term, are you impacting the brand. So we’re always going to modulate towards that. But I think what we’ve been seeing so far has just been pure efficiencies and quite great ones. And I expect there’s still some, but the question is still internally, we’re still debating how much?
The most important thing for us, as I said, is long-term growth still for the company. So that’s what we will optimize for. And I think you’re going to see us modulate between the quarters. Some quarters we may spend a little bit more on, some less. The most important metric for all of you, though, is to think about the LTV to SAC. We referenced this before. It had been in 2022 and ’23 going down, the efficiency in some of our spend. Now you’re going to see a higher hurdle rates. So we’re going to be a lot more diligent as we’re thinking about these marketing investments overall. But the spending quarter per quarter may be more opportunistic, and you should think about it as such. But if you see a strong LTV to SAC, why wouldn’t you? And that’s the approach we take.
Bryan Goldberg: Okay. Our next question is going to come from Eric Sheridan on operating priorities. Following your fourth quarter restructuring, what’s your updated view about balancing long-term growth investments, accelerating the pathway to long-term margin targets in the next few years and/or optimizing internal efficiency on an annualized basis?
Daniel Ek: Yes, I’ll start and then Paul or Ben, if you want to chime in on that. Yes, I mean, I really talked about it in my introductory remarks, but it is a new way for us to operate as a company, one where we’re consistently thinking about efficiency all the time top line. We started doing it in early 2023, and I think we are gradually becoming better quarter-by-quarter. And I think investors should expect the same much for 2024. We are going to continuously look at being more resourceful with the resources we have. That’s just the new modus operandi that we have. But that said, that obviously leads to a concern then, okay, well, are we doing that to sacrifice at the expense of growth? And the answer should be, of course, not.
