Big news just dropped in the audio industry. On Feb. 22, Spotify (SPOT +1.16%) hosted its virtual "Stream On" event, announcing new products and laying out its roadmap for the next few years. These announcements, and the subsequent products and features coming to the Spotify platform, will work together to improve the user experience, help advertisers reach their target audiences, and contribute to the long-term growth of the company's stock price.
Here are some details on how it plans to do these things.
Image source: Getty Images.
Spotify's user experience gets upgrades and an expansion
Spotify announced multiple upgrades to its product at Monday's event. However, the most important was the surprise announcement that the service was coming to 80 new countries worldwide. According to Spotify, these new markets have over 1 billion people and over 500 million internet users. Hundreds of millions of people in places like Nigeria, Pakistan, and Bangladesh can now access Spotify's streaming library. All they need is an internet-connected device.
On other fronts, Spotify's R&D team announced it would continue to work on content recommendations by improving its algorithms and pairing them with an editorial team of over 100 experts. It also wants to bring its recommendation engine, something that has given the platform a distinct advantage for music streaming, to spoken word content (i.e., podcasts). This not only improves the user experience on Spotify, but it can help podcast creators reach wider audiences across the globe.
Last up on the user side, Spotify announced it was releasing HiFi, a new tier to its subscription offerings with ultra-high-quality audio. The tier allows audiophiles to listen to the high-quality sound they want while paired with Spotify's market-leading recommendation engine.
Advertisers on Spotify get promotional help
With advertisers, Spotify's announcements fall into two buckets: Podcasting and music. With music, Spotify announced that its new release promotional tool called Marquee will now be available in the U.K, Ireland, Australia, and New Zealand (it was initially only available in the U.S.). More importantly, Marquee will now work as a self-serve advertising platform in the U.S, meaning that any artist can now promote their new songs/albums on the service. Spotify also announced Discovery Mode, a promotional tool where labels and artists can select specific tracks to be featured in a user's listening queue. While you may think this is just a way for Spotify to extract more money from artists, early tests have shown (at least, according to management) that artists who use Discovery Mode have increased royalty payouts by up to 75%.
With podcasting, Spotify is working to get its streaming ad insertions (SAI) technology to Anchor and Megaphone, the two hosting services it bought over the last few years. This will help creators monetize their work, but also improve the targeting capabilities for advertisers on the medium. Of course, Spotify will keep a cut of every dollar spent on the platform.
Shareholders should see improved financial metrics
With 1 billion new users now eligible to join the service, 500 million of whom already have access to the internet, Spotify has improved its chances of hitting 1 billion users, a long-term goal CEO Daniel Ek and management have set out for Spotify. It currently has 345 million users. This is good for shareholders, as more users mean more advertisements and more subscribers eventually paying for its premium tiers.
HiFi, the ultra-premium offering mentioned above, will raise Spotify's average revenue per user (ARPU), while also improving the user experience. This is good for shareholders because of the new revenue it will bring in and the potential increase in user retention.
Podcast advertising is still in its early days, but with SAI and the acquisitions of Megaphone and Anchor, Spotify has set itself up to capture the $30 billion in global terrestrial radio spend as it transitions to on-demand content. This will be good for shareholders, not only for the increase in revenue it will bring but in how it will increase Spotify's gross margin profile over the long term.
There was a lot to digest from Spotify's "Stream On" event. Countless new products were announced for users, creators, and advertisers that use the Spotify platform. I got to fewer than half of them in this article. But overall, with the service expanding to 80 new countries, podcast content growing rapidly, and its promotional marketplace finally bearing fruit, investors in Spotify can be confident management has set this business up to grow for many years to come.
