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Artificial intelligence dominated Spotify’s first-quarter earnings call on Tuesday. The company was asked about the opportunities AI presents in improving its lagging advertising revenues and the legal implications of AI-generated music.
The opportunities and risks associated with AI-generated music were highlighted last week when the track “Heart on My Sleeve,” which contains AI-generated vocals that sound like Drake and The Weeknd, went viral. I called.
Created by TikTok user @ghostwriter877, the song has flowed to Spotify, Apple Music, and YouTube, prompting music label Universal Music Group (UMG) to discourage the spread of music pulled from other artists’ work. urged to
The track was eventually removed from Spotify, but the legal justification is ambiguous. “Heart on My Sleeve” is an original song not copyrighted by UMG, although they were able to claim copyright on the sample at the beginning of the track.
Spotify’s legal responsibility to prevent AI-generated music from existing on its platform is vague, but CEO Daniel Ek told investors it accepts an ethical responsibility, but We remain open to innovation with generative AI.
“These are very complex questions with no clear answers,” he said. “We are in constant dialogue with our partners, creators and artists and want to strike a balance between enabling innovation and protecting artists.”
He added that Spotify will likely be more lenient on AI used to augment tracks rather than impersonate artists.
AI can also be used to spark musical creativity and simplify song production, he said.
“It’s great culturally, but we think it’s also good for Spotify because the more creators that use the service, the better it will be, and the more opportunities there are to increase engagement and generate more revenue.” “Because it will increase,” he said. “There is the possibility of a whole new product that could allow users to create their own music, and perhaps he could be the conduit for Spotify.”
In February, Spotify announced an AI-powered DJ that curates music for its users.
More users, less spending
Ek outlined the opportunity AI presents to boost revenue as Spotify weathers weakening ad revenue.
Advertising revenue grew 17% year-on-year to €329 million ($361 million) in Q1, down from €449 million ($492 million) in Q4 2022 . Ad revenue accounted for approximately 11% of total revenue in Q1, compared to 14% in Q4. .
Spotify’s total revenue also fell from €3.17 billion ($3.44 billion) in the fourth quarter to €3.0 billion ($3.26 billion) in the first quarter, but was up 14% year-on-year. doing.
Chief Financial Officer Paul Vogel told investors that the company was “slightly behind on the advertising side”, “around €20 million”.
“The quarter was volatile again. It got a little better throughout the quarter,” Vogel said. “We feel the momentum going into the second quarter, and we saw a similar trend in the first quarter.”
Spotify said it will continue to invest in improving its advertising tools and aims to generate 20% of its total revenue from ads, but Vogel declined to say when it expects to reach that goal. Macroeconomic factors were cited as barriers.
Spotify exceeded expectations in Q1 2023 monthly active users, growth in premium subscribers and reduction in operating loss.
The audio streaming platform increased total monthly active users to 515 million, exceeding guidance by 15 million and recording 22% year-over-year growth. Q4 2022.
Premium subscribers grew 15% year-over-year to 212 million, exceeding guidance by 3 million. However, Spotify’s ad-supported user pace continues to outpace premium subscribers.
Spotify beat expectations by the widest margin in terms of reducing operating losses. Operating loss for the first quarter was €156 million ($171 million), €38 million ($42 million) above guidance. The previous quarter’s operating loss was €231 million ($251 million).
Last quarter, Ek admitted to over-hiring, resulting in a 44% year-over-year increase in operating expenses. In January, Spotify laid off about 6% of its global workforce, or just under 600 people. At the same time, the company announced the voluntary retirement of her chief content and advertising business officer, Dawn Ostroff, with responsibilities assumed by her co-president and chief business officer, Alex Norström.
Spotify’s Ek said it will continue to curb its investment in podcasts in particular. Podcasts He has spent hundreds of millions of dollars on programs and creators to build new media, which has squeezed the company’s gross margins. advertising revenue.
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