Spotify's AI Shake-Up: Insights into the Stock Slump

0:00Recently, Spotify has announced and launched some very interesting AI initiatives. We've also heard from some very prominent investors and entrepreneurs talking about where they think and where they foresee Spotify going in the future. You know, think, find your favorite artist and have AI literally generate an entire playlist of AI generated music in the style of that artist. I don't know if you've seen it, but I have been super fascinated this week going on YouTube and looking up AI generated, essentially like AI generated music by a specific artist. if you go and google johnny cash sings you know ai you're gonna find it's like absolutely mind they have all these new songs um or they have old songs uh and they essentially are just using johnny cash's voice they've trained a model now and it's it's singing a bunch of new songs now i think for spotify this may be somewhere where this goes maybe this is an artist opt-in or maybe the estate of the artist can opt-in to allow people to do this but inevitably i see a lot of tools where essentially if you really like a handful of artists and they don't come up with a lot of new music, an AI will be able to be trained and will be able to just generate new kind of hit songs by those artists.

1:08I think it'll be super interesting. Maybe if you mix together a bunch of artists and make a song and it goes viral, certain artists will have the ability for you to actually receive royalties from that. I know specifically Grimes, the music artist, has said that she'll split royalties with anyone that uses her AI voice to generate music. So I think there's a lot of really interesting and exciting things happening in music. So today on the podcast, we're going to be talking about Spotify and some of their new AI features they've released and what they've been saying in their most recent earnings call about the implications and integrations of AI into the platform.

1:41So without further ado, let's jump into it. So the headline here is that Spotify CEO Daniel Eek, he offered essentially a glimpse into the company's future on their Q2 earnings call today. And he was dropping a lot of hints about the potential applications for AI in their ecosystem. So, you know, we're talking about podcast summaries, AI-generated ads. Eek really talked a lot about more personalization and a more intuitive Spotify experience. So previously this year, they dropped their AI-enabled DJ feature, which essentially gives you a carefully curated mix of music, which is you know essentially helped with machine learning and it has machine learning commentary about the tracks and the artists and it's kind of tailored to each listener's preferences I don't think that this will be the last enhancement in AI and Eek has actually promised that there's going to be a broader application of AI technologies planned to essentially make Spotify a more personalized platform as far as the content goes so this is what he said about that product in particular said DJ is a phenomenal product it's probably one of my personal favorites over the last few years that we've developed and we've seen really strong consumer interactions with it so I think that we're going to see a lot more of that where we can contextualize and personalize content across the entire platform to make it more accessible so again I don't know if they're going to do the AI generated artist music but I think that would be an absolutely amazing feature an absolutely amazing product and you know figure a way to to give the original artist most or all of the royalties I don't care I just think the product itself would be pretty incredible generative AI I think can play a very major role in Spotify's strategy moving forward including I think improving podcast discoverability which is a long-standing challenge in the podcast landscape I would know um and if you don't know I actually release all of my music on Spotify for podcasters So I'm very, you know, I'm very, I have a big opinion on what Spotify is doing.

3:42And I think that the integration of AI into their tools would be very, very awesome. I think the application of AI to create podcast summaries could lead to a more robust, kind of some more robust opportunities, higher engagement and growth for creators. And I was specifically talking to another podcast creator about this today. And the fact that AI is already doing an amazing job if you give it the audio of your podcast or the transcript, it's doing a great job at making show notes and summaries and timestamps and social media posts and all sorts of amazing content based off of what you've generated.

4:15So I think AI's potential to really streamline Spotify's operations doesn't actually stop there. EQ really envisions a future where machine learning helps in generating audio ads, reducing costs for advertisers while enabling them to experiment with a wider array of ad formats across a platform. This is something that is always a massive pain. I've seen, you know, we've seen like Google and some other platforms do similar things with ads, but it is a massive pain when you're as an advertiser, you're like, okay, like I want to get the word out about my podcast or my product or my service or my AI startup or anything.

4:48And now I got to go make like ads. And it's just like, it's, it's a big process. It costs a lot of money. It's very timely and expensive. And of course, there's a lot of people that are incredibly creative and do a great job which i think is great sometimes you just need something simple get you started or to test a product or do something simple i think ai could do some really i mean first off i think ai could do the create the really creative stuff very well too so that is uh you know startling for some people but even some of the more simple stuff like absolutely it'd be awesome if i could just say this is my product go read my product page and generate a podcast audio ad for it boom done that'd be amazing.

5:25This is what Eek actually said. He said, quote, by using generative AI and our tools here, I think you're going to be able to see that we can significantly reduce the cost that it takes for advertisers to develop new ad formats. And that obviously means that you as an advertiser, instead of having one ad, can imagine having thousands and tested across Spotify networks. So this is amazing. And this is a really big implication. He's saying, right, one of the big things is like for Facebook ads, for example, you are going to have one product, but you test new ad creatives all the time. And eventually what happens is even if you have like, let's say you come up with an ad and it's an absolute banger, this thing just sells off the walls, whatever your product or services, eventually you reach ad fatigue, where essentially the audience that you're showing this ad to, they've seen the ad a couple of times and they're just not interested.

6:14They're just not going to click on it. That just happens. Then you got to spend more time and money to make new ad creative. And you have to cycle this thing out every few months or every month even sometimes. Now imagine where you have an absolute amazing ad that's crushing it, and you're able to just use AI to generate 10 variations of the ad that aren't so similar that they'll just continue along with the ad fatigue, but maybe they understand what about that ad made it sell so much, what about the ad made it convert so many customers. And essentially, you eliminate the entire ad fatigue problem and also eliminate the problem of having to continuously make new ad creative for a product that maybe the product was great and there's still a lot of people that would be interested in it if they saw it in a different light or in a different way or addressed a different pain point etc all in all i think this is absolutely amazing i think he's going in the right direction with this i think these you know it's really strategic comments they arrive on the heels of spotify filing a patent for an ai driven text to speech synthesis system so the proposed tech actually converts text to speech and it also kind of does a lot of really interesting things including um you know what people call tonality but it also mimics a range of emotions and intentions even whispering or shouting in different accents so this development suggests that ai's um or that spotify's ai ambitions moreover really extend a lot farther beyond just its dj feature that it's released and i think the potential applications include AI narrated audiobooks that offer more, you know, natural sounding and listening experience, something kind of like Apple's recent endeavor with some titles on Apple Books.

7:49But I think a lot of technologies like that and a lot of technological investments are not without precedent for Spotify because actually back in 2022, they acquired Sonantic, which is a London based startup which specialized in text voice technology. And that was an acquisition that now power spotify's ai dj feature so i think in their most recent q2 earnings call they also shed a little bit of light on spotify's really impressive subscriber count so with over 220 million premium users worldwide they had a 17 year-over-year growth rate i mean the platforms the platform's monthly active users have reached 551 million that is absolutely amazing also that's pretty impressive that of their active users, half of them are premium.

8:36That's very well done. But I think despite that, they had an operating loss of around 247 million euros. That's about $274 million US. Revenue did rise 11 % year over year to around$3.5 billion. And I think this also coincides with Spotify's announcement for a price hike for its premium plans. And I think this is absolutely, absolutely reasonable. If they're adding all these new AI features, all these new AI tools, all these new things, people have to pay a little bit more. And, you know, in addition, we can't keep prices at$10 a month forever as inflation obviously has gone pretty rampant over the last couple of years.

9:17I think it's going to be interesting. We're going to see more software companies raising their prices as well to kind of keep up with that. But in any case, I think they're planning on bumping it to$11 a month from the current, well, from the current$10 a month that it is now. So about a dollar up for individual plans. And then I think they're going to bump it to$17 from$15 for family plans. So all of that makes a lot of sense to me, but I think that it is a really interesting time to be watching the music industry. I think there's going to be a lot of really amazing innovations because of AI and everything going on there.

9:51So this is definitely an area we're going to want to follow. But one last thing I wanted to say is actually after they announced all of this new AI stuff, and I mean, they announced that they had growth, but because they were not profitable, their stock price still tanked over, I think, 13 % or something. So it's not like growth alone and AI news or AI buzz alone is going to hold that stock price. They really still need to focus on profitability and making sure that they are able to make a profit on this absolutely massive platform that they had. So this is something we'll definitely be following into the future.