CNBC Unique: CNBC Transcript: Spotify Know-how S.A. (NASDAQ:SPOT) Co-Founder and CEO Daniel Ek Speaks with CNBC’s “Squawk on the Street”
WHEN: In the present day, Wednesday, February 6, 2019
WHERE: CNBC’s “Squawk on the Street”
The following is the unofficial transcript of a CNBC EXCLUSIVE interview with Spotify Co-Founder and CEO Daniel Ek on CNBC’s “Squawk on the Street” (M-F 9AM – 11AM) immediately, Wednesday, February 6th. The following is a link to video of the interview on CNBC.com:
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JIM CRAMER: All proper. Spotify, I’m an enormous consumer. David’s an enormous consumer. I do know Carl is as properly.
DAVID FABER: Yes, we are as properly.
JIM CRAMER: They only purchased two podcasts. Firm can also be out with earnings. It was a nice beat this morning. And this can be a massive, special exclusive interview for us. We’re quite enthusiastic about this Spotify’s Co-Founder and CEO Daniel Ek, proper right here, submit 9. Daniel, I’ve acquired to ask you, right upfront, podcasts: I perceive they’re purple scorching and what we would like is an aggregator. I didn’t assume that a music firm would do it, but I do assume that an audio firm would do it. And hat’s what that is about, isn’t it?
DANIEL EK: Yeah, it’s actually about expanding our mission from simply being about music to being about all of audio and being the world’s leading audio platfor. And what we are seeing, really is — we’ve got accomplished podcasts for 2 years. It is — our users are listening to podcasts are listening to the platform virtually twice as a lot. And, in fact, the growth in podcasts for us has just been phenomenal. And that’s a part of the rationale why we’re now making this transfer.
JIM CRAMER: I might also imagine that podcasts are a gateway drug for the rest of your products.
DANIEL EK: Indeed, yeah. I mean, nice instance can be we had in the fourth quarter Amy Schumer and Joe Budden on the platform. These are all interesting to very several types of audiences who at the moment are making an attempt Spotify for the primary time and noticing all the advantages that the platform has.
JIM CRAMER: Now, you’ve obtained a Netflix lineage. We’ve received Barry McCarthy, the CFO who is sort of — let’s say he’s pertinent or germane on the conference call and he says things that I feel are a bit unusual. However yuou use algorithms, you all the time seem to know – for example, we use Spotify at our restaurants, we all the time – we’re never fearful, you all the time seem to know what we would like. How is that attainable?
DANIEL EK: Nicely, it’s really all right down to the group of each editors and the machine studying staff that we’ve got at Spotify. And we’re taking a look at greater than 16,000 alerts every single day as we take a look at your taste profile and try to rank you the belongings you like probably the most. So I’m glad that that’s working properly in the product.
DAVID FABER: You already know, there have been those that thought that podcast was a fad. Why would we return to one thing like speak radio? You’re finding it isn’t. The listening patterns are consistent. Is there real progress in the potential viewers, although, as properly?
DANIEL EK: Properly, the growth has been actually spectacular for us. And just shy of two years we’ve turn into the second largest podcasting platform. The varieties of experiences that we’re seeing podcaster doing is vastly totally different than simply the traditional speak show radio. There’s actually exhibits like Serial, which is drama that’s acted out, and there’s youngsters’ exhibits that at the moment are coming, together with news, The Day by day, being great examples of podcasts which might be doing very, very nicely.
DAVID FABER: Your buyers, nevertheless, might take a look at your stock immediately, down a bit and in addition kind of marvel concerning the long-term, which I know you’re interested by. You recognize, one question I obtained from various people who owned the inventory for a while, what about long-term steerage in your margins? Which I feel you stated it was between 30 and 35% sooner or later. Does that harm — does this new effort harm that long-term steerage on margins? And will they anticipate perhaps a unique metric?
DANIEL EK: No. We’re staying steady with our long-term margin objective. We never stated that it might be a linear path to get there. However I feel taking a look at it in our fourth quarter outcomes you’ll be able to see that the margin is going up. It is extremely robust. Our core enterprise could be very robust. What we’re doing now in 2019, nevertheless, is we’re investing in additional unique content on the platform. That may broaden the attraction. It should broaden the engagement, which in fact is a digital cycle that then grows the platform and leads to extra profitability long-term.
JIM CRAMER: You realize, I’m following you guys pretty intently and like your organization ever since you turned public. And one of the things I assumed you’d do just isn’t get trapped by the four calls of the spreadsheet. I view you as Netflix, the extra nice content material that you simply add, the more I need to own the inventory. I don’t really care, issues occur as Barry McCarthy stated when it comes to the range in the present day. Why are you trapping yourself? Why are you not going with one thing which just says, you recognize what, we received a Netflix concept here, Mr. McCarthy is from Netflix, we perceive the more content material we add, give us an opportunity, don’t take a look at this as a snapshot, if you wish to know the key metric, promoting, going to premium, is what we care about. Why did you revert to traditional steerage when your organization is greater than that?
DANIEL EK: Properly, I mean, again, we now have all the time strived to be a very clear firm and we do give numerous detailed numbers on the steerage. And clearly this can be a new enterprise line for us. However I feel the best way in wanting at the potential of the enterprise, it is extremely rather more to be stated. We are investing in more unique content that may broaden the attraction of the platform. And as we’re doing that, we consider clearly subscriber, engagement will go up which increases our long-term opportunity.
DAVID FABER: We all know what Netflix spends a yr to accumulate content. It’s nothing like the place you’re, I mean, we’re talking 12, $15 billion a yr. However are you able to give us some sense of what your expectations are when it comes to how a lot you’ll spend to accumulate this unique content?
DANIEL EK: Yeah, I mean, once more, it is really right now from a very low base. However I don’t assume it’s unlikely that it’s Netflix sort of story than if the magnitude of the numbers gained’t be the identical, of us doubling that investment yr over yr to get increasingly more content material.
DAVID FABER: So you do see your self doubling probably how much you’re placing in the direction of unique content material, which might sometimes come in the form of podcasts, I assume, or of audio versus —
DANIEL EK: Yeah. Exactly. We’re undoubtedly investing much more in getting extra unique content material on to the service and you need to anticipate that going forward. And as long as we’re seeing value of engagement numbers, the content, we’re investing in, you must anticipate this to make these investments.
JIM CRAMER: it’s humorous. I just like the Apple service income stream. And once I saw it, I know this company, the large one, it’s a Brooklyn company, so I adopted Brooklyn corporations as a result of I lived there, I was hoping that Apple would make this acquisition. The cause I say that’s because individuals don’t — until you take heed to the podcasts, they’re very millennial, and they are very much the best way individuals multitask now. Do you see yourself shopping for all of them which might be left, so that I do know if I would like — that you simply turn out to be synonymous in podcast?
DANIEL EK: I don’t assume we’ve got to purchase all the corporations which might be in this area. There’s a large – a whole lot of these corporations. What we really feel very strongly about is we need to be in the recreation, we need to be the platform that these creators come to and go to. And, again, as you talked about, I might say — we’re very much targeted on being audio video is a large area. It has the attention of everybody right now. However we expect audio being virtually two hours of consumption per day is an enormous alternative that no one is basically listening to.
JIM CRAMER: Wow –
DAVID FABER: You stated you might have line of sight, sorry, Jim, on four to five million on multiple acquisitions this yr. And then you definitely just stated which will double, am I right? So it could possibly be as a lot as a billion in 2020?
DANIEL EK: Not likely when it comes to simply acquisitions. What I was talking about our content investments that we’re making. So a part of what you must look when it comes to our going forward forecast is both acquisitions, but then it’s also our own efforts in investing in creating these exhibits. We had 14 exclusive exhibits within the fourth quarter of 2018. We’re doubling down on that. And we need to grow the number of exhibits that we now have.
JIM CRAMER: I am so impressed with the subscribers by region. It’s something that you simply initially informed me, your company advised me might happen. Just gonna go— 30% North America. Latin America, 20%. Rest of world 10. You’re pretty much, year-end right here, you’re up 40%. Does podcast, do they fly in each region?
DANIEL EK: Sure. You’d be stunned. It has grown very, very fast. Germany is a superb instance. We’re already there. The number one participant of youngsters exhibits proper now, so you see younger shoppers are going to mattress with Spotify, listening to tales in an enormous, huge approach. So, even the notion in Germany wouldn’t be that Spotify is nearly music, it is actually all about audio already.
JIM CRAMER: So that is necessary as a result of once I watch Netflix, I by no means watch it in dubbed. I all the time watch it — you need to watch the titles, it is a totally different show than should you pay attention. Will you translate everyone’s great stuff for United States?
DANIEL EK: I feel there’s undoubtedly that opportunity of taking the exhibits which are working rather well in these totally different geographies and translating them the world over.
DAVID FABER: What concerning the automotive? Do you will have a sense as to how many people are listening to you in an vehicle?
DANIEL EK: Yeah. I imply, we’re doing very, very nicely within the automotive. I feel last number we gave out is that there is greater than 50 million of our customers who’re utilizing Spotify within the automotive. So it is undoubtedly an enormous part of our business.
DAVID FABER: And do you — do you’ve any sense the expansion of that? Clearly there’s competitors within the automotive within the form of Sirius, which many people know, however even beyond that, a number of the others. Is it growing substantially?
DANIEL EK: It is rising really, really substantially. I feel the number one metric that we take a look at is twin platforms. What number of of our customers are utilizing it on multiple platform? And what we’re seeing is that that number is growing dramatically as extra audio system come into play, as automobiles are getting increasingly more related. So it is really an enormous a part of our story. The other factor that we see is these individuals are greater than twice as engaged as the typical consumer as properly. So it is a vital a part of our general story.
DAVID FABER: Whenever you take a look at the aggressive landscape, Daniel, obviously you have been early, you type of — in the days of piracy, you reworked and really streaming, you’ve been the leader. However Apple is out there with a product. We don’t speak fairly often about it. Amazon. They’re each extremely deep pocketed corporations. Do you consider in the event that they needed to that they conceivably might spend enough money to push you out of your main market place?
DANIEL EK: I imply, these are formidable corporations. Little question. However what I take a look at is obviously how our enterprise is doing and we had an outstanding This fall. The other part that I take a look at is we’re really simply targeted on audio. That’s how you need to take a look at this. There is a ton of issues that these other corporations are doing, self-driving automobiles, no matter other companies they’re into. And I consider these days that that you must be very, very clear together with your brand, what you’re for shoppers, to ensure that them to take it up. And one of the best expertise wins. And now we’re including one of the best content to that as properly. And that’s now Spotify.
JIM CRAMER: I don’t know whether or not you’re acquainted with Tien Tzuo’s work from Zuora, however the subscription financial system and subscriber’s, it’s a fantastic ebook, he all the time says ‘Watch churn.’ Churn exhibits you loyalty. You’ve obtained a few of the stickiest churn I’ve ever seen.
DANIEL EK: Yeah. And it is trending as you’ll be able to see, the churn is decelerating.
JIM CRAMER That’s constructive – we should always tell folks that that’s good.
DANIEL EK: Yeah, yeah. Churn is certainly decelerating which is a really constructive metric that we’re holding monitor of. And naturally, on the similar time, you need to take a look at the announcements that we’re doing immediately – as I mentioned, it broadens the attraction of Spotify, it increases the engagement. If it will increase the engagement, we expect it has the opportunity of additionally decreasing churn even additional.
JIM CRAMER: And the way about Google?
DANIEL EK: Yes, Google is clearly the identical class as I assume all the different F.A.N.G. corporations.
DAVID FABER: It wasn’t that long ago that you simply guys went public. I keep in mind it. I don’t assume you have been truly even right here on the time. You selected to record as opposed to increase capital. Are you proud of that decision?
DANIEL EK: I am. Certainly. It was obvious that a massive determination for us to make, however it felt just like the Spotify means of doing it. It wasn’t just about doing it for the sake of everyone else doing it. And we’ve all the time stated that we’re a long-term considering company, and I feel we proved that with that transfer.
DAVID FABER: Tell me more, what does “the Spotify way” then imply? It just means doing it in a different way or the best way it is advisable?
DANIEL EK: It’s about being clear and it is about, on this case, making an attempt to align the incentives of everyone. And in our case, we didn’t need to boost further capital. And we needed a method to offer not simply our present shareholders with liquidity, but in addition our staff. And that was an essential part for me of avoiding that traditional lockup course of for our staff.
DAVID FABER: And nicely, for the sake of transparency, we’re very joyful to have you, but type of curious as to why you’re all of the sudden speaking on this method. Can we anticipate to see extra of you in this kind of a public setting, articulating a number of the belongings you’ve simply achieved right here? Or is that this going to type of be a one-time only and we’ll never see you once more?
DANIEL EK: No, I definitely hope to be out there and clear. That’s definitely what we need to be as a company. And I might encourage each of you or everybody else, by the best way, to succeed in out to me on social platforms and I’m glad to answer questions there as nicely. However I feel this is obviously — marks a shift when it comes to individuals’s notion what have this firm is. And that it’s essential for us to state very clearly why it’s and that we’re enthusiastic about this future.
JIM CRAMER: Let me go back to something that we needed to drill down on — sharing stuff. This Google. I didn’t need Google to be a throwaway. The premium subscribers. Google Residence promotion marked the primary hardware bundle supply ever in history. This labored huge for you. Are we going to see Amazon? Are we going to see — who else do you do that with? As a result of to me this is premium, and premium is the best way that I need to decide you.
DANIEL EK: Yeah. I mean, we now have as a core part of our strategy we name Ubiquity, which is being on all platforms.
JIM CRAMER: Good.
DANIEL EK: So we’ve acquired 500 of these partnerships going, and clearly what we noticed was our members have been asking for these voice audio system. We noticed a transparent opportunity to offer that with a tremendous experience. We saw that individuals who have been already fans of the google assistance needed the Spotify experience, so we’d be completely happy to increase that so Samsung, in fact.
JIM CRAMER: Proper.
DANIEL EK: And completely happy to work –
JIM CRAMER: Samsung’s automotive, because are you able to do with Infotainment and do it with HARMAN.
DANIEL EK: Yes. In fact.
JIM CRAMER: What do you think of Facebook?
DANIEL EK: Fb, once more, is an exciting company. We now have an extended relationship with Fb. If there are opportunities, we might like to work with them.
JIM CRAMER: So you don’t thoughts what occurred with Facebook when it comes to the world — you are a firm pushed by morality. You haven’t any drawback with Facebook.
DANIEL EK: No, look. I mean, at the finish of the day we need to be where our users are.
JIM CRAMER: Truthful enough.
DAVID FABER: Simply getting back to many so of the financials and issues that a few of your buyers care about. What are your expectations when it comes to negotiations with the labels and what’s going to truly happen there?
DANIEL EK: Nicely, our focus, and I consider that’s their focus as nicely, is basically about: how can we develop the complete music business? I’ve stated earlier than on our earnings call that the main target for us in these round of negotiations is basically about enabling the marketplace. And that’s an important point because it isn’t some extent about them dropping and us profitable or taking the factors of the margin right here or there at their expense. It’s really about eliminating the inefficiencies that exist in the music business by creating tools that make it easier for artists and fans to connect and making it easier for labels to market their, you understand –
DAVID FABER: You’ve entry to monumental quantities of knowledge that conceivably can be useful when it comes to the place individuals are listening, how they’re listening and who they are listening to.
DANIEL EK: Precisely, including the 16,000 knowledge factors that we’re gathering each single day by way of the style profiles. That’s a huge half that we’re capable of connect these two in a means where it’s constructive for customers and really constructive for artists as properly.
JIM CRAMER: I don’t need to be too Bobby Kennedy-like, but if we just take into consideration now, no, but if we dream things – the stickier you’re, I’ll go back to the churn, I imply, lots of people checked out Netflix at $6.95, They stated it’s never going to be something. I mean, once I see the low churn, I feel that at some point you can increase costs, that you simply’re slightly bit extra stickier, and, subsequently, we ought to be modeling greater costs down the street.
DAVID FABER: $14.99 is enough, I feel.
JIM CRAMER: No, come on.
DAVID FABER: What do you assume?
DANIEL EK: I imply, look, again, all I can say right now’s we’re on this rising the market part. We’re not in – making an attempt to seize all the income aspect.
JIM CRAMER: David, take the business aspect. Go take heed to the commercials in case you have an issue with 14.
DAVID FABER: I feel we need to get into the podcasting business is what I feel.
JIM CRAMER: Daniel, it was nice that you simply got here on. I hope you come again again. Daniel Ek–
DANIEL EK: Sure. Thanks for having me.
JIM CRAMER: — with an unbelievable firm that folks higher start understanding, as a result of they’ll need to solely stock if they do moderately than the ridiculous four partitions that the analysts are coming with — with the neutral. I’m not impartial.