Spotify Technology S.A. (SPOT) Management Presents at Morgan Stanley Technology, Media and Telecom Conference (Transcript)

Spotify Technology S.A. (NYSE:SPOT) Morgan Stanley Technology, Media and Telecom Conference Call March 1, 2021 1:15 PM ET

Company Participants

Ben Swinburne - Morgan Stanley

Conference Call Participants

Paul Vogel - Chief Financial Officer

Ben Swinburne

[Technical Difficulty] media analysts. Good afternoon. Quick disclosure statement, please note that important disclosures, including my personal holdings disclosures and Morgan Stanley disclosures, all appear on the Morgan Stanley public website. We’re really excited to welcome back to the conference virtually this year, Paul Vogel, the CFO of Spotify. Paul, it’s great to see you again. I feel like it’s only been in a week, but I miss you. Thanks for being here with us. Appreciate it.

Paul Vogel

No, I appreciate it, Ben. Thanks for having me.

Question-and-Answer Session

Q - Ben Swinburne

Absolutely. So listen, we – as most folks know, a week ago today, you guys had your Stream On event, which was really your first sort of multi-stakeholder presentation externally since the direct listing 3 years ago. So there was a lot that you guys went through in a relatively short period of time. What do you want us on the investment side to take away from last Monday’s event?

Paul Vogel

Yes. So I’d say a couple of things. I think for starters, if you take a step back, just to sort of reiterate kind of where we’re coming from. We said we wanted to be the largest global streaming audio player, and that’s sort of the mission, and that’s sort of, at a very high level, what we are trying to reinforce. And through that, it was highlighting the tools we’re developing for creators and real early leaning into the creators, both on the music side and the non-music side as well on the consumer side. And so if you think about what we announced and what we were excited to announce, it was, obviously, the launch of new markets, right, so 85 new markets, bringing us to 178 new markets. So that was number one. Some new products like HiFi, new content initiatives, so things with DC Comics and obviously, a lot of press around the podcast with President Obama and Bruce Springsteen. And then a number of creator tools, both on the music side as well as on the podcasting side. I mean I’d say probably, lastly, is the developments on the advertising side and the audience network we’re developing and bringing to the forefront there. So for us, to your point, we know we haven’t done any thing public-facing at this scale. It was definitely more of an event geared towards the creator community and the consumer community than specifically the investor community, which was our last big public thing, was really Investor Day. This was sort of – hopefully, the investors got a lot out of it, but it was also really to speak to all the things we’re doing on the creator side, the content side and the consumer side.

Ben Swinburne

No that makes sense. You guys covered a lot of stuff across a lot of different areas. I wanted to start maybe on the 80 markets that you launched or are launching right now. I think you got us accelerated that launch. And I was curious if you could talk about why. And also, how do we think about the benefit of Spotify’s results from these markets maybe compared to prior launches that you guys have done?

Paul Vogel

Yes. I would say I am not sure if we accelerate. I think we’ve always had a plan and sometimes, depending on which markets we go and sometimes we do one at a time, sometimes we do them in clusters. But I think, at this point in time, we feel like it was the right time to sort of go all in on the number of markets we can launch at one-time. For us, it’s a couple of things. I think one is, as I mentioned at the outset, our goal is to have 1 billion users and have over 1 million creators live off their art, right? That’s part of our mission statement. And so in order to get to 1 billion users, we need to be everywhere we can be. So that was really it. And then you will see, hopefully, it will impact, over time, our user growth and then our subscriber growth as well. It’s very different types of markets. Some of them are bigger, some are smaller. A lot lots of them have Internet penetration that is some of the fastest in the world, but also not as developed as some of our more mature markets. And so that will be a combination of growth in those markets, seeing the Internet penetration and mobile penetration grow and then watching us grow right along with it.

Ben Swinburne

So do you think, at least in the early parts, let’s say, the next 12, 24 months, this is largely an MAU tailwind versus a premium user tailwind? How would you think about that potential?

Paul Vogel

Yes, I would say – probably, yes. I mean, as you can I imagine, in most markets, even in the more developed markets, you kind of lead with users. And as we’ve talked about, our ability to convert free users and the paying users has been one of our strengths. There is nothing to – for us to – in history that would, in any way make us think that, that wouldn’t be the same. Now obviously, a lot of these markets are different, as I talked about. They are less mature, less developed. So how long it takes, we’ll have to see, but you never know, right. We, obviously, added – not obviously, but we did add a lot more users and subscribers in Russia, much faster than we thought we would. So there are some markets where they are not really – that didn’t really change and then we will see. There is a lot of markets with a lot of growth potential.

Ben Swinburne

Makes sense. Probably the other area that I got the most inbounds regarding last week beyond the 80 markets and the impact on ‘21 is around your gross margin commentary. So obviously, you know that’s a big debate on the stock. And you raised the high end of your guidance – long-term guidance to 40% gross margins. Can you sort of unpack for us, if we go back to the direct listing, and now, today, 3 years later, what is driving that higher-margin outlook in your mind?

Paul Vogel

Yes. So for us, it’s a couple of things. I think: one, if you look at the ranges, the low end hasn’t changed. I think a lot of low-end is kind of the things we’ve talked about and thought about. And there is really nothing there. And so, to your point, what do we do is we sort of raise the upper end of that range. I mean for us, it’s just the optionality of all the new initiatives and all the investments that we see over the next 3 to 5 years. And so if you think about the opportunity in podcast, and when you think about the opportunities in ad network, right? A couple of years ago, there really wasn’t as much of a thought around us being and creating an advertising network. And now we think that’s, obviously, something we’re developing and building. And we think if it goes really well, there could be upside there to margins in initiatives like that. And there is obviously other things we’re working on that we didn’t even announce, the Stream On in terms of products or innovations or – I keep using the same word, but sort of optionality, the types of things we’re doing. So I think we feel good about that lower end and being able to sort of hit that lower end, which is what we’ve talked about for the last couple of years, sort of long-term very, very doable, very realistic margin of that 30%. And we think with all the initiatives we have and a lot of the things that we haven’t even announced it, we think there is potential for us to maybe even do better than we thought when you look back 2 or 3 years ago.

Ben Swinburne

Okay. And I’d imagine long-term is where we’re going to stay from a timing point of view and anything more specific for us at this point?

Paul Vogel

Yes, we’re going to stay long term. We’re going to stay long term, but we do – but we have modeled it out. I think some – there was some questions about how much of this is just kind of sort of pie in the sky thinking how much have we actually modeled out. And I can tell you, we’ve modeled out all different scenarios. We’ve mode out long-term opportunities. And so, again, whether or not we hit the low end or the upper end, we’ll have to see how things play out over the long term. But we have been thoughtful about the types of things that could drive us to the lower end of that range and things that could drive us to the higher end of that range.

Ben Swinburne

Okay. And not that you didn’t have enough going on last week, but you also raised some money, I wanted to ask you, you and I haven’t chatted about this since you guys launched the – or raised the capital, but you brought in about $1.3 billion of exchangeable debt. And you – as you’ve noted, you have a lot of cash. You had, have a lot of cash on the balance sheet. You have a $2 billion-plus liquid investment in Tencent Music. You’re free cash flow positive. What do we take – what should the market take from this capital raise, which significantly increased your wallet?

Paul Vogel

Yes. I mean, I think the way we think about it is we’re being opportunistic in an area where we think it makes sense. I think when we look, again, at – over the long term, we see a number of opportunities for growth in innovation. And for us, it was really just ensuring that we had the capacity to execute against whatever it is we see over the intermediate and longer term. And there is nothing in the near-term that sort of necessitates us doing it right now. But our view is we obviously want to be the largest player in this space, we know there is lots of opportunities for us to invest. We’ve been obviously acquisitive in the past. Who knows if that continues. We obviously have lots of internal investments we want to make as well. And so for us, it was – we felt like we could have a successful offering, strengthen our balance sheet to the point where, whether it’s now, whether it’s 2 or 3 years, we’d be happy to have that cash on the balance sheet. And we’ll be thoughtful about it. I think I will continue to think about what’s the optimal capital structure for the business. We’ve gotten the question before about, to your point, the fact that we have almost $2 billion of cash prior to the convertible note, and we’re free cash flow positive. And so we’ve talked about sort of winning an optimal capital structure. So we fully, fully recognize that. But I think we looked at it and said, the market was pretty conducive for us to be able to ensure that over the next 3, 5, 7 years, we have the opportunity to invest in however we want.

Ben Swinburne

Okay. Makes sense. Let’s go back then a few weeks prior to your results and your guidance. You guys had a really strong 2020. It’s an interesting year, particularly with COVID. It’s sort of, still, I think, a debate as to whether COVID helped or hurt 2020 results. But I hope you could talk about kind of what you take from last year, and how the business performed? And then talk about the 2021 user guidance, which is obviously for a deceleration. That’s obviously an area that investors are quite focused on as well.

Paul Vogel

Yes. So let’s start a couple of things. So clearly, we think it was both helpful and a hindrance in a couple of ways. Obviously, we talked about, from the advertising side, Q2 and Q3 obviously we saw the impact like a lot of people did from the advertising side. When you look at it from a user perspective, we did beat our expectations from where we started the year to the end of the year, both on the user side, the MAU side and on the premium side. When we look at the Premium side, I think we talked about in Q4, some of that, we think, obviously, came from Russia, where we said we did better than expected. But we still beat by about 4 million to 5 million the number of subscribers we had at the end of the year. We – our guidance range implied sort of a 150 million plus or minus when we started the year, we ended up finishing at 155 million. And so it’s a pretty significant increase. At the time, it was hard to sort of isolate anything in particular. We didn’t have 1 quarter. I know there was some other companies in the subscription business that had sort of 1 quarter where just kind of blew through the roof and everything was sort of – we didn’t have that, but we sort of steadily beat every quarter. And so the question is how much of that was just better execution? How much of that was the content? How much of that was podcast? How much was maybe a tailwind from just streaming, in general, doing well in a COVID world? So it’s hard for us to completely disaggregate all of them, but I think we definitely feel like that there is a tailwind from a user perspective, even though there was probably a headwind on the advertising side. And then the other thing I would probably highlight is just honestly, how resilient the team was, and how unbelievably productive we were. I mean, we didn’t miss a beat in terms of productivity, in terms of measuring the productivity of new products and getting things done. Again, obviously, the numbers came through, which is a testament to the team being able to execute against all the things that we wanted to do. And so it was really exciting from that standpoint. It’s obviously very disruptive. But the fact that we were able to execute the way we did was really great. And I think the only thing I would say, I think I touched on this on Q4 is we have been sort of thinking about – and I’m sure we’ll get to this later, about price increases and how to think about price increases. We did push back any discussions around price increases throughout 2020 because of the economic environment, we just didn’t think it was the right thing to do last year. So that’s probably one business decision that we got pushed into kind of late in the year, and then, obviously, we made some changes earlier this year on the pricing side.

Ben Swinburne

Yes. No, that makes sense. I mean I was going to ask you about ARPU in general and maybe before we get to pricing, I believe, one of the drivers of user growth and also ARPU pressure has been mix, right, the Family Plan and Duo. How much of a maybe mix shift back or at least a moderation of that mix shift is impacting your user guide in ‘21?

Paul Vogel

I am not sure it’s really impacting the user guide per se. So I think there is just – I think we go back to what we said earlier. There is just a lot of uncertainty with respect to, again, with COVID as tailwind or a headwind in 2020. And if it persists – and I know we’re all very hopeful that things are going to get better by the middle to the end the year, we’ve talked about this off-line, right, before. We’re super hopeful this time next year, we’re all back in person. But we don’t know. So I think there is definitely some uncertainty with respect to how these markets evolve. Some of them are going to get hit – have gotten hit worse economically than others. So there is some uncertainty in there. There is obviously some uncertainty for us with respect to the market launches and how successful they will be, it’s a lot of markets, all at once. To your earlier question, we’ve never done it at this scale before. And so there is definitely going to be a balance between what’s reasonable and where the upside is in terms of the MAU numbers for 2021. We’ll have to see how that comes in. And then on the subscriber side, as we talked about, last year was the biggest year we’ve ever had, right. We added 30 million net subscribers. It was 2 million, 2 million, 3 million higher than the year before, which is higher than the year before that. And so there – some of it was, how much did we pull forward in the 2020, as we talked about, again, Russia being one case where we know we pulled some forward there. And the question is, did we pull forward in other markets? There is no 1 market where you could highlight it and say, we 100% pull forward here. There was just a lot of markets where we did better than we thought by a little bit to a decent amount.

Ben Swinburne

Yes. Yes. I mean the pull forward sort of question is an unknown, right, for everybody in every business. But it sounds like – certainly, we talked about this on the earnings call that you and Daniel don’t see net adds having necessarily peaked last year that this is – you’re going through a process of reopening effectively?

Paul Vogel

Yes, no, 100%. I think, yes. I think it’s just we feel good about how we exited the year. We feel good about the pipeline, and we’ll just have to see. And the thing is nothing ever goes up into the exact straight line, right? Sometimes things inflect up, sometimes they inflect down a little bit. I think over the next 2, 3, 5 years, we feel really, really good about where we’re headed. Last year was, obviously, one of those years that inflected up a little bit in terms of growth and we will see kind of how the next couple of years go.

Ben Swinburne

Yes, go. So Daniel talked on the call about three different ways to drive revenue and one of those who was raising prices, which is now the third leg of the stool, whatever the analogy was. But that’s clearly an area you guys are now going, in fact, 25 markets. So talk a little bit about the decision to move forward with broad-based pricing growth. And what can you tell us about what the data tells you because I would imagine you can test quite a bit up to a point. But what was the thought process around this?

Paul Vogel

Yes. So look, our number one goal will continue to be gaining share and gaining market share. And we still think there is a huge opportunity, and we’re only in the early innings of growth in terms of streaming and streaming audio. So 100%, that’s still our goal. But with that in mind, we definitely feel like we have added a tremendous amount of value into the ecosystem, 70 million tracks, over 2 million podcasts, a lot of original and exclusive content now. We haven’t really changed prices at all in 10 years. And so the thinking was, is there an opportunity to be thoughtful about ARPU, be thoughtful about raising prices, that wouldn’t in any way limit our ability to continue to grow but does sort of differentiate some of the product enhancements and content that we’ve added to the platform. And so we have done – a number of markets we are testing. So far, the testing has all gone well. We feel really good about what we have seen both from changes in gross intake and changes in churn everything is sort of in line to better-than-expected depending on the market for the most part. And so we feel good about it and we will continue to test and learn. We get the question all time why those markets. I think some of it is – there is all sorts of reasons, some of these markets where we feel like the Norway where we have the ability just to take the prices. We’ve been there so long, and they are fairly mature markets where we have a really, really high market share. Other markets, it’s about sort of testing different types of markets. You have to sort of think about different types of markets and testing different markets and know what works and what doesn’t work. And then we’ll take it on from there and so we have not ruled in or ruled out any market in terms of price increases. And so I would say the opportunity to think about pricing is available to us globally and we will just have to see what works and how the testing goes.

Ben Swinburne

And why Family Plan is kind of the primary area where you’re raising prices versus premium?

Paul Vogel

Yes. I mean, I think a lot of it is just there is a tremendous amount of value in the Family Plan that we saw. Now that we have Duo, it’s a little bit of a differentiation between the standard plan and the Duo and Family plan. And also, we think, just in general, it’s just tremendous value. So even in some markets, raising it by $1 or $2, it’s still – when you have 3, 4, up to 6 accounts, it’s still really great value for what you’re getting. And so that’s been the reason. But again, it doesn’t mean we’re going to rule out price increases or changes in other products. But in most markets, it has been Family Plan to start.

Ben Swinburne

Yes. And for better or worse, people are going to compare you to other subscription services that raise prices. It’s typically done not on a onetime basis, but there is a cadence to it. Anything you would suggest we think about for Spotify over, say, a 5-year period, how much you might raise prices in a given market, or how frequently?

Paul Vogel

Yes. I think it’s tough to say. I think we’re still, I think, earlier in the adoption curve of streaming audio. I think we still think there is even more of a land grabbing opportunity and so nothing to add. I think a lot of it right now is just testing and learning.

Ben Swinburne

Okay. Let’s talk about podcasting, I thought it was interesting on the call. At least the way it sounded to me, Paul, is you guys have had this hypothesis that podcasting was a powerful growth driver differentiator for Spotify and that hypothesis seems to have proven out in your mind. It’s less obvious to us outside the company, as I’m sure you can appreciate that inside. What else can you tell us about what you guys have seen that suggests podcasting is an area you really want to double or triple down in?

Paul Vogel

Yes. I’d say a couple of things. One is, obviously, we think it’s an area where we can have original and exclusive content. We don’t think that’s really – it hasn’t been the case in music, nor should it be really. But in the case of podcasting, we think there is an opportunity to have some differentiated content. So that’s number one. Number two is we have seen the growth, right. So we are now at 25% of our MAU, and I think you’ve asked me in the past, well, it’s only 25%, but I would say, yes, it’s 25% up from 14% 4, 5 quarters ago. So we’ve seen the growth in terms of the number of users who are engaging at podcast content. And then the interesting thing is, I think we – if you go back about four or five quarters, I think it was actually the last quarter when Barry was still around and we talked about that we saw a high correlation between podcast growth and better engagement and better attention, those types of things. But we weren’t, at that point in time, able to prove out causality. And since then, we’ve done a lot of work, we’ve done a lot of testing, and we’re starting to believe that we can now prove out causality that having podcasts and having users engagement with podcast actually increases their LTV. And so that’s where we are getting to. So we still have more work to do to prove that out and prove out the magnitude of how impactful that can be, but we feel good about the impact it’s having on the business overall.

Ben Swinburne

Okay. So when investors ask me, if podcasting is working why aren’t we seeing faster user growth or XYZ, it sounds like the answer is really just the size of the podcast engagement pool is just relatively small compared to the overall business, so...

Paul Vogel

Well, I’d say a couple of things. I think a, it’s growing, but I also would say, like MAU just grew really that much. We had 30 million subs I think it was like 75 million net MAU. So I think we actually had pretty good user growth last year. Now how much is attributed to tailwinds from streaming and podcasting and UI improvements and – I mean, it’s tough to disaggregate all of that. But I feel like, in general, holistically, our product just keeps getting better and better, which is why you saw actually the growth accelerate last year from net additions, both on the user side and the subscription side.

Ben Swinburne

Let’s talk about your investment in podcasting, particularly on the programming side. You’ve got some pretty big commitments that you have made on the content front. You mentioned originals and exclusives, exclusives you got to pay for. How do you guys think about the right model for you in your relationship with podcast creators because you bought stuff, you’ve licensed stuff. I’m sure there is other models I am not thinking of, how do you look at it from the CFO point of view?

Paul Vogel

Yes. I mean, I think there is a couple of ways to think about it, right? So one is simply what is it doing for Spotify, right? And so that’s a question of the two areas of simply, is it going to grow advertising? Are we going to have more inventory that we can monetize at higher rates? And do we get to a critical mass where we’re now becoming big enough to really command the advertising dollars, start to improve the technology to then have better targeting, which brings in more dollars and all of sort of the economics you can imagine, you would think of from just simply how much is the cost to bring in the content and how much can we grow advertising over time. And then there is the other leg of that stool, to use the same analogy over and over again, which is how much is it adding to incremental user growth? How much is it helping with retention and churn? And that’s the stuff where we are less refined, but getting much better at sort of understanding each piece of content. How many new users we think it can bring in, will bring in? Are those users sticking around? Are they doing more stuff? Can we then serve them additional podcast content that keeps them around even more, that makes them come back even more, that makes them even more engaged. We feel good about that, but that’s the part we’re going to continue to build out and work on.

Ben Swinburne

So it sounds like you guys have a bit of a bias, I don’t want to put words in your mouth, towards pod exclusivity. If we think about 2025 or whatever year you want to pick, you think you’ll see – or we’ll see more of the podcasting content be exclusive on Spotify than, say, we see today?

Paul Vogel

I think so. Yes. Yes.

Ben Swinburne

Okay, makes sense. Let’s talk about advertising. I want to include podcasting in this conversation. You guys also gave updated revenue guidance, 20% plus long-term, which, I think, is actually above consensus as we look into next year. Is advertising really – or non-subscription music revenue, kind of the key to the sustainability of that number over time?

Paul Vogel

I think it’s definitely going to be a driver. We hope it will be a driver. I think we’ve talked about that. It’s 10% of revenue right now. My expectation is, in 5 years plus, it should be a decent amount more than 10% of our revenue moving forward. I think as we add more content to the platform, as we talked about, more originals, more exclusives, as we now have the Spotify Audience Network that we’re able to actually have an even more inventory on the platform, target better with tools like SAI, I think we actually – believe we have a huge opportunity to really grow the audio ecosystem, to really grow and prove out monetization and targeting and all the things. And if you think about – you go back to Q4, what we said was that we were inventory constrained, not demand constrained. So I think we feel like we’re doing a better job at providing a value that advertisers want. So, now when you think about having more originals and exclusives, when you think about having the ability for Anchor podcasters, podcasters who use the Anchor tool that have access to that ecosystem. And then Megaphone as well, you’re now opening up all of its inventory to SAI and that technology. And we think, over time, will help us grow that network and grow advertising. And so we feel good about it. And then on top of it is, as podcasting grows, right now, we’re selling advertising across all of our users, including premium users. So it’s an even wider or bigger moat of potential audience for advertisers.

Ben Swinburne

Any help in thinking about the materiality of the inventory expansion of SAI from some of the things you announced last week? It’s hard for us, again, outside to sort of understand how big these things are.

Paul Vogel

Yes. It’s tough to know right now, but I think we are very optimistic about it. So it’s something like 80%, I might be pushing this number. So I’ll correct if I’m wrong. But all of our new podcasts are coming on via the Anchor platform. And so having that in the ecosystem will be great and then adding the Megaphone inventory as well. It’s a lot of inventory, we’ll see. As I said, we’re going to have to integrate the technology in there. We’re going to have to sell in a different way. But I think we feel good about the opportunity in front of us, again, particularly where – how we ended kind of Q4.

Ben Swinburne

Okay. So the demand is there, I guess, is the key point.

Paul Vogel

Again, yes, it has been, yes.

Ben Swinburne

Okay. Let’s shift to marketplace and the label relationship. So you’ve gotten – we’re not talking about label renewals on this call, which is a nice change from prior conversations. But you guys have continued to announce more marketplace products, I guess, for lack of a better description. So Marquee is something that people, I think, now, a decent amount of now. Discovery Mode is still sort of in beta. Can you just tell us where you guys are in the marketplace development plan? And you mentioned you’re going to keep growing the financial benefits of it, but some of these products are, as I’m sure you know, Paul, kind of controversial in the music business. So can you just give us a sense of the buy-in you’re seeing from the label and artist community?

Paul Vogel

Yes. I mean, I think to your point, we seem to be able to prove out that both Marquee and Discovery Mode are additive in terms of the audience you get. I think we’re optimistic about Discovery Mode because there is no upfront investment from somebody who wants to participate in Discovery Mode. If we don’t drive incremental streams, there is going to be no – there is not going to be cost. And if we do drive incremental streams, even though the royalty rate might be on a Discovery Mode rate versus the standard rate, if we’re able to up your streams by 30%, you’re going to make a lot more money as an artist. And so we think it’s a win-win opportunity. We feel good about the uplift we’ve had there already. And then if you take a step back and think about marketplace in general, we talked about growing marketplace, at least 50% in 2020, and I think we’ve said publicly now that we grew faster than 50% in 2020, and we expect to have significant growth in marketplace contribution to profit in 2021 as well. So we do feel good about the tools. We think that there are things that will be additive to the ecosystem, that will be good for labels, good for artists and creators and will help more and more actually get discovered and more and more music be heard.

Ben Swinburne

Okay, makes sense. Let’s talk lastly here in the last few minutes, just about – back to gross margins, obviously, a big debate on the stock. You guys gave new long-term guidance. But in the near-term, you’ve guided to sort of flat to, I think, slightly down gross margins. And the label deals are now behind you, as we talked about before. So maybe you can just tell us a little bit about the puts and takes in ‘21 that, despite what should be a very strong advertising year, certainly our expectation, you’re not seeing gross margin expansion in ‘21?

Paul Vogel

Yes. I would say there is really kind of three main buckets, right? So you think about the overall music bucket, think about marketplaces, and you think about podcast, and the problem is some of the marketplace and music and royalties all sort of get jumbled together in terms of – when you think about deals, there is so much that goes into these label deals, a lot more than just sort of simple headline rate. But the way I think about it is, in general, marketplace is additive and would be additive in ‘21. We’re going to continue to invest on the podcasting side and the content side. And while we do think podcasting advertising will grow, right now, the rate of growth on the content cost side is still outstripping the rate of growth on the advertising side. Again, we think it’s going to – start to narrow when we start to see that inflection point, whether it’s 1 year or 3 years or 5 years, I think some of that will depend on all the things we talked about earlier on in this conversation, is all the benefits we’re seeing, how much content do we need to have? Where do we need to have it by vertical, by geography, how much we need to own? How much do we need to license? How much – is it just going to be 5 minutes kind of on everyone’s platform? We’re just going to do a better job of serving it up and giving you discoverability on that. So I think there is lots and puts and takes in there. But for the most part, you can think about 2021, is that sort of dynamic of marketplace a little bit better and podcast a little bit of a drag.

Ben Swinburne

Okay. Anything on the royalty rate front, I know we’ve got the CRB-related pressures from a long time ago, rate setting process is actually, I think, in the process of still being appealed in the courts?

Paul Vogel

It is still being appealed. We are accruing at the rates from prior to the appeal because we have no other basis right now and so as we did talk about we are kind of in year 4 of the initial 5-year CRB. So that is a – it is a modest headwind on the publishing side in the U.S.-based on the CRB rates, but that’s something we’ve identified when the rate tends to effect.

Ben Swinburne

Okay, alright. Well, we’re pretty much out of time. Any last comments, including when we might be able to get the HiFi tier? That’s a big question we’re getting from the investment community.

Paul Vogel

Yes, nothing turned out to that one yet, but hopefully, not to distant future. I’m excited about it myself. So hopefully, it’s coming.

Ben Swinburne

Okay, alright. Well, listen, Paul, it’s great to see you. Thank you for your time this afternoon. Everybody, thanks for joining us, and enjoy the rest of the conference.

Paul Vogel

Thanks, Ben. Hopefully, next year, we’ll be in person.

Ben Swinburne

Absolutely.

Paul Vogel

Awesome. Thank you.