Good afternoon, and thank you for standing by. At this time, I would like to welcome everyone to Spotify's fourth quarter 2021 earnings call and webcast. I would now like to turn the call over to Bryan Goldberg, Head of Investor Relations. You may begin your conference.
Great, thanks, and welcome to Spotify's fourth quarter 2021 earnings conference call. Apologize for the slight delay. We were having a technical issue. Joining us today will be Daniel Ek, our CEO, and Paul Vogel, our CFO. We'll start with opening comments from Daniel and Paul, and afterwards, we'll be happy to answer your questions. Questions can be submitted by going to slido.com and using the code hashtag Spotify Earnings Q421. Analysts can ask questions directly into Slido, and all participants can then vote on the questions they find the most relevant. We ask that you try to limit yourself to one to two questions. To the extent you've got follow-ups, we'll be happy to address them, time permitting.
If for some reason you don't have access to Slido, you can email investor relations at ir.spotify.com, and we'll add in your question. Before we begin, let me quickly cover the safe harbor. During this call, we'll be making certain forward-looking statements, including projections or estimates about the future performance of the company. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors as discussed on today's call, in our letter to shareholders, and in filings with the Securities and Exchange Commission. During this call, we'll also refer to certain non-IFRS financial measures. Reconciliations between our IFRS and non-IFRS financial measures can be found in our letter to shareholders, in the financial section of our investor relations website, and also furnished today on Form 6-K. With that, I'll turn it over to Daniel.
All right. Hi, everyone, and thanks for joining us. Obviously, it's been a few notable days here at Spotify. When we entered into the podcast space in 2019 with the intent to help modernize and grow the space for all types of creators, we assumed it would challenge and test our teams in new ways. There's no doubt that the last several weeks have presented a number of learning opportunities. I hope that you had a chance to read our response that addressed many of the questions we've received from creators and partners and employees and the medical and scientific communities. There's still work to be done, but I'm pleased that Spotify is already implementing several first-of-its-kind measures to help combat misinformation and provide greater transparency.
We believe we have a critical role to play in supporting creator expression while balancing it with the safety of our users. We will continue to partner with experts and invest heavily in our platform functionality, teams, and product capabilities to meet this evolving need head-on. Moving on to our results. 2021 was an eventful year for Spotify and the world in general. Throughout the pandemic, businesses have seen enormous disruption in consumer behavior, causing demand curves to shift. Spotify, of course, has been no exception to this. In our case, these shifts mostly played to our advantage in 2020, but we did see some headwinds in the first half of 2021. By the end of Q2, we saw a reversal back to positive momentum, and this trend continued throughout Q3 and Q4. Historically, Q4 has been our biggest quarter, and 2021 was no exception.
In fact, Q4 was our largest quarter of MAU growth in Spotify's history. It's a significant MAU driver. A significant MAU driver was our seventh annual Wrapped campaign, which was our most successful to date. With 120 million users, we saw unprecedented engagement, up 29% year-over-year, with the highest levels coming from the Gen Z audience. On launch day, Wrapped was the number one worldwide trending topic on both Twitter and TikTok, proving that it's more of a cultural phenomenon than ever before. Ads. Well, it continued its remarkable growth trajectory, turning in 40% growth year-over-year. Advertising is showing more proof points of being the second key revenue driver for the overall business, climbing to a record 15% of our total revenues this quarter.
While the ad business is more prone to seasonal blips, I see this momentum continuing in 2020 and beyond. As a result of this strong performance, we will continue to test different windowing strategies for our exclusive podcast partnerships to get the advantage of that broader audience reach. Q4 also saw strong performance across podcast metrics, and we've amassed a highly engaged audience that is listening more than ever. Last quarter, we confirmed that Spotify had become the number one podcast platform U.S. listeners use the most, and we continue to see meaningful market share gains. Overall, I'm feeling very good about 2022. Let's move to the long term, which is where I try to focus my time. We're building a category-defining company, and this takes patience. Some may still describe us as the leading music subscription service.
While this surely reflects where we've been, it doesn't encompass all the advancement we've been making in audio. Further, I don't think it properly captures all the future initiatives that we're working on either. It is, as Jim Barksdale described it, constantly about bundling and unbundling on the Internet. What are we focused on then? Well, the best way to describe it is a subset of the creator economy. People have been talking about the creator economy for some time, and it has taken on many different meanings. For us, the single largest trend to keep track of is the rapid professionalization of creators. I see this as one of the biggest opportunities on the Internet. For all the millions of artists and creators that have leveraged Spotify to date, I think we've only scratched the surface of the creative potential in audio.
To become the preferred destination for audio creators, we will accelerate the move from a one-size-fits-all model to a much more dynamic and open platform. We will give them greater flexibility and the power to be more entrepreneurial, which will, of course, unlock the extraordinary potential of their business and communities. We will provide greater reach. We will provide tools and access to diverse revenue streams that can be personalized to meet the needs of each creator. I believe this will all lead to the creation of millions of jobs for the creator economy. While this is not limited to Spotify, we are building the platform that will enable the whole ecosystem to work together on a global scale. We think that the Spotify ecosystem alone will encompass more than 50 million active creators, which is a significant increase from the 11 million total that we have today.
Think of it as 50 million small and medium-sized businesses that we can support by giving them the infrastructure and resources to grow. This evolution will take time, but I know some of you are wondering what this means in the near term. The work there is already well underway. This opportunity started to crystallize for me around our acquisition of Anchor, and it's only grown from there with increasing momentum. It was clear to me from the feedback we heard that Anchor creators wanted more flexibility and more options to do business. One recent example of this includes the Spotify Open Access platform. We brought it to market last year to enable creators with existing paid content businesses to activate their subscriber base on Spotify.
This means those creators, whether they're an independent podcaster, a major news outlet, an audiobook publisher, or creator platform, can retain full control over their subscription base while leveraging the reach of Spotify to grow their audience. Based on the early success, you should expect us to continue to invest in ever-growing number of tools, resources, and services for a broad range of creators. Not one- by- one, by many in parallel, moving faster and faster to bring them to market. While many will be competing to seize a piece of this opportunity, I believe that we're uniquely well-positioned to adapt to this changing environment and deliver for the good of the entire audio creator ecosystem. Now before we go to Q&A, Paul, I believe you're also going to add a few thoughts. Over to you.
Thanks, Daniel, and thanks everyone for joining us. While Daniel touched on most of our key KPIs, I wanted to add a bit of color on our gross margin, which finished at 26.5% in Q4, above the top end of our guidance range. Relative to our forecast, our gross margin was helped by a shift in investment costs that were originally targeted for Q4. That benefit was partially offset by an unforeseen expense related to our ads business. Taken together, our gross margin still would have finished above the top end of the range. Some of the investment costs in Q4 that didn't materialize are now reflected in our Q1 gross margin guidance. Looking at our full- year 2021 margin of 26.8%, we made meaningful progress relative to the 25.6% we reported in 2020.
Full- year 2021 did benefit from close to 50 basis points of favorable royalty adjustments. However, even excluding them, gross margin was still an improvement year-over-year. Looking into 2022, we expect a continuation of the favorable gross margin trend you saw in 2021 for our underlying business as we grow advertising and drive further growth in Marketplace contribution. We also expect improvement in our core podcast margins, both on the O&E front as well as on Megaphone. Given the encouraging traction we're seeing, we do plan to invest in incremental content and music initiatives in 2022 with an eye towards our long-term goals of one billion users, 20%+ revenue CAGR, and 30%-40% gross margins.
While these investments may slightly alter the progress we've seen in consolidated gross margin over the past few years, it is exactly this progress that has given us the conviction to increase our investments in certain areas and gives us confidence that we are on the right path over the long term. Finally, I want to expand upon our approach to guidance. As we said in our shareholder letter, we no longer plan to provide yearly targets. We will continue to share quarterly guidance as a way to update investors on the current trends in the business, and we will simplify our approach by providing a single estimate for each metric instead of a range of outcomes.
We are aligning our guidance practices with how we run the business, as most of our investments are multi-year in nature, and the exact timing of any specific launch may vary within a given year. With that being said, we do not anticipate any material changes in the trajectory for net growth in MAUs and subs in 2022 when compared to the net growth we experienced in 2021. For Q1, we're expecting total MAUs of 418 million and 183 million subscribers. We anticipate that total revenues will come in at EUR 2.6 billion, benefiting from approximately 360 basis point tailwinds to foreign exchange. We're expecting gross margin to be 25%, primarily due to the cost that didn't materialize in Q4 hitting in Q1.
With respect to the subscriber net adds in Q1, please keep in mind that we expect a different level of seasonality for this metric over the course of 2022 due to anticipated promotional campaign activity and other initiatives. We're also excited to announce that we plan to host an investor day during Q2, where we'll talk about the big drivers of our business, the investments we are making, and the financial results we expect over the long term. Stay tuned for more info. With that, I'll hand things back over to Bryan.
Thanks, Paul. Again, if you've got any questions, please go to slido.com # SpotifyEarningsQ421. We'll be reading the questions in the order they appear in the queue with respect to how people vote up their preference for questions. Our first question today is going to come from Rich Greenfield on Joe Rogan. The question is: You've clearly changed your public stance given artist pushback to his content. Is it a slippery slope in censoring content on the platform? And have any advertisers left Spotify in protest?
All right. I'll take this one. I know this issue has been top of mind this week. I think it's important to take a step back. We're trying to balance creative expression with the safety of our users. Of course, this is a very complicated issue, as I noted in my opening. I'm really proud of the steps we took following the concerns raised by the medical and scientific communities. It's worth noting that both the content advisories that pair the COVID-19 content on our platform with content from physician and health experts, which I talked about in my post as well.
As well as push policies for creators that are already begun to roll out. I think the important part here is that we don't change our policies based on one creator, nor do we change it based on any media cycle or calls from anyone else. Our policies have been carefully written with the input from numerous internal and external experts in this space. I do believe they're right for our platform. While Joe has a massive audience, he's actually the number one podcast in more than 90 markets, he also has to abide by those policies. I think when you think about that and you think about the ads business, I have a tremendous amount of confidence in that. Of course, we're hearing from our partners.
Spotify has a broad range of content on our platform, so there really is something for everyone here and for advertisers to take too, as well.
All right, we're gonna go to our next question from Richard Kramer. Nearly four years after your direct listing, and facing the renegotiation of publishing rights post 2022, do you see material opportunities to raise gross margins in the music business given the role of labels and publishers?
Well, I kind of alluded to this in my opening remarks, but I think the perhaps number one misconception I see people making is that they think everything is an outcome based on negotiations with the industry and these renewals that we constantly are doing. This is true, by the way, we do renew our label and publishing licenses pretty much every year. There's always one big upcoming renewal that we're constantly working on. Everyone thinks that it is really a function of that, and that alone. More and more, if we're building this creative platform, it will not be a function of just those licenses, but more and more, it will be based on these tools and services that we're building for creators on top.
A good example that we've talked about before has been the Marketplace efforts that we've been building on and that we've shared in prior quarters, and also this quarter, the success that that's having. All of those things are things, even though we don't break them out, that you can see is impacting the gross margins positively and have been over the year. I think it's important to say that because if you take a step back, going into 2021, our expectation for gross margin, we've far surpassed and done much better. Those tools and services that were built is part of that story.
All right, next question from Mario Lu on subscriber net ad trends. You've averaged 27 million net sub adds annually for the past few years. Is that still a benchmark to use for 2022? Are there any puts and takes that would cause a divergence from historical trends?
Yeah. Thanks, Mario. So, first I'll just kind of reiterate what I said in my opening comments, is that although we're not giving full- year guidance anymore, if you look at the net additions we achieve for both users and subs in 2021, we don't see any material change in that trajectory into 2022. That's sort of how we're thinking about, at a high level, the 2022 numbers. Just when you look at Q1 in particular, there's different seasonal trends and patterns in each year. What we've seen over the last couple of years is Q1 has become increasingly less important to us for yearly growth. Last year in particular, we changed the cadence of some of our promotional activity.
We actually had three campaigns for subscribers at varying shorter lengths, but more frequently, which changed the seasonality throughout last year, more heavily weighted into Q2, Q3, and Q4. We're likely to see similar types of seasonality again in 2022.
All right, another question from Rich Greenfield on the advertising opportunity. You've talked about advertising becoming 20% of revenues, if not 30%-40% longer term. While you're no longer giving full- year guidance, how do you think about the trajectory of getting to 20%, and what are the key puts and takes?
Yeah, thanks, Rich. I think obviously it's hard to predict long term exactly how it'll play out. I think when you look at platforms overall in this space and the mix between different options, I think I've alluded to this in the past, I don't think many of these content platforms in the future are gonna be single revenue stream. I think they're gonna be multiple revenue streams, and it's really just about the mix. We start from the paid, and we're obviously growing into having both advertising and paid, and there will be some other platform that start with advertising and then starts adding more paid content as well. I really think it's a combination of subscription à la carte and advertising that long term will be the revenue mix.
Now, speaking specifically to advertising, what is the primary puts and takes? It really, at this present moment, comes down to two things primarily. One is inventory. We see an enormous amount of demand from advertisers. And the number one thing that we're stretched for at the moment is more inventory. That's why you see us introducing things such as Span and other things. Long term, with a little bit more horizon, it's obviously international. Many platforms start out monetizing the U.S. and U.K. very well, but it takes a little bit more time to monetize the international markets. I don't think we will be an exception to that. Long term, I think it will be more geographical things too. There's really positive signals in those markets too.
I remember going back to the Chinese market 10, 15 years ago, there was a huge debate whether advertising was a viable model at all in the Chinese internet market. Now you see gigantic companies being built with advertising as the number one source. I think that bodes really well for regions such as India, Indonesia, and others too, where Spotify has obviously had enormous success. That's also how you should read into those investments. They may not be large from a revenue perspective today, but I am absolutely confident that by investing in these markets and becoming the number one audio platform there, that's gonna be a very worthwhile position to own in the long term.
Yeah, I would just add a couple of points. I think, one, if you just look at this year, for the full- year, we finished at 12% of revenue, 15%, in Q4, and that was up from, 9% of revenue last year. We saw a nice growth there. Clearly, we saw a lot of strength in the advertising business coming out of 2021, which we continue to see, in the start of 2022. I would also kinda echo what Daniel said about international. I think we talked about this last quarter about an investment push we're making, to actually expand our advertising presence, outside the U.S.
We've had a blueprint in the U.S. that has worked really well for us, and you've seen that in the growth we have, both on the music side and the podcasting side. We expect that investment we're making throughout 2022 will drive significant improvements on the advertising monetization outside North America.
Okay. Next question is gonna come from Batya Levy. On Premium ARPU, how should we think about Premium ARPU trends in 2022? Can your recent price increases offset the pressure from growth in lower ARPU regions?
Yeah. I guess just taking a step back, we saw a nice growth in ARPU throughout the year, and finished Q4 up 3% and up 1% on a constant currency basis. We feel good about the trajectory in ARPU. Some of those price increases will continue in the first half of the year, which will help. I'd say, in general, we expect ARPU to be kinda flat to up a little bit in 2022.
All right. Question from Matthew Thornton on advertising. You've talked about being supply-constrained in this part of your business. Can you update us on the supply-demand conditions you're seeing and the key drivers of supply in 2022?
I'd say a couple of things here on the demand-supply side. First of all, we've grown podcasting in general. Well, music overall and podcasting as well as a percent. We're seeing engagement increasing across the platform, particularly in podcasting. We're seeing consumption increasing. All that is leading to more inventory, which is great. We're seeing more publishers in SPAN up double digits quarter-over-quarter, so that's allowing us to see more inventory. Then what we've also seen is that with SPAN, we're able to monetize really well. Because we're monetizing, giving people good returns, they're opting more inventory into the platform for us to sell.
Then when we have more inventory to sell on the platform, you get even more advertisers who want to spend and be a part of that. We're seeing this nice flywheel effect, where the performance of SPAN is growing really well. People are then adding in more inventory into the ecosystem, and then more advertisers wanna be part of an even bigger platform. That's worked really well. Obviously, opening SPAN up into Anchor will be really strong as well or potential to be strong for next year, as well as a number of other initiatives.
Yeah. The only thing I'd add is I think it's really the combination here. It's really both about expanding audience, but also expanding the number of creators too. The more creators we have, the more inventory we have to place against it, and then obviously, the more users will come as a function of the more creators we have as well. That's another sort of key component of this, and you've alluded to some of that in your question with audiobooks, et cetera.
All right. We've got another question from Matt. Do we have any update on the HiFi tier? What's been the delay? Does your guidance contemplate any price increases in 2022?
All right. I'll start with the question, and then Paul can speak to the guidance. Yeah, I mean, many of the features that we talk about, and especially that's related to music, ends up into a licensing. I can't really announce any specific on this other than to say that we're in constant dialogue with our partners to bring this to market.
Yeah. With respect to price increases, we haven't commented on anything at this point in time. You know, I go back to earlier in the year when we did make some price increases. We feel really good about the churn characteristics there. It wasn't anything material as well as gross intake where there wasn't any material changes. We feel good about the ones we've already put in place, but no comments or updates on any additional price increases moving forward.
All right. Our next question's gonna come from Deepak. On Premium subs, can you give us some color on your Premium sub guidance of 183 million? Is there any impact from changes in promotions or incremental churn that's weighing on sub growth for the first quarter?
I addressed this a little bit earlier, but let me just kinda give a little bit more color. It's really a lot about the promotional cadence, and the seasonality throughout the year. As I said, if you go back a couple years, historically, we had always done promotional campaigns in Q2 and Q3, and there was always some seasonality between Q1 and Q3 relative to Q2 and Q4. Last year, we actually tested an additional campaign in Q3. Instead of having two campaigns, we had three campaigns, and those campaigns were actually a little bit shorter in length in each period. That impacted the seasonality in 2021, and that will likely impact the seasonality in 2022.
Additionally, when you look at Q4 in general, it just continues to become a bigger and bigger quarter for us. You saw both the success of the seasonal campaign in Q4, number one, and then the success of Wrapped also, which drives a lot of incremental traffic to Spotify. When you look at Q1 in general, it continues to become just a smaller part of our overall subs picture every year. Part of it's just the hangover or the follow-through from how strong Q4 tends to be, and it's also a part of how we've now adjusted our promotional cadence throughout the rest of the year. With respect to churn, while we don't give out churn guidance, churn has continued to come down. It's down year-over-year. When you look at our core churn of our monthly subscribers, we feel really good about the trajectory that churn's been on.
Okay. Next question from Andrew Marok on gross margin. How much do content investments play into the first quarter gross margin guidance? Is there anything notable driving the year-on-year decline?
Yeah, there's a few things in Q1. One is, as I mentioned, there was an initiative we were going to test in Q4. That test got pushed to Q1, so there's some incremental there. There's a few other things, the first year of Lyrics, which will have a little bit of impact, and the rest is investments. As you've seen on the content side, we've had a lot of success, particularly in U.S. Some of the content will continue to go to U.S. growth, but then as well as expanding a lot of our strategies and innovation into international markets and newer regions on the content spend.
I'd say lastly is, we are still operating under the current CRB rates, and so that will be an impact a little bit in the U.S. as well on the publishing side. As I said, in general, we feel really good about gross margins and how it's progressed over the last two years. It was up in 2020 and again in 2021. When you look at sort of the core fundamentals of gross margins and the things that we're doing year-over-year, we're seeing a lot of leverage, particularly on core O&E podcasting, as well as benefits from Marketplace and advertising. Gross margin in 2022, it's really that confidence in what we've already done, which is giving us that confidence to continue to invest in 2022.
All right, next question from Justin Patterson on the billion user opportunity. Daniel, last year at the Stream On event, you previously spoke to a billion user opportunity over the coming years. What are the key investments to get there, as it implies a significant step up from the current MAU base?
Yeah. I alluded to some of this in my opening remarks, but we think a very, very key effort in that is going from the 11 million total creators that exist on Spotify today to 50 million active creators on Spotify in the coming years. With that amount of content, you're gonna see a lot more engagement. With the tools that we're building both for creators and consumers alike, you're gonna see consumers and creators expand and their engagement in totally new ways that will, we think, define what this next generation of audio will look like. As a little bit of a push, I would wanna end by saying that you're gonna hear us talk a lot more about this during our investor days. I really hope to welcome all of you there to learn more about what our plans are for the coming years in that area.
Okay. Next question from Benjamin Swinburne. A couple questions in here. Does the first quarter premium guide reflect elevated churn from the recent Joe Rogan controversy? Are there any additional steps you plan to take to contain potential fallout? Separately, can you put the audiobooks opportunity in context for us?
You start off or you start? Yeah. I'll for the first time, I think, actually answer a guidance question, but I'll start there. Yeah. No. The easy answer is we don't reflect any churn from the recent Joe Rogan thing. In general, what I would say is it's too early to know what the impact may be. Usually when we've had controversies in the past, those are measured in months and not days. I feel good about where we are in relation to that. Obviously, top-line trends looks very healthy still. In terms of the steps that we've done, as I have outlined, we've taken pretty dramatic steps on Sunday in my blog post, three things.
One is publishing our policies and making them clear to the world. Just an acknowledgement from my side that's probably late. We should have done it earlier, and that's on me. The second thing is very big, and no other audio platform has done this, and that's providing this content advisory notice next to COVID-19 content. All COVID-19 episodes will be tagged with this, that then will link to accompanied messaging by scientists, physicians, and public organizations like the CDC and WHO, et cetera. You're going to notice this, and this is being rolled out right now as we're speaking. This will be very prevalent, very visible at the very top of every episode that speaks about COVID-19.
I feel really good about what we're doing there, and it's really unprecedented compared to any other audio service. What you'll see us do in the coming days. The last thing then is, can you put the audiobooks opportunity in context for us? I think that there's two modalities of audio, somewhat simplified. We have the podcasting, which is what we've mostly been speaking about in the past call, but then there's also paid audio. Paid audio today is mostly the audiobooks business. What's exciting for me is obviously enabling all forms of audio on this platform. Longer term, when we look at this platform, as I mentioned, I don't think it's just one- size- fits- all.
It's really about enabling a multitude of different audio creators, and we wanna be the best place for all audio creators, and having the multitude of tools that enables them to monetize that content the best way that they see fit. That may be through subscription, but it may be also through à la carte, and it may also be advertising. I think audiobooks in our view is a subset of the overall audio opportunity, but obviously touches a very important creator group, which is authors. We're very excited about that opportunity. Long term, I think you can look at markets like China, for instance, to look at just the innovation that's happening in audiobooks there.
For me, it's strange to imagine why not more of that type of innovation have come to many of the Western markets as well. It's really in that vein that you should think about the Spotify platform. There's gonna be a lot more openness, and there's gonna be a lot more flexibility in how we treat content and creators on our platform.
Great. Next question is going to come from Eric Sheridan. Coming off the content investments of the last few years, can you update us on management's longer-term thoughts around gross margin trajectory and the mix of headwinds or tailwinds in the coming years?
To start, I'd say at a high level, nothing has changed at all in terms of the long-term guidance we've already outlined in terms of where we think we go over the long term, that 30%-40%, which we've already talked about. As Daniel mentioned, hopefully we'll have some time to unpack that more at the Investor Day in Q2. That's number one. When you think about the headwinds and tailwinds, I think what I would say is we actually feel like we're getting nice leverage on a number of the initiatives we already have.
When you look at some of the content we've had on, again, for more than a year, and you see revenue per listening hour increasing at a faster rate than cost per listening hour, we see that leverage starting to show up. The reason we're investing more is we're doing it, you know, incrementally in more regions and in more areas because we've seen the benefits of the leverage on the products that we've had for a period of time right now. I would say the headwinds, a lot of them are self-inflicted, meaning we are investing against what we think is an even bigger opportunity. We could probably be more in harvest mode right now and show near term, more incremental margin expansion.
Given what we're seeing in sort of the core business, we feel like the investments are really gonna pay off to drive even bigger long-term gross margins in the future. That's how we think about it.
The one thing I would just add to that is when you look at it when we signaled for 2020 and 2021 was actually that gross margins would go down with the levels of content investments that we were making. If you look at what actually happened, we're really ahead of that plan. A lot of these things are proving out in a very very strong way in our business. Paul alluded to some of those. It's Marketplace, it's obviously advertising and some of those other investments that we've been making in O&E content too, which improves that gross margins. We feel very emboldened by that, and that's honestly the light that you should look at our investments.
All right. Next question from Michael Morris on Marketplace. How has two-sided Marketplace driven benefits for both you and your label partners during the current contract period? Has it been a win-win, and do you expect terms to expand going forward? How can this impact your gross margin progression?
Yeah. I'll deal with this. I think the first thing that I would say is it has very little to do with our current contract period like I alluded to in my prior conversation. It's more in addition to whatever the contract dictates. The way you should think about this is that we have a platform and we have a set of licensing agreements that dictate a lot of the content that we have on that platform. In addition to that, there's a lot of tools and services that we have on top of our platform that all creators and all consumers can choose to opt into. Marketplace efforts are those types of businesses on top of our existing licensed content business.
What's interesting for me, and how you should think about gross margin progression is obviously each dollar that's generated by those tools and services that we're offering, generally speaking, if they're software, it means that they're more like 80% or 90% gross margin dollars that come in. As you're dealing with Spotify overall, which of course is a lower gross margin business, that quickly adds up.
I'd say the only thing I would add on the Marketplace side, just to give some context is, you know, first of all, as Daniel talked about, it, we really think about it as really marketing tools that are working. The way it obviously shows up on the P&L is just purely on the gross margin side, even though it's really more of a kind of a marketing type of event. That being said, I think we gave a number of EUR 30 million contribution in 2019. 2020, I'm not sure we gave a number, but you can assume it close to doubled in terms of the benefit. Then we saw a material increase again in 2021 with respect to Marketplace's contribution to the product.
All right, another question from Richard Kramer. This one's on engagement. If you're back to the same level of overall hours of listening, but on a far larger base of subscribers, what does this say about engagement? Does that depend on reopening and commute times?
Yeah. I'm not sure I fully understand the question, so I think I might be a little missing something here. Actually, listening hours per user is actually up. Engagement is actually really strong. We've seen this year was an increase in DAU to MAU. We're seeing daily actives overall on the platform go up. Listening hours per user was up. Engagement is actually strong and healthy on the platform.
Okay. Now a question from Steven Cahall on the gross margin outlook. While we realize you're no longer giving annual guidance, do you expect 2022 to be a year of operating leverage at the gross and operating lines, or should we think about it more as an investment year as it relates to margin expansion?
Yeah, I would say I think there's some puts and takes in that, and it's one of the reasons why I kind of gave the commentary I gave at the beginning. I do see as Daniel mentioned, sort of the core gross margin is going really well. It's probably actually ahead of schedule in terms of where we are and where we thought we would be. On the gross margin for this year, we're gonna continue to invest. That being said, we've seen improvements in areas faster than we thought in the past couple of years. There's some puts and takes in the gross margin. On the operating side, I do think you're gonna see an increased investment.
We've talked about some of the things we're doing on the ad side to grow the ads business outside the U.S., which again, we believe will really actually significantly jumpstart the revenue opportunity there, as well as things we're doing on the content side. Lots of puts and takes, but I think we feel really good overall with kind of how we came out of 2021 and where we're heading.
Okay. Another question from Deepak, this one on label relations. Can you refresh us on the timeline for the next round of label negotiations? What would some of your priorities be in this next round?
Yeah. What I would say is the timeline for next round of label negotiation is always. We are constantly have some deal that's being renegotiated or negotiated again and extended pretty much always. I don't think 2022 will be an exception to that rule. In general, the key priorities that we're working towards is just enabling more flexibility on the platform. That's what you should expect us to be focused on in these negotiation, because we really believe that the more we can act as a true platform where these creators can engage directly with their audience, go from casual listeners to fans to super fans, that's going to unlock the next wave of growth in the music economy.
If you really take a step back and kinda look at it, like much of the early days of Spotify was really about stopping piracy. As simple as that. I think we did a really good job in that. The next step of that was turning people towards paying for streaming. Now more than half of the entire music economy globally is streaming. It's the most dominant way that the music industry currently exists. I think the next evolution is we really replaced one model, right, which is you paid à la carte, which meant that typically the super fans were the ones who were paying for music, and the vast majority of people weren't paying at all.
Now we have an ecosystem where hundreds of millions of people are paying for music again across all of these subscription services, which I love because, you know, I go back five or 10 years ago, and the fact that even one service or let alone every single service could have 100 million subscribers was just nuts for most people to think about. Now you see lots of subscription services getting to 100 million, and obviously Spotify is one of the largest with our base, and in music, we are the largest. So I think that just shows that, you know, scale has been redefined when it comes to the internet. What's true here is that so far right now we're kinda monetizing everyone with a one-size-fits-all model.
Yes, we do have free and we have this paid subscription, but I think the evolution here will be about unlocking true super fans. That's where the real dollars comes in, and that was always the music business to begin with. When we unlock that, I think we'll unlock the next wave of growth in the music economy. For me, that is the number one thing that I'm focused on unlocking, more flexibility, more ways for creators to use their assets, videos, you know, engage with people, have their content show up in new, unexpected ways. That will drive engagement, and that, in turn, will drive people to move from casual listeners all the way up to a super fan and enables new forms of monetization too.
All right, another question from Benjamin Swinburne. Despite being your most penetrated and most competitive region, North America continues to be your fastest-growing premium base. Is that a sign that the international runway for premium growth remains long, or is it that international willingness to pay is a headwind?
No, I think we first of all, I think we definitely think there's plenty of growth in both. I think what you've seen in a lot of areas is, you know, in your more established markets, you grow there really fast, and then the monetization comes after. You grow into newer markets, and you get sort of to critical mass, and then the monetization comes after that. What we've seen is, you know, healthy growth in users and subs across all of our regions. You've seen a lot of, in the last couple of quarters, MAU growth coming out of rest of world and LatAm and some of our newer markets, and those will monetize over time. I think that's the dynamic we see at play here.
We feel good about the monetization we're seeing in North America as well as Europe. We see the opportunity to continue to grow and expand in LatAm and rest of world and, you know, the revenue will then follow after that.
The one additional comment I'd just make is really the one about sort of emerging markets that I made about advertising. 10 years ago, people really did not think advertising would be a viable medium in many emerging markets, and obviously, we're now seeing that that's not the case. Looking at paid subscription, now a lot of people are saying, "Well, paid subscription can't be a viable means in many of these emerging markets." I think that will turn out to be untrue as well in the coming years, and that's certainly what we're investing behind. That said, there are local nuances in how you market to these customers, how they pay for services too. We're doing a ton of innovation on that front. We're doing weekly payments, prepaid payments.
We have tuk-tuks driving around in markets collecting physical cash to pay for the subscription too. It's really, really staggering and really cool to see all the ways that Spotify is showing up locally around the world.
All right. We've got time for one or two more questions. We're gonna take one from Mark Mahaney on Marketplace. Two-sided Marketplace came in stronger than you had estimated in 2021. How do you think about growth for two-sided Marketplace going forward? And are there any proxies or bogeys that suggest how big this part of your business could get?
Well, maybe I'll start and then see if Paul wants to chime in. Yeah, I mean, I'm very pleased with the results of a two-sided marketplace. While it's certainly in the early innings, I think both in the tools that we have available now, but just imagine it more as an umbrella for all of the tools that I've been sort of alluding to earlier today too, about super fan monetization, about you know, various ways where you know, in audiobooks you can imagine advertising or à la carte payments, et cetera. It's really about allowing more flexibility for creators and consumers alike. Long term, I think when you look at the umbrella of Marketplace, there will be a lot more for us to do and to launch.
I think the potential is just gigantic. It's really about unlocking the creative economy. Obviously, in the near term, there's lots of puts and takes on how we grow the number of creators that are engaging in the existing products that we have, and obviously, our ability to ship new products that resonate with creators and consumers alike. Those are kind of the puts and takes, and I think Paul talked about this earlier too. The hardest thing for us oftentimes too is to gauge exactly when something will launch, because we're always running hundreds, if not thousands, of different experiments across the platform. I don't know which exact of these things will resonate by what time.
What I can say is that the fact that creators and consumers want to interact in new ways, and that there'll be lots of ways to monetize those relationships, that I don't think should be questioned. That's really a massive mega trend on the internet.
Yeah. I would just add, I think I mentioned earlier, but we feel really good about how it's progressed from a gross margin, so I won't go through the numbers again, but gross profit dollars and it really is a marketing and tools and services that are resonating, and we've seen it in the benefit to the P&L.
Okay, great. I've got a question here from Hamilton Faber. Can you update us on the performance of the new markets that you launched in 2021, and how have they performed relative to expectations?
Maybe I can start, and then Paul can chime in. We probably won't break out a lot of markets, but I'll make an exception here now. It's never what you've imagined when you launch them. As an example, one of the highlights we have over one of the most successful markets is Venezuela, and I don't think that we had that one on our bingo cards as being one of the more successful breakout markets of the early ones. But honestly, when you look back when we've made these batch launches before, which we've made a number of different times, we had a very similar one in LatAm. It follows very much the same trajectory. You launch these markets, it's very hard to predict where it will be easy, where it will take a little bit longer.
You know, early on, for instance, Mexico in the LatAm launch was a very tough market, where Argentina turned out to be a very easy growth market when we launched many years ago in LatAm. When you look at it now, just, you know, two years after that, it completely switched and Argentina turned out to be harder growth, and Mexico was the sort of growth train driving. Then later on than that, Brazil came kind of from nowhere and started taking over and impacting overall growth a lot. I think you're gonna see us learning and adapting to these markets. Obviously, in the early part, the contribution will be small, but I'm confident that in the coming years that they'll start impacting the results of Spotify very positively.
Okay, great. That's gonna wrap up the Q&A portion of today's earnings call. Actually, I wanna turn it back over to Daniel for some closing remarks.
All right. Well, thank you, Bryan, for that. I wanted also to thank you all for joining the call. I really hope you're as excited about the business as we are. We really just feel like we're getting started, and we will continue to accelerate our work and the pace of innovation as we pursue what, in our view, is probably one of the biggest opportunities on the internet, and that's the one of the creator economy and the role that we wanna play in opening that up for more creators. I look forward to sharing more details at the Investor Day. First, I'll be talking more about the quarter on our podcast For the Record, which will go live on our platform tomorrow. I really hope you guys will tune in. Thank you again.
Okay. That concludes today's call. A replay will be available on our website and also on the Spotify app under Spotify Earnings Call Replays. Thanks again, everyone, for joining.