Ladies and gentlemen, thank you for standing by, and welcome to the Spotify Q2 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Bryan Goldberg, Head of Investor Relations. Thank you, sir. You may begin. Thank you. Welcome to Spotify's second quarter 2021 earnings conference call. Joining us today will be Daniel Ek, our CEO, and Paul Vogel, our CFO. We'll start with opening comments from Daniel. Afterwards, Daniel and Paul will be happy to answer your questions. Questions can be submitted by going to slido.com, S-L-I-D-O. com, and using the code hashtag SpotifyEarningsQ221. Analysts can ask questions directly into Slido. All participants can then vote on the questions they find the most relevant. We ask that you try and limit yourself to one-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. 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 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 thank you so much for joining us. I will touch briefly on the quarter and then offer context for some of the opportunities I see across our business. All along, we've been pretty clear that our outlook for 2021 included a higher degree of variability, given the ongoing uncertainties of the pandemic and the uneven recovery worldwide. With the exception of MAU, we've had another strong quarter, which is apparent in the solid outperformance of all other metrics. While I'm disappointed that our MAU growth was softer in the last half of Q1 and the first half of Q2, the good news is that we've seen the trend line reverse and all the leading indicators I'm seeing show that we're back on track. There's a lot to learn for us on the MAU shortfall. Markets like India, Brazil, and parts of Southeast Asia lag behind our expectations, and we've also seen slightly slower adoption rate in some of our newly launched markets. All these regions have been hard hit by COVID. Ultimately, we lost about a quarter of growth between Q1 and Q2, and in hindsight, we likely underestimated the acceleration we saw in MAU growth in 2020. All that said, I feel really, really good about what we're seeing. Taking a bigger picture view and looking at the last two years average together, we're still on track to outpace our MAU growth in these two previous years. 2020 was a bit of an outlier. Companies rarely grow in a straight line, and nothing in our data changes our long-term outlook and the audio opportunity for Spotify. In fact, if there's one thing that has surprised me the most during COVID, it's been how effectively we've been able to dream up and accelerate the roll-up of new innovations in the midst of tremendous disruption, while also executing against our existing roadmap. Long term, I believe speed of iteration will be a key competitive differentiator. There's a lot of positives that we also bring with us from this. We've highlighted several of these innovations in our letter, but we've actually introduced more than 20 significant new features over the last few months. It's been on everything from collaborative listening worldwide to launching our new live audio experience, Spotify Greenroom. We also began rolling out paid podcast subscriptions and Spotify Open Access, both of which offer solutions for creators and publishers to earn revenue from their Spotify listeners. These product innovations unlock an entirely new class of content on Spotify. I'm hearing from consumers and creators alike about their firsthand experiences with the changes they are seeing on the Spotify platform. Frankly, from where I sit, it's incredibly exciting to know that there are plenty of improvements we can deliver that will substantially enhance our offering, and, as a consequence, open new doors for Spotify as well. All of this has been accomplished while our entire team has been remote, allowing more teams across the world to collaborate on each new release. We've used our learnings to supercharge our velocity of shipping, and that impact is starting to show. Put in other words, the platform we're building is all about moving from 8 million - 50 million creators and from 400 million to more than 1 billion users on our platform. For each improvement, we will turn more listeners into super fans, give voice to more types of creators, and offer users multiple ways to interact and engage with the talent they love. When we connect creators at every stage with fans around the world, our flywheel moves faster and faster, unlocking even more potential growth. We are still early in moving linear radio to on-demand audio, which just goes to show the growth opportunity still out there is significant. Of course, there's the growing strength and importance of our ad business. Admittedly, this is an area where I previously didn't spend much time, but it's becoming impossible to ignore. It's now safe to say it's becoming a second big revenue driver for Spotify, and I'm especially inspired by the early success of the Spotify Audience Network. While we are growing the overall ads business from a small base, the potential is significant and the trend line is clear. We saw strong growth of 110% year-over-year. Adjusting for FX, the growth is even more impressive, coming in at 126%. Looking at podcasts, podcast revenue was up over 627% year-over-year, or nearly 200% on an organic basis. The continued outperformance is currently limited only by the availability of our inventory, which is something we're actively solving for. It's clear to me that the days of our ad business accounting for less than 10% of our total revenue are behind us. Going forward, I expect ads to grow to be a substantial part of our revenue mix. As you can see, there's a lot going on, and there's a powerful pipeline of platform improvements that will benefit consumers, creators, and brand partners in Q3 and Q4. Now I'll turn it back to Bryan Goldberg and the questions. Thanks, Daniel. Again, if you've got any questions, please go to slido.com, #spotifyearningsQ2 2021. Once your question is entered, you can edit or withdraw your question by selecting the option in the bottom right. 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. The first question today is going to come from Benjamin Swinburne. Can you provide some data during the first half of the year that supports the view that MAU weakness is driven by COVID-related factors? For example, are the regions performing better or worse, where the variance can be explained by different phases of lockdown, reopening, or economic stress? Yeah. Thanks, Ben. We can, and we've looked at this. There's a couple of things I would highlight. First is we know in general that engagement leads to better MAU and better retention. Where we have markets where engagement is high, we're seeing positive trends, and where engagement is not as high, the trends aren't as great. How can we measure that? Well, there's a couple of ways. One is what we've noticed in markets where COVID is significant, either lockdowns are significant or the spread is significant, you're seeing less mobility. In markets where you're seeing things more open, you're seeing more mobility. More mobility leads to higher engagement, which tends to lead to a higher retention and better MAU. We've seen it in that data. We've also seen it, as we've talked about in the past, when we first went into COVID, we sort of mentioned that every day kind of looked like the weekend, meaning every day had sort of similar types of patterns that were like a Saturday or Sunday. You didn't have the normal cyclicality in the day through a commute. What we've seen is, again, in markets that are more open, in markets where it's less of an issue, you're seeing a little bit more of a return to that cyclicality. Weekdays are starting to get back to the way they normally are with that cyclicality and that usage and engagement. In markets where COVID is still bad and we're still in lockdown phase, those mid-weekdays are still looking like weekend days. We can see it in that data as well. That's kind of a nutshell sort of thinking about it from the engagement and metrics perspective. The other thing we know is in markets where COVID was very prevalent, we cut back on marketing and advertising pretty significantly. Regions in particular, India is one where we're still relatively new there. We know how our marketing plans work. We know that when we do marketing plans, they tend to have a direct impact on user growth in India. We didn't really spend any money in Q2 in India, given what was going on with COVID in that area. As we increase some of the advertising, increase some of the spend in the back half of the year, assuming some of these markets get better, we feel like we'll see some of that MAU growth come back where we weren't spending in the last quarter. I think those would sort of be the highlights of sort of how we've tried to triangulate between kind of markets with COVID and where things are better or worse and how they've impacted kind of our engagement metrics and our MAU growth. All right. Our next question is going to come from Matt Thornton. Another one on MAUs. Wondering if you could expand on or quantify the impact of the intake issue you experienced with a third-party platform. Again, what gives you confidence that slower MAU growth is a function of COVID as opposed to a function of price increases, competition, and/or saturation? I'll take the first part, and I guess I'll let Daniel take a little bit of the second part. With the third-party platform, that was an issue with email verifications between us and a third party. In full disclosure, this was an issue on our end. We made a change that was not caught soon enough, and we believe it had an impact on growth. The estimate right now was about 1 million-2 million of MAU growth was impacted by the friction created by this email verification change. It's since been corrected and should not be an impact in Q3. In terms of the first half of the second part of that question, again, talking about COVID, I think I mentioned it in the last question. I will say we obviously don't think it's price increases because our subscriber growth was actually slightly better than expected. Price increases would really have a bigger impact on subscriber growth as opposed to free user growth. Maybe I'll let Daniel talk about sort of competition and saturation. Yeah. As Paul kind of outlined both in this question and the last one, most of the underperformance we saw were in sort of emerging markets and not sort of Western markets. As it goes to the question of saturation, et cetera, those are also in markets where we're in much earlier stages of growth rather than the sort of bigger markets like the U.S. and most of Europe as well. As competition goes, I still look at all the leading indicators. Our engagement is up. NPS score is looking super healthy compared to competitive set, et cetera. We feel really, really good about where we are from a competitive standpoint. We see a strong demand for Spotify really across the world. Obviously, as we said, going into the year 2021, we'll have a higher degree of variability and especially for a global company like Spotify, where we have so many regions that are all in different stages of maturity. I really think that's what you're seeing here, and just to contextualize it even further, it's really been playing out over a quarter. I look at it more as a bump on the road than anything else, and because we've had such a strong 2020 year. If I'm disappointed about anything, it's probably just we should've seen it coming more in the forecasting, but it's obviously very difficult to forecast these things. I feel really good about our long-term growth prospect, and that hasn't changed. All right. Next question is going to come from Michael Morris. "How did churn compare for subscribers seeing price increases during the first half of 2021 versus those who didn't? Has it varied meaningfully by market? And what's your view of future price increase potential for standard subscribers or additional increases for other plans? Churn was down year-over-year and quarter-over-quarter, which is great. We don't get into specifics about regions or geographies or products. I will say that in the markets where we increased prices, things performed in line with expectations, if not slightly better. In terms of thinking about things from a gross intake perspective or from a churn perspective, again, everything was sort of in line to slightly better, nothing there to call out at all in terms of an impact from price increases. We are continuing to roll this out. We've tested a number of markets. I'm not really going to comment on whether or not we'll roll out into more markets or more standard plan or family plan, you can imagine we're going to continue to test and experiment with all different offerings. Again, we're excited about how the trends have been so far in the markets where we have raised prices. Just maybe to iterate on the strategy here. The strategy for us is really all focused on increasing engagement. If we increase the engagement, the value per hour increases of our customers, and as we're seeing that, we will be proactive in raising prices when we believe that ability exists. It's more aligned with the engagement of our customers rather than maybe as some may have speculated, competitive sets, et cetera. That's what we feel so good about, when we have raised prices, is both the engagement staying very strong and the fact that, as we've said many times, we have more than two or even 3x in sometimes the amount of engagement per user than some of our competitors do. Obviously, that means that there's a very loyal customer base there. I think that's what you've seen play out in the business and why subscriber growth has been so strong as well. Right. Next question is from Justin Patterson, directed to Daniel. "At Stream On, Daniel, you talked about a billion-user opportunity for Spotify. Given the degree of growth that implies, what are the key investments you need to make to deliver on that target? Yeah. I touched upon this in the opening remarks, but for us, we've grown in the past few years from about 1 million creators to now more than 8 million creators. The opportunity in front of us is really to get to more than 50 million creators. As part of that, it's really all about getting those audiences of those 50 million potential creators to start listening to that content, becoming super fans, and creating more and more tools for the creators and fans to start engaging with each other, turning that engagement into monetization opportunities, and so on. That's really the kind of main strategy, and a lot of that comes down to a combination of platform improvements, discoverability, just being able to showcase and seeing new content, and then obviously, the content team and onboarding new creators and finding compelling ways to get creators to feel like Spotify is the number one platform. When that happens, it is a flywheel that turns into more creators, turns into more users, and more users turns into more creators, and so on and so forth. All right. Next question from Mario Lu. "Can you provide more details on both the strategy and economics of Spotify Open Access? Are partners expected to pay Spotify revenue share of subscriptions, or is the main goal simply to increase engagement on the Spotify app overall? Yeah. Really, the idea between Spotify Open Access is to provide an open platform for creators. We want to enable as much audio as possible, and we view it as we want to be the audio platform of the world. We have multiple ways for creators to engage with our platform. One of them is obviously the Open Access, where we don't partake and take any revenue, and the creator themselves can choose how they best want to monetize their audience. In the case they already had a paid audience, like Ben Thompson, they can enable that audience to listen friction-free on the Spotify app without sort of any hiccups. Then, to the extent that the creator needs help in both getting more customers to come to them and help in better friction on payment, et cetera, we do also offer that opportunity, and those are added revenue opportunities as well. The better way to think about it is we're primarily doing it to increase engagement and to draw new users there. I am 100% confident that that also leads to more business opportunities for Spotify long term, as we'll have more and more platform tools, whether that be advertising, whether it be payment options that we can offer, or even, in the future, live rooms, et cetera, that we can offer via the platform. I think all of those are exciting new revenue possibilities. Actually it looks like Mario has a follow-up on this one. With the Greenroom soft launch in mid-June, can you explain why you decided to create a separate app for the live audio experience versus embedding it within the core Spotify app? Yeah. The origins of this is an acquisition we did earlier in this year, and I'm actually very proud of the team. We pretty much made the acquisition, and a quarter later, were able to incorporate it into Spotify, give a consistent refresh of the product, stabilize it for a Spotify-sized audience, et cetera. That's very much the reason why this is a sort of separate app, and I think you should expect there will be more and more tie-ins to the main Spotify app too, and obviously we'll leverage our existing distribution on Spotify too. This felt like a great way to learn, experiment and iterate much faster than if we had to wait for a full-on integration into the main app, given the difference in the creator and consumer experience. Okay. We've got another question from Ben Swinburne. You called out a revenue mix shift towards podcasts, among other things, benefiting gross margins. Previously, you had discussed podcast investments this year as a greater drag versus last year. Has something changed? Is the business now at a scale that it should drive gross margins going forward? Yeah, a big chunk of that is a couple of things. One is revenue exceeded expectations on the podcasting side. Led both organically as well as the acquisition of Megaphone and some of the inventory for JRE and others, which was super impactful. As Daniel mentioned in his opening, podcasting revenue growth was up 627%. It was actually up close to 700% on an FX neutral basis. On an organic basis, it was up almost 200% FX neutral. The revenue growth there was better than we expected, which led to better margins on that side. On the investment side, I would say it was in line, maybe a little bit lighter than we thought in terms of the quarter. That has more to do with just quarterly, I'd say, variances with respect to content spend than it does any shift in terms of the overall investment we'll make for 2021. There's some of the shift got pushed out to the back half of the year. In general, it was really led by just the leverage you get on having more upside on the podcasting revenue side. In terms of how it drives gross margins going forward, I wouldn't necessarily say it's an inflection. I'd say it's a strong indicator of where we can go when advertising is strong and where we can go with the leverage on the podcasting side over time. We're going to continue to invest in the business, but I'm super pleased with how we performed in the quarter. Okay. Next question on Rich Greenfield, also related to podcasting. We sense a shift in your podcast strategy from studio content that's available on all podcast platforms to high-profile exclusives like Joe Rogan, Alex Cooper, and Dax Shepard, both in the U.S. and around the world. What's changed with your strategy? Hey, Rich, I believe happy birthday, by the way. Yeah. I don't think really anything has kind of changed. I think we have been experimenting with windowing, we have been experimenting with exclusives, we've said for quite a long time that obviously we want more and more of the listening to happen only on Spotify. It's been kind of more of a natural evolution to drive it towards that end. I do think, again, from a strategy perspective, we are very much aiming to be a very open platform all along, the most important job for us is to be a great partner to all the creators that we have in the ecosystem. I don't think it rolls out to say that we would only do exclusives hard on. I think you're going to see us do many different types of deals. Where possible, we would obviously opt to take it fully exclusive. We're going to be very opportunistic about that going forward. All right. Next question from Mike Morris, another one on gross margin. What are the factors that drove 2Q gross margin above guide to the 26.5% result that are not expected to recur, or said another way, what are the incremental headwinds anticipated in the second half of the year, given that the high end of third quarter and fourth quarter guidance is below the 26.5%? Let me just unpack gross margins in the quarter in general. We reported a gross margin of 28.4, and we've talked about sort of more of an adjusted organic number of 26.5. The delta between those two was the reversal of some publishing accruals. They were one time in the quarter. I will say, if you think about what we had done, we take a very conservative view of how we play out publishing globally, where sometimes it's a little bit of a challenge to make sure you're paying people. We tend to accrue at rates that are even higher or more conservative than we need. As we're able to get comfortable that we're paying the right amounts, we reverse those accruals. There's been some work done in Europe in particular to get this accomplished in a way that was satisfactory for everybody. We can get into the details offline with the IR team if you'd like. In every quarter for the last two years, we've actually had about 20, 30 basis points of a hit to gross margin that we haven't necessarily called out because we were accruing more than we actually potentially might have to pay out to be conservative. We now feel comfortable about the proper payouts, so we're able to reverse that accrual, and that was the big 190 basis point gain there. That's about 2/3 of the upside relative to expectations. The rest of it was a couple of factors. One, I mentioned, which was the better revenue on top of podcasting, which helped. We did benefit on some of the other costs of revenue a little bit more than we thought. Payment fees, streaming delivery, customer service, those types of things, where we got a little bit better leverage than we thought. The team's done a really good job on those angles. It's really been a combination of the better revenue growth on the one hand, which helped on the margin side, and then also on the other cost of revenue side. In terms of going forward, so now that that accrual has been reversed, that actually gives us a benefit moving forward. It's about EUR 20 million or so a year. That'll help in terms of a positive. The negatives are, as I said, there's always some seasonality on the content side, so there'll be potentially more spend on the content in the back half of the year than the front end of the year, and we're not expecting quite the same leverage on some of those other costs of revenue that we saw in Q2. All right, next question from Doug Anmuth. MAUs have been light the last two quarters, and it usually takes 12 - 18 months to convert to a premium sub. Does that slower top of funnel growth create premium sub risk in future periods? Maybe I'll start here, Paul, you can add. I think it's really important to contextualize that most of our lightness has really been due to an outperformance in 2020 more than anything else. Even despite all of that, as I said in some of my opening remarks, and part of the reason why I feel really good about things, including, of course, all the leading indicators pointing positively, is that when you look at the last two years, we're still on track of outpacing the average growth of those past two years. We're still on track of outpacing that in this year. Overall, top line MAU growth is healthy. We're just comparing it to an exceptional 2020, and that's clearly on us. We should have realized some of this variability going into the year, et cetera, but I feel really good about that. The second part of that is leading indicators are looking super healthy, engagement super strong, podcast engagement super strong. Just overall, plenty of runway left and we're still early and going from linear radio to on-demand audio. I feel really good about the future path to 1 billion plus users when it comes to Spotify. I would just add on top to highlight what Daniel said. If you look at the 2020 and 2021 combined and think about the sort of average growth in MAU, it exceeds any other year we've ever done. Again, we still feel really good that the overall sort of long-term slope of the growth in users is on track and healthy. On top of that, some of the variability has been in markets where we would expect they would have higher free users for a longer period of time anyway. There are countries, again, like India, where our expectation is you're playing a long game there, and while we expect subscriber growth there and we're optimistic, you know it's going to take a long period of time. One quarter here or there of growth is really not going to impact the overall trajectory of where we're expecting. At this point, we don't think that it should impact any of our subscriber expectations at a minimum this year, and then we'll talk about next year when we give guidance later on in the year. Okay, we've got another question from Rich Greenfield, this one on Marketplace. Can you help us understand Discovery Mode? Walk us through an example of how it's being used and how that leads to 40% more listeners for artists utilizing it. The first way to contextualize Discovery Mode is it's really a marketing tool for artists and labels. The great thing here is that it's really a result-based marketing tool where you're really only paying Spotify if you find success, hence why we're highlighting the success from Discovery Mode here. It's really a marketing tool where you opt in, you choose the program. You do see the downstream implications of how many more listeners we're able to generate because of this, how many more downstream follows and subscriptions am I able to generate? Labels that are in this beta are now very active on it, and we're seeing a very healthy sort of retaining rates of new bookings through the tool as well, and we're just looking at making that easier and smoother in this beta period. Hopefully, that will lead to even better results, which of course means even better adoption. Okay, next question comes from Steven Cahall. How should we think about your ARPU trajectory on a constant currency basis as you move through price increases? Should we expect ARPU to expand from here? Are there any plans for a base price increase, excluding Family or Duo? Finally, are there any notable churn impacts from price increases? I think I answered the first two already. The gross intake churn, right on plan, if not slightly better in markets where we've changed prices. In terms of thinking about ARPU, we were up in Q2 on an FX neutral basis very modestly, but we were up. It's the first quarter, I think, in three, four years as far back as I looked, where we had positive ARPU, that is a great trend. We do expect ARPU on an FX neutral basis to be positive in the back half of the year. That is a combination of the follow-through or the flow-through of the price increases, somewhat offset by some of the pressure we get from product mix and geographic mix. In general, we do see ARPU being up modestly for the back half of the year. Again, on an FX neutral basis. Okay, next question from Matt Thornton. Can you talk about what inning you're in with your marketplace strategy overall, the momentum in artist label, publisher feedback around sponsored recommendations in Discovery Mode, and how much of an opportunity or focus is live? Yeah. As a European, I'll try to do my best imitation of what inning is what. If I'd make an educated guess, I would say we're probably in the second or third inning. I have no idea, that should indicate early in the journey, but not starting. It's still very much early days. We're past the point of launching this. We're getting results. We're seeing very strong sort of leading indicators around both results that partners that are participating in these programs are giving us, and the feedback around how we should develop this even further. A lot of this just comes down to a lot of details around how labels and artists work together and understanding that and building out products that are bespoke to that. To an extent, that's probably one of the biggest sort of surprises for us is just how much data sharing between labels and agents and managers and building out almost like an enterprise suite for products where you have certain types of rights for certain types of people on the artist team, certain types of dashboards that should only be available for other types of teams. A lot of that stuff is the stuff that we've now been building out over these past few quarters, and that's certainly new and that's what happens in the customer development phases. You're actively going in and learning more about the customer needs and understanding that. The good news is usually when you're past that, you have a product that's highly tailored, highly bespoke to that type of audience, and I feel really good about the feedback that I'm seeing. Of course, as with anything that goes with our music partners, there's always a lot of controversy around almost anything we do at this point, just because of the size we are for the industry and how much of an impact any single change that we do. Even shifts in how our algorithms work massively impact almost all marketing teams on labels and artists too. We get a lot of feedback on even those types of changes too. I think that's just more of a natural evolution as goes to just the scale and the size of Spotify and how important we are for the music industry. Live, again, I talk about this, but I think the most important thing really is we're very creator-focused. Live, if you think about music creators, it is today a vast majority of all the income that normally flows through to an artist. To the extent that Spotify can be helpful in driving live outcomes, that's going to materially improve the earnings of an artist, and that obviously means that we can be an even more better partner to artists that can then drive preferences and get artists engaged even more on the Spotify platform. It's a long-term, very important focus of ours to the extent that it'll have an impact on the business side. That's not how we work. What we're doing really is we're focusing on the needs for the constituent and building amazing experiences, and thereafter, we tend to focus on how do we monetize that too. I just wanted to be clear upfront about that you should expect us to try to build amazing products that will drive meaningful outcomes for our partners, and it's only at that point that it starts flowing through to business outcomes for Spotify too. I would just add two things. One, just dovetailing what Daniel said, everything about that is comments. There was a slight benefit, not slight, a decent benefit to the gross margin outperformance. I mentioned the better revenue and I mentioned the other costs of revenue. Marketplace was also another driver of improved earlier. The second point is, for those of you non-Americans on the call, that's about the 15th minute of a football game in terms of translating innings into football games. Great. Now I understand. I like that you said football too, by the way. Didn't call it soccer, so appreciated. Okay, next question comes from Doug Anmuth on the Spotify Audience Network, Spotify Open Access, and streaming ad insertion, and what are the next steps to boost their utilization and monetization? I think the early returns has been great creator excitement, which usually translates to adoption. Some of these are more mature than others. OAP, very early days, still building it out, rolling it out, but great excitement among partners. SAI and SPAN obviously already are live today and even in the quarter started impacting the results that we're seeing. For me, the most important thing, again, comes down to focus on our constituents that we're serving, providing great tools for them. When that happens, that then leads to better outcomes for Spotify. Maybe if I zoom out and just kind of give some context, I think really the big thing you all as analysts should focus on is the shift of Spotify as a Premium subscription music service to an audio platform. That audio platform means that the business model fundamentally of Spotify now is very different than what it had been in the past. You're starting to see that shift come through with ads. I suspect over time, there'll be many more tools and services that we are driving and delivering here that will then all start impacting the overall results in different ways of the business going forward. When I, in my opening remarks, focused on that sort of shift on velocity for product improvements and platform improvements, that is for me, perhaps one of the most important leading indicators for me about sort of having that kind of impact both for creators and consumers that then leads to tangible benefits. You should really expect this to be more investing in the platform side of Spotify, which will then lead to lots and lots of really exciting business outcomes for Spotify in the future too. Then I'll go, Daniel went macro, I'll go a little micro here. If you look about at sort of SPAN and SAI in particular in terms of ad products in the quarter, as we mentioned, we had a really strong advertising quarter numbers, albeit expectations. We've seen through the implementation of some of these new products that sell-through rate was better than expected in the quarter, and CPMs were also a little bit better than expected in the quarter. We saw. All right, we've got the next question from Hamilton Faber. Could you comment on recent press reports that Spotify is interested in becoming involved in live events? Yeah, maybe by way of context, we've actually been involved in the live space now for many, many years. Both having as a feature, the ability for artists to post upcoming concerts on their Spotify pages, but then subsequently with our own playlist and brands like RapCaviar, been doing some shows with tens of thousands of people in attendance and having that all over the U.S. and U.K. and so on. We've been in the space for quite some time now. I can't really comment on sort of product tests that we're doing. As I mentioned in my previous comment, live is a meaningful thing for many of our creators, and it's something that we're excited about. In the past quarter, as evident by some of the tests we did, we did some live concerts, digital live concerts, and tested that, and saw some really positive results from that, and lots of excitement from our artist partners about Spotify helping out during COVID and providing more meaningful ways for them to monetize their fan base. I think that's in line with our strategy to the extent that live will have an even bigger impact. I think we're still an open platform. We want to work with as many partners as we can and provide as many opportunities for creators to create more ways to turn a listener into fans and turn fans into super fans and increase the monetization for those creators. All right. Next question comes from Deepak, and it's directed to Paul. Can you provide additional color on some of your assumptions in the second half outlook or guidance? You've renewed several promotional programs, but also have new ones such as TikTok. How were you thinking about contribution from these new programs, particularly as you potentially expand them into more markets? Yeah, it's hard to talk about any one plan because we don't really do that. I would say in general, we're excited about the number of new partnerships we have. They are all baked into our forecast moving forward. Obviously, the newer ones are sometimes tougher to forecast because they are new and we don't have a track record or history in terms of success. I would say in addition to the partnerships which we're excited about, there'll be higher marketing expense in the second half of the year as well because we'd pulled back on some of that. I think that's all factored into the guidance as well as kind of the trend lines we saw coming out of Q2 relative to the first half of Q2. That's all what's in the numbers with the obvious caveat that there's still a lot going on. There's still a lot of variability in a number of markets with respect to COVID. We are forecasting. All right. Next question is from Mark Mahaney. Also somewhat guidance related. What updates can you provide on the two-sided marketplace and your view on when these initiatives will become financially material to the company? I think I said earlier, we are starting to see benefit of the two-sided marketplace. It did have a positive impact on gross margin in the quarter. To Daniel's point, we're going to continue to launch out tools and services and products that help creators and artists and labels in order for them to sort of maximize their careers and their monetization. We see all of the expectations we had in terms of the marketplace impact [inaudible] Great. Next question is from Jess Reif Ehrlich. Is the advertising strength you're seeing right now solely from the U.S.? In addition to a healthy ad market, how has Spotify Audience Network contributed to the growth? Should we anticipate faster growth as you roll out to additional geographies? The U.S. is our largest market when it comes to advertising. That's probably not surprising. It did outperform, but all of our markets actually outperformed. We had great growth in markets outside the U.S. As the U.S. goes, the advertising market for us will go because it is the largest part, but every segment we had, every geography outperformed their expectations, which was great. Spotify Audience Network definitely helped. It contributed to growth. I think, as I mentioned a little earlier, sell-through rates were better than expected. CPMs were a little higher than expected as well. We're seeing the benefit of what we created in bringing the Megaphone inventory into the Spotify family, which has been great. More geographies will help. As I said, the U.S. is still predominant in terms of advertising, and Europe is a pretty big second, and everything else is pretty small after that. I would say for the near term, it's really a U.S.-Europe story. Over time, more of those geographies will contribute. Maybe just as an addition here, we've talked a little bit about this before, but I'll say it again. We're mostly supply constrained and not demand constrained, meaning it's really more about us opening up more inventory than there being a lack of interest from advertisers in advertising with us. The really big effort [inaudible] All right. We've got time for one or two more questions. The next one is going to come from Doug Anmuth. Regarding podcasting, O&E content is a small percentage of overall podcasts on the platform, but it accounts for approximately 20% of the total consumption. How do you think about the optimal mix of O&E content going forward? I don't think we have a particular number that we're striving towards. What we can see is that the O&E part of this tends to drive a bigger bump in engagement and, in particular, translates into more new users. Whenever we've done an exclusive, we've tended to be able to convert more of the existing Spotify audience to also start a podcast on Spotify. Likewise, we've been able to get more people from outside of Spotify to try Spotify for the first time. It's definitely been positive. As the mix goes, we're primarily focused on making Spotify the audio platform on the internet, and we think that is the most important thing, and that's opening up more content and as I mentioned, going from 8 million creators to 50 million creators is the primary focus. Obviously, the O&E part is a very helpful addition, and is helpful not just with our ability to get more people to listen to podcasts, but also is a very attractive proposition for advertisers, as I think was evident in the quarter. All right. Thanks for the question, Doug. Actually, we are out of time for Q&A, so I'll turn it back over to Daniel for closing remarks. All right. Well, thank you so much for listening to this Q&A portion. Of course, MAU growth slowed during the significant COVID-related pull forward we saw in 2020 and the impact of the uneven recovery in the first half of 2021. We do anticipate a strong second half, and our trend lines are looking very healthy. Of course, in the short term, some COVID uncertainty lingers, and in the long term, the shift from linear to on-demand audio will only continue to accelerate. As more than 1 billion user opportunities left, I think it really reinforces our position as the audio browser of the world. No one else is as laser focused as we are on audio. It's all we've done for over 15 years, and that dedication is an advantage we leverage every day for creators, for fans, and brand partners. We're pushing ourselves to deliver at an unprecedented pace, and we're building out the infrastructure to go even further, faster. Long term, I believe these product innovations will bolster MAU and subscriber growth, helping to attract more and more users around the world and connecting them to creators they already love, as well as the ones they are waiting to discover. I'll be talking more about the quarter on our podcast, "Spotify: For the Record," which will go live on our platform tomorrow. Thanks again, everyone, for joining us. Okay, that concludes today's call. A replay of the call will be available on our website and also on the Spotify app under Spotify Earnings Call Replays.