NewsWire: 1/28/21
- Spotify believes it has finally found the key to turning a profit: podcasts. The streamer has heavily invested in podcast production and exclusive rights to hit shows, and its competitors are following suit. (Bloomberg Businessweek)
- NH: Over the past two years, Spotify (SPOT) has spent almost $900 million acquiring podcast production companies, including Gimlet, Parcast, and Anchor. (See “Will Podcasts Set Spotify Apart?”) It has spent even more on exclusive rights to shows hosted by big names like Michelle Obama, Kim Kardashian, and Prince Harry. Last year, the company struck a licensing deal with host Joe Rogan for more than $100 million in one of the largest podcasting deals ever. The service now hosts close to 2 million podcasts, up from just 2,500 in 2018.
- Spotify hasn’t made an annual net profit since it was founded in 2006. The company has long sought to build separate revenue streams that aren’t dependent on record labels. In podcasts, founder Daniel Ek believes he’s found the perfect up-and-coming medium that will generate ad revenue and bring in new paid subscribers. Spotify has its sights set on toppling Apple (AAPL), which has long been the #1 podcast distributor. The vast majority of people who listen to podcasts use the iPhone’s native podcast app, where creators host their programs for free.
- But this is about to change. Apple is reportedly in talks to launch a podcast subscription service, which would be the company’s first attempt to make money from its massive content library. It’s likely that original or exclusive programming from Apple wouldn’t be far behind. Amazon Music (AMZN), meanwhile, recently acquired the podcast startup Wondery for $300 million. The inrush of podcasting deals recalls the beginning of the music streaming wars, when these competitors were racing to one-up each other with special pricing and exclusive songs. (See “The Battle of the Streaming Services.”)
- But how big of a business will podcasting turn out to be? While the share of Americans who listen to podcasts has grown fast (from 12% in 2013 to 37% today), the industry generated less than $1 billion in U.S. ad sales in 2019, compared to $14 billion for radio. Luminary, a startup that pitches itself as the “Netflix of podcasts,” has only attracted around 80,000 paid subscribers. Earlier this month, Citi analysts downgraded Spotify’s stock, arguing that the service hasn’t seen a meaningful bump in either app downloads or paid subscriptions despite its big investments in podcasts.
- But the optimists say that Spotify is in this for the long haul and that audiences will only grow. And while paid podcasts might be a hard sell, licensing deals also open up potential other lines of business, like TV adaptations and merchandise.
- It’s important to remember that these companies are not approaching the business of podcasting from the same angle. Out of all these competitors, it’s only Spotify who really needs to create the Next Big Thing in order to stay afloat. Apple and Amazon’s podcasting ventures, much like their TV businesses, are more like afterthoughts. They will never be core revenue generators.
- This puts Spotify under the gun. If a behemoth like Apple decided to invest just as heavily in podcasts, it would overnight push the cost of content into the stratosphere. By moving fast to swoop up all the biggest personalities, Spotify is trying to establish a secure beachhead.
- Thus far, most investors seem to like the strategy. They've bid up its price more than 100% since pre-pandemic. But the company isn't resting. It's pushing ahead as if its very survival depends on the strategy working--which it just might.
