Why is this happening? What’s driving Spotify’s apparent obsession with podcasts? Let’s find out…
How Much Is Spotify Investing in Podcasts?
The answer to this question is a lot. In 2019, Spotify pivoted to podcasts by launching an initiative called Audio First, as announced in a post on For the Record. Audio First has seen the company invest over $1 billion in podcasts, as revealed by The Guardian.
That money has gone into buying exclusive rights to podcast content from superstar creators such as Michelle Obama, Joe Rogan, and Dax Shepherd.
Spotify has also acquired podcast-related platforms and companies such as Gimlet, Anchor, Betty Labs, Chartable, Podsights, and Whooshkaa, amongst many others.
Why Is Spotify Obsessed With Podcasts?
Big tech firms like Spotify survive and thrive by either adapting to change or creating it themselves. Apple was initially ahead of the curve in audio, but in 2019, Spotify read the writing on the wall and pivoted to podcasts. In the process, Spotify’s podcasts catalog and subscriber numbers both surpassed Apple’s, leading us to where we are today.
Here are the five things we think influenced Spotify’s deep dive into podcasts…
1. Podcasts = Profits
Spotify hasn’t made a profit since it was founded in Sweden in 2006. In 2021, for example, the company lost a staggering $42 million (according to Statista). But why?
Well, every time you stream a song for free, Spotify has to pay royalties to the copyright holders of the song. However, since not every song played comes with an ad, Spotify doesn’t make money from every stream. Therefore, it actually costs Spotify money when its users stream music for free.
On the other hand, each podcast is embedded with ads. In the case of Joe Rogan, an infamous podcaster Spotify paid hundreds of millions of dollars to secure, the company earns advertising revenue based on audience size. Thus, as Rogan’s audience grows, Spotify’s revenues also grow.
Meanwhile, Spotify has locked Joe Rogan in, and doesn’t have to pay him an extra cent for the duration of his contract, no matter how big his audience becomes.
Podcasts are, therefore, a potential cash cow for Spotify, which is presumably why it chose Joe Rogan over Neil Young.
2. Podcasters Bring Fanbases
Superstars like Joe Rogan and Michelle Obama bring another benefit to Spotify; they attract a significant chunk of their fans to the platform.
And as these celebrity podcasters bring fans to Spotify, Spotify is better able to fend off the challenge posed by Apple Music.
3. Keeping Up With the Competition
Spotify’s biggest competitors, namely Apple, Google, and YouTube, were already hosting lots of podcasts. Apple was actually the biggest podcast platform before Spotify made its pivot to Audio First. Now Spotify has overtaken Apple.
If Spotify hadn’t made the switch to Audio First when it did, its rivals would have left it in the dust, and Spotify may have found it impossible to catch up.
4. More Control Over Content
Spotify is in a tight spot with the music it carries on its platform. Neil Young’s withdrawal from the app highlighted the fact that it doesn’t own the music it is carrying, and is entirely at the mercy of musicians and their labels.
With podcasts, however, Spotify is purchasing the exclusive rights. This means that Joe Rogan cannot just wake up and remove his podcast from the platform, since he is contractually obligated to Spotify to keep it there.
5. The Tech Was Already There
Spotify already had the technology. If the app could stream music, it could certainly deliver podcasts.
Diversifying into podcasts was therefore a rather simple choice, both technically and in a business sense.
Podcasts Could Be a Game Changer for Spotify
Podcasts engage listeners for hours on end, and advertisers just love that. The ad spend on podcasts is growing year-on-year, and is predicted to hit $2 billion in the US in 2023.
Since Spotify has 25% of the US podcast market, this means that, in theory at least, Spotify could bring in approximately $500 million in podcast advertising revenue each year.
Considering Spotify made losses of $42 million in 2021, it seems podcasts will finally tip Spotify over into profit making territory for the first time in its history.
If that is true, then its investment in Audio First has already paid off, and will continue to do so for years to come. Unless we all suddenly fall out of love with podcasts.
