Spotify’s Podcasting Strategy

Becoming Google for audio.


Varun Rustomji

3 years ago | 4 min read

The podcasting industry is finally reaching escape velocity. New technologies like AirPods, smart speakers and connected cars have seen substantial growth in the last 3 years making it easy for consumers to consume content and incentivizing creators to create high-quality content.

The number of podcast listeners has been growing steadily over the past few years. As of 2019, a quarter of Americans have been listening to podcasts weekly.

The average weekly listener is spending 6+ hours listening to podcasts weekly

Apple played an important role in the development of the podcasting industry and their app remains the most prominent app for listening to podcasts however their share fell from over 80% to just over 60% in the last few years. The reduction in market share can be explained by two factors.

The first being that iOS was the predominant platform for listening to podcasts however that changed when Google launched its own podcasting app in June 2018 and a long tail of other well-funded companies providing a seamless cross-platform experience. The second being Spotify and their big push into podcasting in the last two years.

Spotify has gained 10% market share in 4 years

Spotify CEO Daniel Ek wrote a blog post in 2019, highlighting the company’s transition from music first to audio first. He states that he expects 20% of all Spotify listening will be non-music content. He expects podcasts to play an important role in increasing user engagement, reducing churn and improving the bottom line. You can read the post here.

Source: Spotify Blog

Spotify made a huge push in the podcasting space in 2019 by acquiring Gimlet Media which is a podcast network with shows like Reply All and Startup, and Anchor, a podcast creation app, for a combined $340 million according to their SEC filing. They ended their shopping spree in 2019 by acquiring Parcast, a podcast network that specializes in true crime, mystery and science-fiction shows for an undisclosed amount. The company did not stop there.

They acquired The Ringer in 2020 reportedly for around $196 million, a media company known both for its culture website and massive podcast operation headlined by The Bill Simmons Podcast. The latest acquisition is The Joe Rogan Experience.

On May 19, Joe Rogan announced that he signed an exclusive deal to bring his podcast to Spotify. The exact terms aren’t public, but the consensus seems to be that Spotify will pay Rogan well over $100 million to license the back catalog and future episodes of his podcast, The Joe Rogan Experience.

Joe Rogan is considered the most successful podcaster in the world topping almost every podcast popularity chart except Spotify’s because the show had been absent from the platform and now by the end of the year it will be exclusively available on Spotify.

“We can’t rest on our laurels. We believe the market we’re going after is audio. That adds up to 2–3 billion people around the world who want to consume some sort of audio content on a daily or weekly basis. If we’re going to win that market, we’d have to be at least a third of it. We have somewhere between 10–15x of where we are now of opportunity left. We’re still in the early days of our journey.”
- Spotify CEO Daniel Ek on Invest Like the Best

Spotify grew their monthly active users (MAU) by 31%, premium subscribers by 31% and ad-supported MAUs by 32% in the first quarter of 2020 according to their financial report. Their quarterly results have become easy to anticipate over the last few quarters.

Growth in MAU over the last 3 years

Strong user growth and retention trend if offset by non-existent profits and slim margins. For every dollar that the company brings in, only 25 cents is left to cover the costs of running the business after accounting for music rights and other costs. After considering the cost of R&D and marketing required to stay competitive in this market, their path to profitability looked bleak at best.

They are not in a powerful position to negotiate with record labels because Apple Music provides a perfectly good alternative in the paid music streaming space.

Spotify realizes that podcasts can help them solve a lot of issues that exist with their current business model however, the bigger opportunity for them is to become podcast aggregators.

The current podcasting landscape is similar to the early days of the web. Google and Facebook realized that the best way to advertise was to aggregate users and deliver targeted ads. Spotify is well pushing to become the aggregator for podcasts and capitalize on their 286 million MAU’s by providing targeted ads which they have refrained from doing so far. A very small percent of Spotify’s revenue is generated by advertising.

Spotify Revenue || Source: Statista

There’s never been a single podcasting company that sells ads, makes shows, has an already-popular podcast player, and offers the tools to make new series. Spotify now has all of that, and they will use it to provide superior user experience, use data to target ads and provide superior tools for advertisers.

Two of the main issues with the open podcasting ecosystem is difficult to discover new podcasts and to gain insights about the listeners. Spotify has a solution for both these problems thanks to their data science and analytics investments over the years. The company has created algorithmically generated podcast playlists and launched its own advertising tool called Streaming Ad Insertion.

Spotify could become the go-to for audio advertising just like google and Facebook have become the go-to destinations for advertising on the web.

Source: Spotify

The US newspaper industry generated $37.8 billion in advertising revenue in 2008 and Google generated $21.13 billion. In 2019, Google generated $134.81 billion dollars in advertising alone while the entire newspaper industry generated 14.8 billion.

The global radio advertising industry is worth $35.23 billion dollars in 2020. Spotify generated $7.5 billion dollars in 2019 out of which only $753 million dollars came from advertising. Spotify is well-positioned to become the Google for audio and the upside in doing so is substantial.

This article was originally published by Varun rustomji on medium


Created by

Varun Rustomji







Related Articles