Teaching us a lesson or 'expensive marketing': what we've learned from Spotify's big bet on podcasts

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Spotify is now talking more about ‘efficiency’ and less about expanding its sizeable exclusive content trove of podcasts and audiobooks to diversify from music streaming. The company insists there is no change in strategy, but industry watchers disagree.

When asked by an investment analyst whether Spotify’s previous podcast acquisition strategy and making 2022 “a year of investment” was “a mistake”, founder and CEO Daniel Ek replied “no and yes”.

This was quite an admission, given how Ek had challenged his audio streaming business to significantly increase its income from advertising relative to other areas of revenue, which mostly come from Premium subscribers and music streaming.

Spotify’s financials revealed last week that ad-supported revenue for Q4 2022 grew by 14% year-on-year to €449m, which the report said was “led by podcasting gains”.*

For the full-year 2022, ad-supported revenue reached nearly €1.5bn euros, up 22% year-on-year and making up 13% of total revenue.*

While this ad-revenue share is an improvement by historical standards, 13% is still well short of the 20% Ek mandated in 2021. And, instead of talking about investing to grow, Ek told investors that Spotify would be “shifting to focus on tightening our spend and becoming more efficient”.

This drive to cut costs in a tougher economic climate “doesn’t mean we’re changing our strategy,” Ek clarified.

And yet it does appear to industry analysts that there has indeed been a shift in Spotify’s podcast strategy: away from exclusive originals, and potentially even podcasts completely. Insiders at the company, meanwhile, insist this is not the case.

Acquisitions and networks

Spotify’s podcast strategy since 2019 has been based on acquisition and exclusive original content.

The most well-known names still on the platform include Joe Rogan, Meghan Markle and, soon, Louis Theroux, whose latest podcast series will move from the BBC to Spotify’s walled garden. There have also been high-profile departures from the platform, including Barack and Michelle Obama.

Bloomberg said this podcast strategy “looked more like TV and film”, while in a media newsletter penned by journalist and media consultant Simon Owens, said there were signs that this “exclusivity strategy generates limited returns”.

Since then, the streamer has acquired three podcast studios; Gimlet Media, The Ringer, and Parcast, and several podcast tech, hosting and measurement companies including Anchor, Megaphone, Chartable, and Podsights.

Meanwhile, its Q4 2022 global podcast revenue grew “in the mid 30% range” year-on-year, which its earnings said “reflected healthy double-digit year-on-year growth” in impressions sold and pricing.*

For the full year 2022, Spotify’s ad sales from podcasts (both from growth in impressions sold and cost-per-thousands, or “CPMs”) via its self-serve platform Spotify Ad Studio contributed €123m to its  revenue.*

At the same time, its global music advertising revenue grew in mid-single digits year-on-year as a result of double-digit year-on-year growth in impression sold, but was affected by “softer pricing” because of the macroeconomic environment.

‘Teaching the industry a lesson’ about podcasting

However, last October, Spotify shut down 11 of its in-house original podcasts from Gimlet Media and Parcast, and made a series of layoffs at the same time.

Last month, Dawn Ostroff, Spotify’s chief content and advertising business officer, who was in charge, amongst other things, of the podcast acquisitions and investment, left the business after more than four years. She was replaced by Alex Norström as chief business officer.

Responding to this apparent swerve in its podcast strategy, Bryan Barletta, audio sector commentator and founder of the Sounds Profitable content service, told The Media Leader: “I don’t expect them to leave podcasting, but I do expect that for those writing outside the space they’ll view the sudden change in strategy to look like that. They’re still one of the top three platforms for listenership, Apple and YouTube included.”

Barletta added: “I think Spotify helped the entire industry learn a solid lesson: podcasting is niche and the place of blockbusters is tough. Spotify has killer tech, their ability to do in-app advertising during a podcast has a lot of power to change the entire space depending on how open they get with it, while earning them quite a bit from pure SaaS (software as a service) and from their team being the best sellers of it too.”

However, Spotify’s ad tech platform, which is designed to enable brands to reach users more effectively, is “not worth much in licensing terms”, according to Alice Enders, director of research at Enders Analysis. Acast deals with Spotify in supplying ad services to podcasters and the BBC distributes and monetises its podcasts on Spotify outside of the UK via Acast, which charges a 15% commission.

A source close to Spotify highlighted growth in the Spotify Audience Network, its audio-first marketplace where available inventory from third-party publishers (including The Wall Street Journal and Vox Media in the US, and Reach in the UK) can be sold to advertisers, alongside audience insights, distribution and marketing tools. According to its latest earnings, the Spotify Audience Network experienced “healthy double digit quarter-on-quarter growth” in participating publishers, shows and advertisers.

Podcasts: an expensive marketing tool?

Enders told The Media Leader the issue with Spotify’s investment in podcasts was that it was “an expensive marketing tool for the US”, which is a mature market for streaming where Spotify competes against Apple Music and YouTube Premium. On Apple Music, for example, podcasts are separately supplied on a platform for their creators and YouTube Premium serves video which is “often a preferred format for music lovers”.

“Podcasts do not travel well outside the US and English-speaking countries, and do not in particular appeal to developing countries where Spotify localises their music services,” she added. Barletta, meanwhile, highlighted that for host-read ads in Germany are about $100, which is more than four times the US average.

Enders added: “It’s also not exactly a competitive market. Did Spotify do well out of the Meghan podcast? Didn’t Joe Rogan get Spotify into a spot of trouble? And it doesn’t distribute the content outside Spotify because otherwise it would cease to be an exclusive bit of content, a driver for adherence.”

In response to this, a source close to Spotify’s business insisted the company had “a lot of examples to counter that”, including “a very established network of content exchange” between Latin America, the US and Spain, and many Spotify Original and third-party podcasts localised for new markets.

In the first half of 2022 for instance, more than 140 million hours of Spanish language podcasts were listened to outside the show’s origin country.

The top five languages on the platform outside of English and Spanish are German, Portuguese, and French, with a proportion of listening in those languages “exported” out of the original country.

The source also shared a study that found digital audio was growing in popularity and was slated to become a €1.5bn ads business in Europe by the end of 2023.

Nevertheless, Enders believes Spotify should have raised the price of its Premium tier in the US, following the lead of Apple Music to $10.99 per month. If it didn’t, it suggests “demand is more elastic” for Spotify than for Apple Music.

Ek pointed out in its last week’s earnings call that it had increased Spotify’s price point in more than 40 markets around the world, and that it was “selectively increasing prices” across its portfolio depending on whether new markets were focused on growth, where keeping a competitive price would attract more users, or a more mature market where revenue growth would come from price increases.

As for Spotify’s decision to focus on up audiobooks as well as podcasts, Enders commented: “Audiobooks are cheap to license but not exclusive. It’s not an unexploited segment of the market judging by Amazon’s presence with its all you can eat Audible service.”

The Media Leader understands that the streamer has “no intention of moving away from investing in exclusive podcasts and original content”. The source added: “Exclusive has been a key driver of podcast success, and so listeners come to Spotify to listen to their favourite podcasts and they stay for other content like music, so they work in tandem with each other. People listen to podcasts, they stay for music, and so their time spent on the platform is longer.”

Advertisers and media buyers will be able hear more about Spotify’s strategy regarding audio streaming, podcasts and advertising at Adwanted Events’ Future of Audio in London on 1 March. Rak Patel, Spotify’s head of sales for EMEA, and Lee Brown, Spotify’s VP of global advertising, will be among the stellar collection of audio influencers, bosses and experts. 

*Editor’s note. These figures have been updated since publication.