This week was pretty big for Indian podcasting-
Since last year, Spotify has been signing exclusive podcast deals with many celebs like Joe Rogan, Kim Kardashian West, Prince Harry, and Megan, Barack Obama, and now- Ranveer Allahbadia.
An impressive lineup, don't you think?
This impressive lineup raises some interesting questions- why is Spotify spending so much on podcasts? And since these podcasts were already available on Spotify- why make them exclusive? And what about music- has Spotify forgotten about it?
In today's article, I'll answer all these questions.
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All of us love listening to music on Spotify, right? But Spotify doesn't. For Spotify, music streaming is a headache. Why?
The music streaming business is a very expensive affair. Most of the songs are owned by 3 big companies (aka record labels)- Universal, Sony, and Warner. Spotify has to negotiate with these 3 labels to ensure that users get all the music. Do you see the problem? These 3 companies have a monopoly on the supply chain (songs). So if Spotify is unable to strike a deal with a label, there is a risk of thousands of songs not being available on Spotify! Imagine the loss of business in that case! Labels know this and that's why they charge a crazy amount of money from Spotify. So, Spotify's profits take a hit.
That's why Spotify doesn't like the music streaming business: it doesn't own the songs. It doesn't control the supply chain.
Fast forward to 2019: Spotify CEO Daniel Ek announced Spotify's entry into podcasting:
With the world focused on trying to reduce screen time, it opens up a massive audio opportunity. This opportunity starts with the next phase of growth in audio — podcasting. The format is really evolving and while podcasting is still a relatively small business today, I see incredible growth potential for the space and for Spotify in particular.
This was a brilliant move- even though both podcasts and music are audio, they are very different.
While those 3 big companies have a monopoly on music, no one has a monopoly in the podcast space. Individual podcasters own their podcasts. This is a massive opportunity for Spotify- it can control the supply chain in the podcast market!!
That's why Spotify spent $100 million to sign up Joe Rogan. It also signed up other celebs like Barack Obama and Kim Kardashian West and Ranveer Allahbadia and acquired small podcast companies like Gimlet and Parcast. It now owns many of the popular podcasts, therefore it now owns the supply chain of podcasts.
Isn't this similar to Netflix's strategy? Netflix started releasing "Netflix Originals" in 2013. The result? Their profits increased significantly. Why? Because Netflix realized that the best way to attract and retain users is through lots of original content. Spotify is using the same strategy- lots of "Spotify Exclusives" will attract and retain users. Spotify is just getting started, but the volume of original content released every quarter is increasing.
The best part? Spotify's bet on podcasts seems to be working. In their quarterly earnings report, they said-
The strength in Ad-Supported revenue was led by our Podcast and Programmatic channels, with the former benefiting from the acquisitions of Megaphone and The Ringer along with our exclusive licensing of the Joe Rogan Experience.
At the end of Q1, we had 2.6 million podcasts on the platform (up from more than 2.2 million podcasts by the end of Q4). From a consumption standpoint, we saw a strong increase in Q1 podcast consumption hours.
The Joe Rogan Experience performed above expectations with respect to new user additions and engagement.
Even The Motley Fool feels that Spotify's podcasting bet has a lot of potential-
Advertising spending across podcasts is expected to rise to over $1 billion in 2021 [...] this higher-margin advertising revenue should slowly begin to make up more and more of Spotify's overall revenue, making Spotify a more profitable business in the long run.
Okay, so now we know why music is a bad business for Spotify, and why it wants to get into the podcasting space. We've also seen why it is spending so much to sign up celebs. But why sign exclusive deals with the celeb podcasters? They were available on the app before also, right?
Let's understand this using the example of The Ranveer Show (TRS). Before signing the exclusive, it was available on a lot of podcast apps- Google, Apple, Spotify, Simplecast, etc. It has 3.4 million subscribers on YouTube as well. This means the listeners to TRS were scattered across many different apps. But after becoming an exclusive, they will be forced to switch to Spotify. This has 3 benefits for the company-
Lots of new users for the Spotify app.
One important thing about these new users- they are using Spotify specifically to listen to podcasts. Once the person finishes the latest episode of TRS, what's next? Spotify can recommend them another podcast. This podcast-hungry audience will be a boon for small podcasters on Spotify.
Influencer marketing- Clubhouse became popular in Silicon Valley as the app where you could talk to Naval Ravikant! This boosted the app's image as the place to have thoughtful conversations. That's the power of influencer marketing! Spotify is hoping for the same. Signing up all these influencers and celebs will boost Spotify's image as the place for great podcasts.
This wraps today's article. First, we saw why music streaming is a bad business for Spotify. Then we understood the advantages of podcasts compared to music streaming. We looked at Spotify’s strategy to own the supply chain of podcasts, and finally, understood why Spotify made TRS a “Spotify Exclusive”.
Will Spotify become the "Netflix of podcasting"? Only time will tell.
This week, I wrote about-
Stripe launches a new product- Stripe Tax. (Read this article on Twitter)
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I hope you found today’s article insightful. Thanks to Adwait Pisharody for his valuable contributions to the article.
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