Spotify’s podcast aspirations

After two years of making massive purchases in the podcasting industry, Spotify may be planning to launch a subscription service for podcasts, a step that only a few firms have taken so far. Traditionally, podcasts have been open to consumers, funded mostly by advertisements but not subscriptions. The previous attempts to turn the sector upside down and introduce a subscription-based business model have not been resounding successes. But they were not Spotify, and the Swedish giant has proven before that it rarely fails. 

Photo by Heidi Fin on Unsplash.

On November 6, Variety’s Andrew Wallenstein tweeted that the company had sent out a survey asking what the users thought of a podcast streaming subscription-based service. The survey considered several subscription options with prices ranging from $2.99 to $7.99 per month, depending on the content available and the insertion, or lack thereof, ads. The cheapest plan, which does include ads, offers “access to exclusive interviews and episodes.” For $4.99, Spotify would eliminate the ads and provide “access to high-quality original content.” The most expensive option would offer the same content with no ads, but it has a premium feature—early access to interviews and episodes.

Although it is a survey and not an actual plan, it already shows that Spotify is taking the next step in the podcasting industry and considering a premium service.

The Swedish firm has been making moves into podcasting for the past two years. Only in 2019, Spotify spent $400 million in acquisitions. In February of that year, it bought Gimlet Media, a narrative podcast network, and Anchor, a platform that hosts and monetizes podcasts. Later, the company purchased the crime and mystery podcast producer Parcast. Then it spent an additional $200 million in acquiring The Ringer, which owns over 30 podcasts with more than 100 million downloads a month (read Spotify, the podcasting powerhouse). This massive buying spree has put Spotify in a great position in content production, as it can offer almost anything to the consumer. Besides, the company has also invested in its own original content—a difference from its music business, in which Spotify only provides the platform. The Swedish firm began producing original podcasts in 2018, with shows like “Amy Schumer Presents: 3 Girls, 1 Keith.” As Netflix and Amazon concluded before, it’s not enough to host content; you also have to produce it. But still, Spotify’s struggle is not with content; it is with how to increase revenues. 

The company runs a freemium service—some features are free, others are not–which encourages users to pay a $9.99 fee for the premium tools (such as choosing songs). But as with any freemium model, Spotify also counts on advertising to ramp up its revenues. For non-subscribers, ads pop up while listening to music, while subscribers enjoy an ad-free experience. However, there’s a slight difference in podcasts, as ads are usually inserted within the episode. To capitalize on the ad revenue, Spotify launched a new advertising technology called Streaming Ad Insertion (SAI). Through this technology, advertisers can target their commercials to Spotify’s free subscribers based on the content they consume. And just this month, Spotify agreed to buy podcast advertising firm Megaphone, which focuses on audience metrics, production, and advertising, as reported by the Wall Street Journal. The Journal explains that “Its “Megaphone Targeted Marketplace” inserts ads when a podcast is downloaded and allows advertisers to target listeners by interest, purchase behavior, and demographics across podcast apps. Instead of buying advertising time on specific podcasts, brands can buy ad slots targeting 60,000 audience segments for the more than 5,500 shows that use the service.”

This effort in improving the advertising strategy is coupled with Spotify’s increased interest in launching a subscription service for its podcast. Ads inserted into podcast episodes can be skipped with the consequential decreased impact on the listener. Thus, subscriptions matter. But implementing a subscription model might be more challenging than it seems, as the podcasting industry has an open-source mentality—the content is free, the only way to generate money is ads. With that approach, the market has grown in the past few years. Pew Research Center reported in 2019 that 24% of Americans aged 12 or older listened to a podcast in the last month, while in 2008, that percentage was only 9%. Moreover, in 2019, more than half of Americans under 35 listen to podcasts every month, according to the Reuters Digital News Report

Spotify is not the first to have this idea. Luminary tried launching a similar service in 2019, but so far, it hasn’t had much success (read Luminary dreams of becoming the Netflix of podcasting). The app, which offered ad-free exclusive content for $7.99 a month, angered many podcasters who felt they were being taken advantage of, as reported by The Verge. Spotify may encounter similar issues if it decides to launch a subscription service for podcasts. On the one hand, it seems the premium service would not be included within the Spotify music subscription. Maybe the firm could launch add-ons to include the podcast segment for subscribers already paying the $10 fee.

On the other, Spotify was able to become a mogul in the music industry because it offered a legal and easy way to access the content. The other options were downloading it illegally through Napster or buying the whole record. The podcast industry is not there yet. Much of the popular material can be accessed for free on other platforms. For example, the New York Time’s podcast The Daily can be listened to on Spotify, but also on its website and on Apple Podcasts. Thus, Spotify’s value proposal  for podcast focus on exclusive content, more than on comfortable and easy distribution. Basing a model only on content can work sometimes, but basing it on distribution almost always works. Besides, there are two kinds of streaming services. Ones, such as Netflix, offer a wide range of content appealing to large heterogenous audiences, so the consumer pays for the service, not so much a particular show. And others, such as HBO, include a few shows that appeal only to a specific audience building a real fan base. Spotify music is like Netflix with almost negligible differential content, and it’s not clear in which category podcasting would fall. Spotify could try the Netflix route again, but we generally don’t listen to as many podcasts as songs. We are loyal to a handful of podcasting shows to which we listen religiously. Thus, maybe Spotify could try the second route, but it’s unclear how it would appeal to paying listeners if they can still listen to them with ads.

Still, Spotify has done this before—it changed the music industry by allowing people to pay small fees for all music, instead of buying records. It certainly would be difficult, but Spotify is Spotify. With 320 million users—144 million of which are subscribers—the app has a lot done already. For now, let’s wait and see if the survey turns into something else.

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