The world’s largest music streaming service, Spotify, spent billions of dollars building its podcasting business which was meant to reduce its dependence on its core business, music, and increase its profits and profile in audio. It didn’t necessarily work out as planned.
“[Podcasting] was a big drag on our business in 2022,” Spotify Chief Financial Officer Paul Vogel told Financial Times.
Now Spotify is resetting and moving toward advertising. It wants to build advertising technology that resembles a version of the competition — YouTube — or better still, Google’s AdSense or AdWords for audio, Bloomberg reported.
Spotify has just over 200 million subscribers and more than 479 million people use it each month. It owns a larger share of the audio business than Netflix does of video, and its biggest competitor, YouTube, isn’t technically in the audio business.
And yet, the Stockholm, Sweden-based company has lost money every year, as have all the other music streaming services. “That’s what happens when you pay music rights holders about 70 percent of your sales in exchange for their songs,” Lucas Shaw wrote in his Bloomberg newsletter.
The original plan was for Spotify to diversify with podcasting. Tens of millions of people listen to its podcasts thanks to exclusive deals with podcasters such as Joe Rogan.
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The podcast market was seen as one where Spotify could be more influential than music, which is dominated by a few record labels.
One million new podcasts were launched in 2020. When podcasting made relatively little advertising money, executives said it was still “early days,” FT reported. By 2022, podcast launches were down more than 75 percent to 222,0000. Spotify lost $175 million in the first nine months of 2022.
By contrast, Spotify’s music streaming business held up remarkably well, Anna Nicolaou wrote for Financial Times. “The slowdown seen at Netflix, which sparked a bruising correction across all US media stocks, did not materialize at Spotify.”
As part of its reset, Spotify fired 6 percent of its staff in late January and Dawn Ostroff, the architect of its podcast business, resigned.
Industry participants openly question if podcasting will ever become what they thought it would be. Spotify has cancelled some shows and laid off dozens of podcast employees in recent months.
“In every year of the medium’s existence, it’s been described as ‘the next big thing’. At what point do you have to just call it, and say that rather than being a ‘big thing’ in waiting, it’s just a run-of-the-mill ‘medium thing’,” said Nick Hill, a podcast entrepreneur, in a blog post.
Spotify now realizes that creating new original hit podcasts is almost impossible, Bloomberg reported. It has started to think of itself more like YouTube. It will still fund original shows but is more interested in being the platform that every podcaster uses than the studio or exclusive rights holder. It distributes almost 5 million podcasts and says it wants to reach 50 million creators.
However, YouTube generated almost $30 billion dollars in advertising sales in 2022 — and shared about half of that with creators. Spotify generates about $12 billion in sales and most of that goes to the music business. Almost none goes to podcasters.
Spotify hit 489 million monthly active users at the end of December, up from 456 million at the end of September. “Net additions of 33 million represented our largest-ever fourth-quarter growth,” the company said.
The company’s advertising revenue is going in the right direction, growing in the fourth quarter while ad momentum slowed at some digital giants amid recession fears. Spotify’s quarterly ad-supported revenue rose 14 percent year-over-year and accounted for 14 percent of total revenue, the company said.
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