How Spotify’s $1bn bet on podcasts failed to make any money
In 2018, Spotify chief executive Daniel Ek announced the company would invest $500m in growing a podcast business. But that spend ballooned to more than $1bn over the next four years as the company licensed shows, bought numerous production studios and signed exclusive podcast deals with the likes of the Obamas and the Sussexes.
Ek admitted in January that he was “too ambitious” with spending after Spotify posted a net loss of €430m (£367m) for 2022.
However, Spotify has continued haemorrhaging cash, reporting a record €302m (£260.2m) loss in their second quarter for this year, even as it scaled back on its heavy investment into podcasts.
Investors have raised concerns over Spotify’s podcast business, with activist investor Valueact blaming podcasts for the explosion in the firm’s costs.
According to a recent report by media research firm Enders Analysis, Spotify’s big bet on podcasts “has spectacularly failed to deliver the anticipated financial rewards to shareholders”.
Alice Enders, director of research at Enders, explained to Morning Wire that “in essence, the costs of the exclusive podcasts far exceeded the revenue opportunity”.
To try to rectify the situation, Spotify has axed 10 original shows since last year and announced it was restructuring its podcasting division in January. It said it would cut 600 jobs, with 200 staff laid off in June.
Spotify “mutually agreed” to cancel the $20m (£15.7m) exclusive deal for Prince Harry and Meghan Markle’s podcast ‘Archetypes’ in June after just one season.
Spotify also parted ways with the Obamas in April, but clung on to ‘The Joe Rogan Experience’ podcast, which rakes in some 11m listeners per episode and ranks top of all Spotify podcasts in the US and UK.
But reports have suggested that the $200m deal with Joe Rogan could come to an end in 2024 – something that Spotify has denied.
Through the restructuring, Spotify is aiming to ensure sustainable growth for their podcast segment beyond short-term exclusivity deals.
Chris Baughen, head of studios at Spotify UK & Ireland, told Morning Wire that “the true power and value of highly engaged podcast listeners has yet to be fully realised.”
Spotify is trying to position podcast advertising as a “firm fixture” in companies’ marketing plans, he said.
But Baughen said the lack of consistent and reliable data has been a roadblock in building confidence in podcast advertising.
“There are challenges due to different platforms measuring listens in various ways and providing different data on consumption,” he explained.
The facts show, however, that marketers are unafraid to spend their advertising dough on a well-placed ad.
In 2022, UK podcast investment was up 32 per cent year on year, beating the overall UK digital ad industry’s growth of 11 per cent, according to the latest annual IAB Digital Ad Spend report.
Podcasts remained one of the most resilient ad categories last year, although ad spending on podcasts was 29 per cent lower last year than 2021 as uncertainty over the global economy saw firms pare back their marketing budgets.
The US is expected to spend $2.2bn (£1.7bn) on podcast ads in 2023, according to Statista.
Success stories
Others, however, are managing to make a success out of podcasting.
Fellow Swedish podcast platform Acast saw net sales for the second quarter of this year jump 22 per cent, compared to the same quarter of the previous year, to SEK386.3m (£28.4m).
“We’ve already shown that we can make markets profitable even in an economic downturn. So we’re very confident that this is still a burgeoning industry and will continue to aim towards profits as a group in 2024,” Ross Adams, Acast’s chief executive, told Morning Wire
Acast does not have exclusive podcasts, rather they own exclusive rights to commercialise content, only sharing the revenue with the content creator.
Adams, who has led the company since 2017, said this approach opens up more significant commercial
opportunities compared to exclusive platform deals.
“Sending content exclusively to one platform might pay well in the short term, but building a sustainable audience and business in podcasting requires a broader approach,” he explained.
“Podcasting is one of the best [return on investment] mediums for advertisers,” he added.
And the podcasting market is still evolving, with studios experimenting with different ways of growing their audiences and generating revenue.
The Fellas Studios, for instance, focuses on video podcasts, which has allowed them to build massive followings across platforms like Youtube and Tiktok.
The studios, co-founded by Youtube influencers Callum Airey and Joshua Larkin, specialises in video podcasts that appeal to a Gen Z audience, such as ‘Pitch Side’ and ‘Saving Grace’.
“Video podcasts, for us, are long-form video discussions with high production values that complement the audio content,” explained Elliot Hackney, Fellas Studios chief operating officer.
They aim to tackle the falling podcast engagement among Gen Zers by adding visual elements and interactive segments or games that would be less effective for an audio-only episode.
“This helps us monetise not just on audio platforms but also on Youtube, Snapchat, Facebook, and through brand deals and merchandise,” Hackney said.
They anticipate podcasters will explore exclusive content and paid platforms like Patreon to engage their dedicated audiences, relying less on external platforms like Spotify.
“The focus will shift to engaging and activating their dedicated audiences, and platforms like Spotify may continue to play a role, but self-sufficiency will be a key trend,” added Hackney.
Spotify is already latching on to the video podcasting trend to compete, and says it is seeing success from live shows.
But it still has a long way to go before it starts making money out of podcasting.