Spotify went on one thing of a procuring spree associated to podcasting, throughout each content material and know-how, between 2019 and 2022:
- In February 2019, the corporate acquired Gimlet Media and Anchor, two podcast networks, for a mixed $340MM;
- In March 2019, the corporate acquired Parcast, a real crime podcasting studio, for $56MM;
- In February 2020, the corporate acquired The Ringer, a sports-related podcast and media community created by Invoice Simmons, for practically $200MM;
- In Could 2020, the corporate acquired the unique multi-year publishing rights for The Joe Rogan Expertise, a podcast, for a reported $200MM (the podcast didn’t develop into unique to Spotify till September 2020);
- In November 2020, the corporate spent $235MM to purchase Megaphone, a podcast publishing and promoting platform;
- In June 2021, the corporate acquired the unique multi-year publishing rights for Name Her Daddy, a podcast, for a reported $60MM;
- In December 2021, the corporate acquired Whooshkaa, a podcast internet hosting and monetization platform, for an undisclosed sum;
- In February 2022, the corporate acquired each Podsights, a podcast measurement service, and Chartable, a podcast analytics device, for a mixed $87MM.
These content material acquisitions — along with unique content material offers struck with the likes of the Obamas, Prince Harry, and Kim Kardashian — have been largely spearheaded by Daybreak Ostroff, a veteran tv operator whom Spotify employed in 2018 into the Chief Content material and Enterprise Officer function. Spotify’s technique of concurrently growing its podcast manufacturing and monetization capabilities whereas additionally aggregating a content material portfolio via the acquisition of unique publishing rights for giant, well-known exhibits was for a time, ostensibly, working. In Q2 2022, the corporate reported 19% year-over-year progress in subscribers towards 31% year-over-year progress in promoting income (versus 23% progress in total income, as I detailed right here).
However Spotify carried out one thing of an about-face on its podcasting technique: the corporate laid off 6% of worldwide workers in January of this 12 months and parted methods with Ms. Ostroff, imparting lots of her function’s duties with Alex Norström, previously the corporate’s Chief Freemium Enterprise Officer, now elevated to Co-President.
Spotify’s technique with podcasts adopted one thing of a tv playbook: purchase headline content material and pair it with broad-based model promoting. From this piece in Semafor:
Ostroff’s largest editorial guess, nevertheless, was on Hollywood expertise, and on a podcast trade that has more and more centered on packages created by expertise businesses.The previous govt had centered on signing massive identify celeb expertise, courting A-Listers and making overtures to non-podcasting celebs like Kerry Washington, Gigi Hadid, Invoice Maher, and Jennifer Aniston…She appeared to ship on the promise: Spotify signed offers with the Obamas, Kim Kardashian, and Prince Harry and Megan Markle. However others on the firm noticed her as inexperienced in audio, and centered on massive names over high quality content material. Folks aware of Spotify’s numbers stated Michelle Obama, TikTok star Addison Rae, and Kardashian’s podcasts have been initially profitable, however churned customers rapidly after the primary few episodes, moderately than growing loyal audiences.
The podcast technique started to exhibit fractures in Q3 2022, when promoting income progress slowed to 19%, which the corporate attributed to a “difficult macro setting” (my ideas on that rationale right here). With the layoffs and govt reshuffle earlier this 12 months, the corporate successfully capitulated on the technique; within the earnings name for This fall 2022, held on January thirty first, a bit of greater than every week after Spotify’s layoffs have been introduced, Ek relented that Spotify’s “podcasting enterprise had been a drag to our gross margin profile.” Spotify’s promoting income in This fall 2022 grew by 14% on a year-over-year foundation, representing 14% of the corporate’s complete income. In response to a query on the business viability of the podcasts technique within the name, Ek stated (emphasis mine):
Now what you’re most likely asking beneath all of that’s that it’s been a drag on the gross margin facet. So, what does that imply future? Properly, we’ve been making many investments. A few of them have been working significantly, and you need to count on us to double down on these. And a few of them, not surprisingly, haven’t labored out. And there are specific exhibits that work actually, rather well for us, and there exhibits that didn’t carry out as we anticipated. And I feel that’s an indication of maturity that you just go for the expansion first and you then search the effectivity….However usually, what you need to count on us is throughout the board now to be centered extra on that effectivity and creating extra leverage and that’s actually true in podcasting too. And the administration modifications actually had nothing to do with the change of technique in podcasting. It’s extra round growing the pace of decision-making and growing the concentrate on effectivity throughout the board as a result of the following period of Spotify is one the place we’re including pace plus effectivity, not simply centered on pace or progress in any respect prices.
In contemplating Spotify’s podcasting technique — aggregating massive audiences hooked up to headline content material and pairing it with advertisements — it’s vital to acknowledge the attraction of the advert placements that may be joined to podcast content material. Model advertisers are enticed by the massive, heterogenous audiences that observe tentpole podcasts, simply as they’re with tentpole tv sequence. However podcast advertisements inherently current challenges for conversion measurement; if direct response advertisers are to be courted by platforms like Spotify, which does supply some measurement help via instruments like Podsights, then focusing on have to be accommodated by contextual relevance, which isn’t current in content material that’s as broadly interesting as what Spotify was investing closely into buying. As I write in Twitter and the standard of name promoting income:
Model promoting income is akin to a participation trophy for a social media property; it’s a low-leverage technique of changing consideration into income. And whereas model promoting income is pretty straightforward to reap, it’s vulnerable to disruption via advertiser boycotts and “shiny new object” syndrome. Direct response promoting instruments purpose to make use of behavioral and contextual knowledge to unlock worth via relevance focusing on; model promoting instruments give advertisers untargeted entry to consideration. In consequence, direct response advertisers purchase conversions and income, whereas model advertisers merely purchase attain.
And in The perilous mythology of Model Advertising and marketing for digital merchandise:
The promise of name advertising and marketing is that, by creating presence of thoughts inside a client for a specific product, the buying of that product turns into recurring on some cadence; as an example, at any time when a client is available in the market for brand new sneakers, they default to a specific model due to some affinity for it that has been cultivated via model promoting (and, clearly, product satisfaction). The promise of direct response advertising and marketing is that, given adept focusing on, it may well produce a purchase order instantly, exploiting current demand and creating the chance for the buyer to have interaction with the product.
What’s the high quality of name promoting for a podcast community? It’s desk stakes — background noise. Amassing an expansive, diversified viewers after which shoe-horning model promoting into that content material is a business technique borrowed immediately from tv. However tv predates the existence of direct-response promoting, which, by now represents the towering alternative in digital promoting. There is no such thing as a contextual relevance for mass-market podcasts exterior of essentially the most broadly interesting manufacturers, which might take a look at podcast promoting as a complement (or substitute) for tv promoting.
However the bulk of direct response advertisers aren’t on this format, and an absence of measurement options (which Spotify acquired) aren’t the first impediment: the core content material expertise merely supplies no contextual relevance to direct response promoting, nor does it broadcast intent. And as Semafor experiences, podcasters really feel constrained by exclusivity contracts: common attain throughout platforms, however particularly YouTube and Apple Podcasts, is preferable. So whereas unique distribution for tentpole content material has nearly actually pushed subscriptions for Spotify, albeit at exorbitant expense, the breadth of these podcasts has doubtless undercut promoting income. The community tv technique merely doesn’t translate to the digital realm.
