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Spotify Podcasts: Not Worth the Investment?

Amplification / 2.15.21 / By Fred McCoy

Saying there's a lot of hype surrounding podcasts would be an understatement. They've quickly grown from a unique, artistic medium into a monumental industry where brands and companies are willing to spend millions to acquire content if it means giving them an edge. Yet, despite major investments in content and streaming services, podcasts just don’t seem to be paying off for big companies like Spotify.

Citi analysts recently downgraded Spotify’s stock because the "cadence'' of 3Q20's Premium additions and app download data didn't show "any material benefit" from podcasts investments that began in 2019. According to analyst Jason Bazinet, Citi's fear "is that if podcasting doesn't provide a way for Spotify to shift away from music label dependence, the Street may reassess the underlying value of the business. And that would be bad for Spotify's multiple and equity value."

These investments include the millions spent on exclusive content rights, such as The Joe Rogan Experience (>$100 million), as well as purchasing already popular podcast networks and creation platforms, like Gimlet Media ($230 million), Parcast ($56 million) and the self-publishing podcast platform Anchor ($235 million). As brands and advertisers continue to strategize about where podcast content fits in their portfolios, let’s consider potential reasons why Spotify’s strategy hasn’t paid off—and what that means for 2021 and beyond.

Popular podcast content is often funded by listeners

Becoming a working artist is extremely hard, regardless of profession. But podcast creators don't need to rely on large audio distributors and product placement as their main source of income. In fact, many new and existing podcasts rely solely on crowdfunding from their listeners. Take, for example, Welcome to Night Vale, a crowd-funded podcast so prolific that talent like Mara Wilson, Wil Wheaton and Felicia Day have appeared (sometimes repeatedly) throughout the show’s 150+ episodes. As of August 2015, Night Vale had achieved 8.5 million downloads, a number that's grown exponentially since. For creators like this, freedom from corporate oversight allows them to give listeners the content they’ve come to expect.

The barrier to entry for creating a podcast is low (this is good)

What makes for a “good” podcast is debatable, but what’s not up for debate is that it doesn’t take a lot of upfront investment to start making podcasts. Unlike other artistic mediums, there's no standard set of tools for creating a podcast. You simply need a device capable of recording audio, a computer that can connect to the internet and an idea (the idea is the hard part). The low barrier to entry is one of the reasons there are currently 850,000+ active podcasts and more than 30 million podcast episodes of varying quality, length and genre. Podcasts have emerged as an accessible medium for creators, and the diversity found in this medium represents the diversity among podcast listeners. This lack of uniformity in content makes it harder for brands like Spotify to assume control of the podcast market.

Podcasts are an intimate experience

Audio-only content is, by nature, an intimate experience. The mobility allowed when listening to a podcast is what gives us the ability to mix it into personal routines like exercising, doing chores and getting ready for work (or sleep). Podcasts integrate seamlessly into our lives and, over time, the connections between listener and narrator become so valuable that it’s clear why Spotify would spend so much on exclusive content deals. However, when this content is placed on a major distribution platform intended to support measurement and ad distribution, you need to consider the potential harm to the narrator/listener relationship. Many podcasts discuss sensitive topics like body image and racism—now imagine how it might feel for listeners immersed in this content to be interrupted by a highly targeted programmatic ad tied to their podcast content. It'll be worth digging into how the relationships between podcast listeners and the shows they listen to evolve over time as exclusive content deals become the norm.

Subscription models are expensive relative to value

Put simply: People don’t need another subscription fee on their bank statement to enjoy great podcast content. Well-designed, cross-platform podcast listening apps—like PocketCasts and RadioPublic—already exist. And remember that 850,000-podcasts statistic earlier? 99% of those will likely be available across multiple platforms, apps and websites—accessible to anyone. While the march toward podcast subscription models is unlikely to change, it would behoove socially conscious advertisers to pay close attention to how these platforms pay podcast creators and be thoughtful when purchasing future media buys.

So what’s next for the podcast industry?

Despite challenges, Spotify’s best path forward is likely to remain the same: aggressively acquire competitors, content, platforms and services related to podcasts, and hopefully reach a point where they become essential for podcast listening. For those interested in the evolution of the podcast space, keep an eye out for a rapid series of acquisitions by Spotify, especially as Apple is reportedly planning to develop its own podcast subscription model. Beyond the obvious players in this space, pay attention to streaming giants like Netflix and Disney+ that may be interested in taking a piece of the podcast pie, seeing podcasts about film criticism and popular show recaps as prime opportunities.

Implications for brands and advertisers

For brands interested in developing a podcast, Joseph Fink and Jeffrey Cranor (hosts of Night Vale/Start With This) suggest asking yourself if your podcast idea is specific (Can you describe it in a sentence?), novel (What makes your idea different?), practical (Can you actually do your idea?) and repeatable (Why should listeners come back?). These questions will help you evaluate whether an idea is worth pursuing. Also, ask if you're the right voice for the story that's being told. If not, are you willing and able to bring in the right voice to give the story appropriate representation?

For advertisers, consider alternatives to traditional audio media buys and work directly with podcast creators when serving ads. These partnerships are no different than working with influencers and will allow you to reach niche, highly loyal audiences while also supporting independent creators. And you can avoid the “scripted” nature of audio ads by letting podcast hosts put their own spin on your product or service. In fact, Chuck Nice, previous host of StarTalk Radio, is responsible for my NatureBox subscription.


Fred McCoy

Fred McCoy is DS+CO’s group account director with a passion for branded storytelling and creating custom marketing solutions for client business challenges.