Spotify, renowned as the go-to music streaming platform with its social and content curation features, made a strategic move into the podcasting industry in recent years. While this decision has allowed the company to tap into the rapidly growing podcast market, it has also presented Spotify with unique challenges in terms of monetization. In this blog post, we will explore some of the reasons why Spotify is encountering hurdles when it comes to generating revenue from its podcast distribution platform.
Challenges in monetizing podcasts
One of the most misunderstood aspects of Spotify is its limited ability to monetize the vast majority of podcast content on its platform. In the latest quarterly earnings report, Spotify announced that it had 5 million podcasts available, but according to Jake Barfield, Founder and Portfolio Manager of Asheville Capital Management, Spotify is unable to monetize 99.9% of those podcasts.
The commercial rights to the podcasts lie with the podcast producers themselves or the hosting providers that are distributing to Spotify. In fact, the commercials run on the platform are not played by Spotify, but the hosting providers that are helping monetize that content.
In a recent episode of Stream’s Idea Dinner To Go, Barfield covers the challenges that Spotify faces when expanding into the podcast business. Spotify wants to be the Youtube of podcasting, but podcast producers don’t upload their content directly to Spotify because, according to Barfield, only 25-30% of podcast listeners use Spotify.
“If I create a video and I upload it to YouTube, YouTube sells advertisements on that video without me having to do anything. When I upload directly to YouTube, I forfeit the right to commercialize that.
Spotify wants to be that, but here’s the problem. I don’t upload my podcast directly to Spotify like I do it directly to YouTube. If I create a podcast, I want maximal ears. I want as many people listening to my podcast as possible. If I upload only to Spotify, I get globally 25 to 30% market share, sometimes higher, sometimes lower in different countries.”
-Jake Barfield, Asheville Capital Management
Because podcast producers don’t upload their content directly to Spotify, Spotify is unable to monetize podcasts unless Spotify buys the commercial rights to the podcast. Any podcast production purchased by Spotify is immediately impaired, as Spotify has a small share of podcast subscribers globally and not all listeners follow the podcast to a new platform.
“[What’s] most misunderstood about Spotify is Spotify doesn’t get to monetize all the podcast content that they have. So in the most recent quarterly earnings report, they say that they had 5 million podcasts on their platform, but 99.9% of those podcasts, Spotify does not get to monetize.
When they acquire the exclusive commercial rights, they try to make it exclusive, they try to differentiate their library, they are impairing those assets because they force people to either move over to Spotify or stop listening.”
-Jake Barfield, Asheville Capital Management
You can watch the full episode “What Spotify Got Wrong in Podcasting” here!
Limited control over content
Unlike the music industry, where licensing agreements and copyright regulations offer some level of control, podcasts often involve independent creators and intellectual property rights that are not exclusively owned by Spotify.
This lack of control poses challenges for the platform in terms of monetizing podcasts. Without complete control over content, Spotify faces difficulties in implementing advertisements, especially dynamically targeted ones, which limits their ability to optimize revenue.
Even if Spotify buys the commercial rights to the podcast, their limited market share and exclusivity marketing tactics have not proven fruitful. For example the most popular podcast in the world, The Joe Rogan Experience, wasn’t immune to this issue as most of Joe Rogan’s audience did not follow him to Spotify after it bought the rights.
“Spotify acquired the exclusive rights to Joe Rogan, they expected this large wave of new subscribers to come over and people who were intensely loyal to Joe Rogan did come over to Spotify, but that was a very small minority. The large majority of people who listened to Joe Rogan before the exclusive deal just stopped listening to Joe Rogan. They just found something else to listen to.”
-Jake Barfield, Asheville Capital Management
The other way for Spotify to acquire exclusive advertising rights is to produce the podcasts themselves and own the monetization in its entirety. We previously answered the overarching question “is full control the ultimate goal of SPOT?” in another blog post which you can read here.
Instead of betting on a large existing audience, Spotify could bet on being able to produce hit podcasts. Of course, making a hit show is hard, and even the hits have a high degree of churn.
“When you look at the exclusive strategy from Spotify, apart from Rogan, I would say most of it is new stuff. These guys like Obama, they created completely new stuff from scratch for Spotify. It’s not like they’re betting on the biggest audience that they would already have… You have one or two seasons, and then after that people will churn out.”
Intense competitive market
The podcasting industry has become highly competitive, with numerous players vying for the attention of listeners and advertisers. Established podcast platforms like Apple Podcasts and Google Podcasts, as well as emerging players like Amazon Music and Audible, are all competing for market share. This intense competition makes it challenging for Spotify to command premium advertising rates and secure exclusive deals, further affecting their monetization efforts.
“Platform like Amazon or Spotify gets a higher percentage of its listening hours to podcasts to, for instance, avoid paying music royalties. Because of that, you saw these bigger companies say, “Let’s dominate the podcast space.”
Spotify did pass Apple as the primary place for audio listening. You can double check me on this. I think as recently as the fall, YouTube actually surpassed Spotify and Apple for share of podcast listening.”
Spotify is well known for its premium subscription service, but had to quickly adapt to an advertising-driven ecosystem. However, the transition has not been seamless for Spotify, as podcast advertising revenue has been slower to grow than anticipated and it is not in a position to monetize as its competitors.
“I think Spotify is a fantastic business. I just think that there is a significant misunderstanding about Spotify as a potential in the podcast space. And there are advertisement dollars flowing into podcasts. But Spotify is not in a position to monetize or to benefit from those advertisement dollars, not nearly to the degree that some other companies are.”
-Jake Barfield, Asheville Capital Management
Spotify’s success as a music streaming platform can be attributed, in part, to its user-centric approach. However, when it comes to podcasting, striking a balance between monetization efforts and preserving a positive user experience can be tricky. Overloading podcasts with excessive ads or introducing disruptive monetization tactics could potentially alienate listeners, leading to reduced engagement and retention. While Spotify has made significant strides in becoming a podcast distribution platform, it faces several challenges in monetizing this medium effectively.
Check out our Idea Dinner to Go – Spotify series on Youtube, hosted by Stream’s Austin Moorhead, to watch more episodes with Jake Barfield on podcast advertising. Don’t forget to subscribe so you don’t miss the next one!
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Contributor
Austin Moorhead, Stream Content Marketing Manager and Host of Idea Dinner to Go
Content Marketing Specialist - AlphaSense
Content marketer at Stream by AlphaSense and experienced copywriter in a range of industries including: healthcare, financial, technology and energy. Published author of “Masala Chai,” a poetry book capturing his experience as a South Asian minority in America.
Read all posts written by Alyees Qureshi
