Reality check for Spotify and the podcast boom

Spotify has a podcast problem. At the height of the boom in podcasts, it appeared the company had found a big shiny object to dazzle Wall Street with.

In 2019, founder Daniel Ek declared that audio — not just music — was the future of his company with podcasts central to the strategy. Podcasting had become something everyone wanted to get into.

Spotify bought Gimlet, the maker of podcasts like Reply All on internet culture, for $230mn and Anchor, a podcast-making app and platform. It followed those deals with the acquisitions of producer Parcast for about €50mn and Ringer, a sports media and podcast group, for up to €180mn. And it signed content deals with the likes of Kim Kardashian, Prince Harry and the Obamas.

But the spending spree has weighed on Spotify. Paul Vogel, the company’s chief financial officer, put it plainly on a phone call this week. “[Podcasting] was a big drag on our business in 2022,” he told me, though he predicted that this “drag” would subside over time.

For some time, podcasts were viewed as a possible answer to the thin margins Spotify suffered from its core business of music streaming. It was seen as a market on which it could actually exert more influence — unlike music, which has long been dominated by a handful of record labels.

But the tables have turned. Spotify’s music streaming business has held up remarkably well. The slowdown seen at Netflix, which sparked a bruising correction across all US media stocks, did not materialise at Spotify.

Spotify added 83mn monthly users globally, and 33mn in the fourth quarter alone, its best quarterly customer additions ever. But in the same year, Spotify’s losses ballooned by more than 10 times. In 2022, Spotify reported a net loss of €430mn on revenue of €11.7bn.

Spotify does not break out its podcasting financials results, but at an investor day the company said it had made “close to” €200mn in podcast revenue in 2021. This means that for all the splashy deals and hundreds of millions of dollars spent on podcasting, it is bringing in only 2 per cent of Spotify’s total revenue. Vogel told me that Spotify’s podcast revenue was “significantly higher” in 2022, but declined to give specifics.

Spotify’s actions provide further clues on how podcasts are performing for the company: in recent months, it has laid off dozens of podcast employees and cancelled some shows.

The problem speaks to a broader reckoning for podcasting. After a staggering 1mn new podcasts were launched in 2020, that number dropped to 222,0000 in 2022. Spotify’s leap into podcasts lifted the entire nascent industry, sparking a frenzy of deals and higher valuations as Amazon and Apple raced to compete. While podcasting made relatively little advertising money, executives would say it was still “early days”.

That may be true, but in recent months participants in the industry seem to have changed tack, openly questioning if podcasting will ever become what they had envisioned.

“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.

Podcast revenue is still growing but the industry is now suffering the same lay-offs, cancellations and disappointments that other types of media have long endured.

And I wonder whether there is a more existential problem. Even with all this money being thrown at podcasts, it has struggled to replicate a smash hit like the Serial series. A few years ago when I spoke to Courtney Holt, a former Disney executive whom Spotify hired to build its podcast strategy, he told me his goal was to find that breakout hit. To do so, he commissioned scripted podcasts through a partnership with DC Comics and doubled down on crime, a genre that he described as “the Rihanna of podcasting — the thing that everyone likes”. Holt ended up leaving the company last April.

For podcasting to prove itself as a bigger part of the media industry, it will have to produce more blockbusters. Content is king. The money flows from that. For now, Vogel warns that more show cancellations are on the way. “We’re still committed to the podcasting business”, he said. However, “when things aren’t working, we will be quicker to pull the plug”. 

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