This is an archived page from 2023. Find out more
At a presentation to investors last year, Spotify executives suggested the key to the company’s growth — customers, financial and otherwise — rested on the build-out of its podcast and audiobook products.
But a recent announcement by the streaming media company that it would lay off around 600 workers — or about 6% of its headcount — has some analysts suggesting Spotify might have to change directions with respect to its podcast business.
One executive departing Spotify is Dawn Ostroff, the company’s chief content officer who oversaw its acquisition of several podcast-related products, including Gimlet Media, The Ringer, The Joe Rogan Experience, Chartable and Podsights.
While Spotify has become one of the biggest podcast platforms in the United States by install and active users, the company’s outsized spending on content and technology has dragged on its profits, according to a new report by Billboard. One reason: While podcasts and audiobooks are generating revenue, a lot of that money is paid to music labels to support the service’s tens of millions of music tracks, which are the cornerstone of Spotify both domestically and internationally.
“The revenues have done well, but there’s not a lot of cash flow,” Jason Bazinet, an analyst with Citigroup, told Billboard. “A lot gets paid back to the labels.”
Even Spotify’s own chief executive, Daniel Ek, has come around to the idea that the company spent too much, too fast to build up its non-music businesses. That is especially problematic given global ad spend against media products has seen a decline over the last few financial quarters, an issue that has also impacted radio and television broadcasters and print media.
“I hoped to sustain the strong tailwinds from the pandemic and believed that our broad global business and lower risk to the impact of a slowdown in ads would insulate us,” Ek wrote in a note on Monday. “In hindsight, I was too ambitious in investing ahead of our revenue growth.”
[caption id=“attachment_67608” align=“aligncenter” width=“696”]
A studio at Spotify’s Los Angeles office used for podcast production. (Photo by Brad Devins, Spotify handout)[/caption]
Other companies have taken a more measured approach in building out their podcast business. Speaking at the Needham Growth Conference earlier this month, LiveOne Chairman and CEO Robert Ellin said he was still bullish on the future of the podcast industry and believed there were more opportunities for customer and revenue growth, but said he would not spend money on production companies or individual shows simply to bring them into his podcast network, PodcastOne.
“We don’t buy content like that,” Ellin said. “You won’t see us landing Joe Rogan. That’s not going to happen…you’re going to have Spotify and Apple get that, and everyone below them is going to get lost. There was this massive roll-up, and it was a fast-growing industry, but it’s only going to be a $1.6 billion industry this year, and in five years, it’ll be at $7 billion or $8 billion.”
Ellin said the real opportunities lies in taking podcasts with sizable audiences, and branching out into new opportunities like live shows and TV and film deals. He said content acquisitions will be made along the same lines as the plot to the 2011 film Moneyball — let the number and the data guide the decisions.
“If we’re going to buy [a podcast], it’s going to have 30% margins; if not, go to Spotify,” Ellin said. “What’s happening now is, everybody’s spent their money, and now they’re trying to figure out what to do…[big podcasts have] moved over to Spotify and Apple, and nobody’s watching over them, they don’t have producers, they don’t have PR, they don’t have marketing — they just have this grandiose, big platform with big traffic.”
Ellin’s comments were made more than a week before Spotify announced the layoffs, but even before Needham, there were already indications that Spotify was slowing down its podcast business: A report by Bloomberg News said Spotify had frozen its budget for new domestic podcasts for 2023, and pulled nearly a dozen original titles from its platform rather than re-upping those licenses.
Still, Ellin believes there’s room for all players in the space to grow, but with a bit more restraint.
“I think [podcasts are] a big opportunity for us, and for us to grow with Spotify and Apple, there’s a lot of exciting stuff in there,” he said.