Spotify Unsure About Podcast Profits

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(By Richard Davies) I’m a bit old school. While podcasting occupies much of my time each day, a long-established habit of slowly leafing through the pages of newspapers continues to be a source pleasure. Print discoveries are made without digital nudges from algorithms. 

Among my favorite finds last week was in the “C-Suite Strategies” section of The Wall Street Journal and a surprisingly revealing comment by Spotify CFO Barry McCarthy.

Asked by a reporter, “Why is podcasting an important medium for the company to expand into?” McCarthy answered: “It remains to be seen whether or not it becomes an important medium.”

Huh?

His company spent approximately $400 million this year on three podcasting firms, in the expectation that these investments would increase Spotify’s growing subscriber base. As more people discover the many rewards of podcast listening, many content producers and distributors are allocating a growing part of their media budget to podcasting. And for good reason.

“Frankly, if Spotify didn’t get into podcasts, it would risk losing share of the audio listening market to other platforms,” said a recent post by the financial advice site, Motley Fool. 

Despite soaring revenues from music subscriptions, the fast-growing streaming giant operated at a small loss during the first quarter of 2019 and for all of last year.

Podcasting is a big bet and McCarthy admits that “there’s a fair amount of uncertainty” about whether it will have a positive impact on profitability, “which is probably troubling to investors.”

Assuming that consumers will pay for podcasts that have, until now, been free may be a risky investment. While the most popular shows reach hundreds of thousands of listeners, most expensively produced podcasts don’t make a profit. And compared to other media, podcasting’s share of the advertising pie is slim indeed.

One industry projection forecast that by 2020, U.S. podcast advertising would grow to $659 million, while in 2018 radio ad sales were $17.8 billion. 

Overall digital advertising revenue last year surpassed $100 billion!

The numbers beg the question: How well-deserved are big podcast investments by venture capitalists and others? Will millions of listeners pay for monthly subscriptions to Spotify, Luminary, Pandora, and other platforms?

While podcasters celebrate expanding opportunities, growing media coverage, dazzling new shows, and a steady rise in consumer acceptance, the industry’s producers and investors must broaden their horizons. 

“Some fear that podcasting has become a community talking to itself — a coastal thing like electric scooters and avocado toast,” wrote Gerry Smith in Bloomberg Businessweek.

Yes, the pod potential is huge. But competition is increasingly fierce. Obstacles remain. A little more caution and humility may be in order.

Richard Davies is a podcast host, consultant, and producer. DaviesContent designs podcast formats, edits, and helps clients make excellent audio content.

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