Spotify‘s (NYSE: SPOT) This week’s Stream On event gave investors a glimpse into the company’s plans to continue growing its podcast business. Along with new content partnerships, the audio streaming specialist shared details for new advertising technologies and podcast creation tools. All three areas are important building blocks in Spotify’s podcasting strategy and offer significant leverage and margin expansion potential.
Invest in more marquee content
Spotify now has over 2.2 million podcasts on its platform, but only a few dozen really attract listeners to the service. Spotify has made some huge investments in original and exclusive podcasts to encourage users to use their player instead of the competition, and it largely works. Management said the number of users, early podcast listeners, and engagement all increased when The Joe Rogan Experience went exclusive in December.
To that end, she announced several new high profile names to add to her podcast program, including former President Barack Obama, Bruce Springsteen, Ava DuVernay, and the Russo brothers. It also revealed new podcasts from Barack and Michelle Obama’s Higher Ground production company, and gave investors a look at the first podcast from its DC Comics partnership.
Spotify still has a lot of room to increase podcast adoption on its platform. By the end of 2020, 25% of listeners were engaged in podcasts on Spotify.
If these marquee titles are used to get users to try out podcasts, Spotify’s newly announced recommendation tools are meant to get them to keep listening. With a growing library of hundreds of thousands of titles, Spotify has the ability to take advantage of the long tail of podcasts on its platform by being able to recommend content based on everything it knows about its users. This is a huge advantage over competing podcast players.
Improving podcast advertising
With the introduction of the Spotify ad network, Spotify makes it easy to buy ads across the platform. Marketers can use Spotify’s advertising tools to campaign to reach listeners of Spotify’s own originals and exclusive third-party podcasts hosted on megaphones or anchors, as well as ad-supported music.
Spotify already has a large number of advertisers for its ad-supported music service. The simple migration to buying podcast ads should improve the direct monetization of their own podcasts while increasing the number of ad offers for the monetization tools in Megaphone and Anchor. This could help attract more developers to these platforms.
To further increase the demand for ads in podcasts, Spotify also announced the ability to purchase podcast ads through its self-service platform. The idea is to make buying podcast advertisements as easy as buying advertisements for your core offering of music.
In addition, Spotify confirmed its plans to enable streaming ad insertion technology for all podcasts hosted by Megaphone this year.
New creator tools to expand the format
Spotify also showed off some new tools it is working on to give developers more opportunities to engage and monetize their podcast audiences.
In collaboration with WordPress, writers became podcasters and vice versa. It’s also opening videos to more podcasters this year after being tested with a limited number of developers last year. Podcasters can also interact with listeners through polls and Q&A sessions built into Spotify’s software for creating anchor podcasts.
Most interesting of all is Spotify’s plan to allow subscription podcast content. There are already many subscription podcasts out there that use platforms like Patreon to process subscriptions. The membership platform recently made it easy for developers to host a subscription podcast by seamlessly integrating with many podcast players, but Spotify’s platform is not compatible. Spotify’s popularity as a podcast player and creator tool (anchor) provides the opportunity to capitalize on the growing trend and outperform the competition. And the company could cut subscription revenue while it’s at it.
The important factor in Spotify’s podcast business is that content costs don’t scale with revenue like in the music business. Spotify pays out a percentage of its revenue from music that listens to labels, musicians, and songwriters.
With podcasts, Spotify can pay once for an original or an exclusive product and keep all earnings. This creates leverage if an audience can be successfully drawn to the content. With plans for 1 billion listeners worldwide, a large pool is growing to attract an audience for its podcasts.
Even more lucrative is the potential to act as an intermediary between podcast creators, advertisers and listeners. There Spotify can easily charge a fee and has very low marginal costs once the technology is installed. It’s a three-way network that Spotify is developing, and the announcements it made this week should help fuel its growth through more podcast listening, more discovery, more podcast advertisers, and more third-party providers.