Investment in podcasts is a “drag” for Spotify

Ana Nicolau

London / 03.02.2023 02:55:00

Spotify has a problem with podcasts. In full swing, it seemed the company had found a big shiny object with which to dazzle Wall Street.

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

Spotify bought Gimlet, the creator of shows like Reply All about internet culture, for $230 million, and Anchor, a podcasting app and platform. After these operations, he acquired the production company Parcast for around 50 million euros and Ringer, a sports audio and media group, for up to 180 million euros. In addition, he signed content agreements with personalities such as Kim Kardashianhe Prince Harry and the Obama.

But the spending race hurt Spotify. Paul Vogel, the company’s chief financial officer, made it clear in a phone call this week. “Podcasts were a huge drag on our business in 2022,” though he predicted that that “drag” will lessen over time.

For some time, podcasts were seen as a possible answer to the small margins Spotify was making from its core music streaming business. It was seen as a market in which it could exert more influence.

But the situation changed. Spotify’s music business has held up well. The slowdown of Netflixwhich triggered a sharp correction across all US media stocks, did not materialize on Spotify.

The firm added 83 million monthly users worldwide and 33 million in the fourth quarter alone, the best figure for the same period of clients in its history. But that same year, the losses were multiplied by more than 10. In 2022 it registered net losses of 430 million euros with revenues of 11.7 billion.

Spotify It does not break down its financial results from podcasting, but in an investor day the company confirmed that it obtained “close to” 200 million euros in revenue from this item in 2021. This means that, despite all the big deals and the hundreds of million dollars invested, the division only contributes 2 percent of total revenue. Vogel He said podcast revenue was “significantly higher” in 2022, but declined to elaborate.

Spotify’s stock offers further clues as to how podcasts are performing for the company: In recent months, dozens of division employees have been laid off and some shows have been canceled.

The problem has to do with a broader reckoning for podcasting. After a staggering 1 million new show launches in 2020, that number dropped to 222,000 in 2022. Spotify’s leap into this branch boosted the entire fledgling industry, sparking a frenzy of deals and higher valuations as Amazon and Apple were rushing to compete. Although podcasts generated little advertising money, executives said it was still “in its early days.”

“In all the years the outlet has been in existence, it has been described as ‘the next big thing.’ At what point do you have to call it quits and say that instead of being a “big hit” in the pipeline, it’s just an “unremarkable media thing,” he said? Nick Hillpodcast entrepreneur, in a blog post.

Podcast revenue continues to grow, but it now suffers from the same layoffs, cancellations, and disappointments as other types of media.

For podcasting to become a bigger part of the media industry, it will have to produce more huge hits. Content is king. That’s where the money comes from.

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