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Spotify’s Great Podcast Bet

Penny Fractions
Spotify’s Great Podcast Bet
By David Turner • Issue #161 • View online
Hello! A few quick plugs. Last month, I was on the New Republic’s ‘The Politics of Everything’ podcast to talk about the plight of working musicians and the unchecked power of major labels. I’ll continue to recommend checking out Ampled, the music co-op I’m on the board of, where fans can directly support their favorite artists, if you’re curious about it do email me! Finally, I plan to be leaving Revue for Ghost this month. Hopefully, the transition will be completed by the next issue on June 30th. I will say more about the move to Ghost once it’s completed and while I’ve enjoyed my time on Revue, ready for a change. Announcements outta the way, let’s talk podcasts!

Spotify's Slow Pivot
Podcasts aren’t new to Spotify. In November 2014, a leak showed the company testing out podcasts for the platform. Even though podcasts existed for nearly a decade, primarily within the Apple ecosystem and loose RSS feeds, this period marked podcasts emerging into the mainstream with shows like Serial. Six months later at a press event, podcasts alongside video clips from major television channels were coming to the platform. TechCrunch in its writeup of the event captured what’s become a years-long tension with the music tech company and broader record industry (emphasis mine): 
Meanwhile, adding podcasts could rope in hardcore news and talk radio fans. Both could help Spotify get more users trying its free ad-supported tier, and then converting them into paid subscribers. Artists and labels might resent the free tier and Spotify bulking it up with more content types, but it’s how the service teaches people it’s worth paying for.
Over the next few years, Spotify would try and try again to make compelling video content on the platform. However, much of that was built on relationships with known video properties or trying to spin up content related to their own playlist brands. Many of those efforts fizzled out and instead, Spotify settled on allowing vertical videos without directly trying to appeal to a more Hulu-like audience. Podcasts were different. 
In winter 2019, Spotify purchased Gimlet, the podcast company best known for shows like Reply All, for $230 million, and Anchor, a small app that allowed people to self-record and produce their own podcasts, for a little over $100 million. In March, Spotify purchased the podcast network Parcast. A year later, the company purchased the Ringer, a media company and podcasting company founded by former ESPN writer Bill Simmons. The price tag there was just under $200 million. Then to close out 2020, Spotify spent another nine-figure sum ($235 million) on Megaphone, a podcast ad technology company. Then, earlier this year, the firm bought Betty Labs specifically for Locker Room, a live audio app focused on sports. A lotta purchases but the company wasn’t just collecting podcast firms, big-name talent was also on this spending spree. 
Daniel Ek’s company gave headline-grabbing everyman Joe Rogan over $100 million for exclusivity on the platform. The company signed a deal with the Obamas’ entertainment company Higher Grounds Productions. And last year, Archewell Audio, the production company created by Prince Harry and Meghan Markle, announced a multi-year partnership with Spotify. Plenty of other celebrities have gotten into the podcasting game with Spotify but I do find it curious that the company’s money is being thrown at global political figures engaging in branding exercises. Global money must flow in some direction and in this case, it’s into the pockets of the world’s most powerful people to speak into a microphone for a company whose previous focus was all about music. 
Spotify is clearly ready to spend money but what exactly is the company’s audio vision? The Hollywood Reporter got an uncommon Daniel Ek interview for its November 2019 cover, where he claimed that his ambition for the company is centered on “becoming the World’s No. 1 Audio Platform”. The story follows Ek, along with Dawn Ostroff and Courtney Holt, in their mission to woo celebrity talent onto their platform, while navigating major label relationships. One part of the vision was to get big-name podcasts that cannot be found anywhere else in order to keep listeners hooked on the platform, but also to do something that Apple has traditionally not done in the world of podcasting: investing money into talent.
Recently, Ek bizarrely suggested that live audio content (think: Clubhouse) is going to be the next “stories” (i.e. the Snapchat feature that Instagram stole). It’s hard to imagine that live audio, which already exists (see: radio and video streaming), might become the equivalent of stories, which has basically reoriented how people use photo-sharing apps. A less fully formed path Spotify offers with Anchor and other purchases is the ability for you, yes you (!), to become a podcaster. The only issue is that podcasting, similar to music creation, can be made simpler but does everyone crave to create audio content to be shared with the world. The answer so far: No. Still, if the dream is to become the world’s biggest audio company, then it might be worth pondering what is the industry’s current trajectory. 
Podcasting Economic 101
Considering Spotify still only holds two profitable quarters, this big play into podcasts carries the weight of helping the company disentangle its revenue from major label contracts. Even if Spotify spent well over a billion dollars on podcasts, the current advertising revenue generated by podcasts is still just inching towards one billion, though some forecasters are more bullish on its future projections. Nevertheless, podcasting currently represents a relatively small percentage of Spotify’s revenue and the industry-wide growth won’t suddenly turn that around. A Forbes commentator observed that advertising growth year-over-year was declining; so while it’s growing, it’ll likely be far more measured if current trends hold. The Financial Times also noted that while podcast revenue increases it’s a far cry from the $70 billion brought in by television advertising.  
This steady, but not exponential, podcast revenue growth can be matched in Spotify’s limited data on how its users are engaging with podcasts on the platform. According to the Hollywood Reporter, only 14% of Spotify users listened to podcasts in late 2019. July 2020 moved that number to 21% and in Q1 of 2021, it stood at 25%, which as Variety noted, Spotify claimed was consistent with its Q4 figures. Spotify’s deep-pocket investment in podcasting may be new but the product on their platform isn’t. 
Rising podcast advertising revenue is connected to the company being able to increase audio consumption, and while Ek may say Spotify is eyeing radio, one simply cannot wish for market disruption without there being a cultural push behind it. Podcasts remain relatively niche, not because people don’t want audio content, but because radio was introduced in a much less fragmented market of entertainment. The sheer novelty of radio won’t be duplicated because a tech company self-declares itself an audio company, there must be audio that not only reaches current users but inspires new ones. It’s hard to say Spotify’s initial initiatives in this space have accomplished this task. This looming steady-but-not-exponential growth may be a long-term concern for Spotify’s bottom line but another factor is emerging to complicate Spotify’s pivot: unionization. 
Over the past two years, workers at Gimlet, the Ringer, and Paracast decided to form unions with the Writers Guild of America, East. (Again, for new folks, I used to be a WGAE member at my old job, great folks there.) While it took over a year of bargaining for Gimlet and the Ringer to get their first contracts, they’re fairly in line with other digital media contracts in terms of high pay floors, solid severance, and other benefits. However, a sticking ambition that wasn’t achieved was surrounding intellectual property and getting commitment in writing that creators would have more of a say over the IP they create while working for one of the many brands under Spotify’s umbrella. 
Liz Pelly, in The Baffler, spoke about the shared concerns of Spotify’s podcast workers and musicians as Spotify attempts to smooth out their value by encouraging endless passive consumption so that listeners care neither of the musicians nor the podcasters creating their favorite content. It’s this tension that feels heightened with Spotify’s further push into becoming an “audio company”. It’s not only the potentially limited growth of podcasting amongst its current audience (which is directly tied to just how big the podcast advertising space could become) but also that people hired directly by Spotify to make this content don’t want to see their work snatched out of their hands. It’s the struggle over content and podcast adoption that remains the curious story of Spotify with music moving further, and further out of the rearview.
Unheard Labor
US president Joe Biden proposed a national budget that would potentially increase the National Endowment of the Arts budget to $335 million. (Meanwhile NYC is offering artists $5,000 for doing public works of art, so let’s not say money cannot be found.) This is a woefully low commitment for arts investment but a better sign than trying to reduce it. Another marker of arts progress is that the major entertainment unions from the American Federation of Musicians to the Screen Actors Guild (SAG-AFTRA) are getting the PRO (Protecting the Right to Organize) Act, which would introduce a number of strong labor reforms and protections for freelancers, who particularly abound the music industry. 
The last curious bit of news is around Spotify’s ‘Discover Mode’ feature, which would let rights holders make less revenue from streams in exchange for increased on-platform promotion. House representatives Jerry Nadler and Hank Johnson Jr. are raising concerns about this practice (which is good to see) likely because this looks like payola by a different name, but personally, if these elected officials are going to look into Spotify, there are many, many more outrageous parts of streaming political economy that could use government oversight. At least in my humble opinion.
A Note of Financialization
Last week, the Wall Street Journal reported that Universal Music Group would be taking 10% of the company (roughly worth $4 billion) public via Pershing Square Tontine Holdings (PSTH), a special-purpose acquisition firm. This took over headlines not only because of UMG’s name but also because PSTH, founded by Bill Ackman, is the world’s largest SPAC. If you’re keen on reading endless non-professional takes on this move, do check out the PSTH Reddit and the little Billboard write-up on Ackman, a notorious hedge fund manager. UMG is still on track to IPO later this year, but in the meantime, retail traders can take a risk by betting on the future success of Olivia Rodrigo and Billie Eilish; or more realistically that UMG’s market dominance isn’t going anywhere. 
A few big-name purchases to highlight this week: I missed it, but in early May the Hipgnosis Songs Fund reportedly spent $150 million on the Red Hot Chili Peppers songwriting discography, which Billboard notes would represent 25x what it’s made in yearly revenue in recent years. Hipgnosis also bought the catalog of Joel Little, a songwriter who’s worked with Lorde, Taylor Swift, and many others. Then, last week, Reservoir, which is looking to go public-via-SPAC later this year, purchased Tommy Boy Music for $100 million. The money can’t stop flowing through these spaces!
6 Links 2 Read
The Productisation of Music Rights - The Music Industry Blog  
Marc Mulligan attempts to come up with a slightly different way of thinking about the rise in financial interests shaping the record industry market. It’s funny because everything he writes here makes sense but I’d say the phrase “financialization” already does the work of his suggested term “productisation”. 
Right now there is a push to try to make the United States’ Copyright Royalty Board increase mechanical royalty payouts on physical and digital sales, which haven’t moved since 2006. Much like I argued last month, the CRB’s remit is fairly expansive and with the industry’s shift towards digital in the last two decades, it’s absurd that there isn’t a more mindful attempt at forcing record labels and publishers to pay artists a fair rate while the industry thrives. 
Last year, Sony, Warner, and Universal made headlines for their charitable donations after the murder of George Floyd, but Vice’s reporting reveals they’ve actually only donated less than 20% of the $200 million they pledged to. The companies have attempted to blame systemic racism on why they haven’t lived up to their own self-declared actions of charitable giving, which I find truly bizarre. Beyond the comical excuses given, the author makes it clear that many of these initiatives are done with volunteer employee labor. These funds are not meeting their lofty press headlines and their workers are rarely compensated for this extra labor – a contradiction that points to a lack of real, deep commitment to these initiatives. Hopefully, a fire kept on these projects will allow their mission to be seen through and for those doing the work to get the extra pay they deserve. 
Again, if anyone is even casually familiar with Chinese tech regulations, I’d love to chat because I continue to find the dance between the government and its massive tech and entertainment companies fascinating. Billboard hints that if Tencent’s streaming platforms are spun off, it could open up space for more competition. How much that will help average Chinese artists is unclear but signals this market is ripe for continued shifts. 
Chart manipulation isn’t new, even the fan-first variant is well-known. Billboard, a couple of years ago, adjusted how it weighed paid and free tier music streams and I’d suggest that perhaps more regular methodological checks might be worth it. This latest BTS example indicated that perhaps the chart wizards need to do another review of its charts after double-downing on fungible metrics.
A few weeks ago sitting at a park, I was handed a flyer for the Driver Cooperative, a worker-owned ride-hailing platform. I chatted with the guy handing out the flyers and was intrigued. Apparently, I wasn’t the only one to get the message since the New York Times recently wrote about the business, which is trying to offer an alternative to the Uber and Lyft dominance of the ride-hailing market. I’m a big supporter of cooperatives, so I’m hoping the small business can leave a decent footprint in the city. 
Blog Roll
My name is David Turner and I started Penny Fractions back in November 2017, as a way to think through various topics within the world of music streaming. Since then, the newsletter, which is delivered on Wednesday mornings (EST), has grown to reach over forty-five hundred subscribers with an archive that can be found right here. I’m currently a Program Manager at SoundCloud, so all thoughts here represent me, not my employer. Prior I wrote for Music Business Worldwide, Pitchfork, the New Yorker, Noisey, Rolling Stone, and Spin. There is a Patreon one can support to help cover email billing costs and to compensate my copy editors, Mariana Carvalho and Taylor Curry. Artwork is produced by graphic designer Kurt Woerpel. If curious, here is the newsletter’s budget sheet, tentative publishing schedule, and a research database. Any comments or concerns can be sent to pennyfractions@gmail.com
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