Our last article about Spotify’s podcasting play was pointing to the tension caused by Spotify’s inability to value podcasts properly which has led them to use different content acquisition models and the confusion it was causing among podcast creators and owners looking to value their creations with a particular focus on podcaster Joe Budden who stated his intention, after an epic rant, to leave the Sweden based company.
However, this week in lieu of the recent controversy surrounding its Joe Rogan Experience (JRE) exclusive licensing deal, we’ll focus on how quickly Spotify’s play is quickly falling apart as its long-term play is running head first into headwinds Spotify is demonstrating it cannot mitigate whatsoever.
September has been a rough month for Spotify and if Spotify remains as flat footed as it has been for much of it, the company could find itself having to negotiate an internal rebellion and not just staff on its payroll.
With Rogan’s guests (particularly right-wing figures), unfiltered and off the cuff style making Spotify’s staff uncomfortable enough to strike for editorial control of his podcast, Spotify now have a real problem as while they invested heavily to acquire Rogan’s podcasts, it doesn’t own it outright which means they can’t edit the JRE content at least without Rogan’s consent which is unlikely as much of the reason why Rogan is so popular is his uncompromising style regardless of the political leanings and controversial viewpoints of his guests.
What this reveals about Spotify is that it cannot read its own employees, it hasn’t done its due diligence licensing content it spent heavily to acquire and has run into the age-old problem of value which goes some way to explain why its other large ticket podcast acquisitions Gimlet and Parcast have unionized. In an attempt to mitigate its crippling music licensing costs, Spotify sought to move into podcasting heavily and made sizable acquisitions including the JRE and The Ringer podcast network but are now coming into problems as Spotify and, more importantly, podcast creators/owners are now finding out that the market for podcasts is bigger than they both thought.
In our last article, we noted that one of Budden’s biggest gripes was the company’s inability to value his podcast properly which the former rapper saw as an attempt to devalue his content as well as himself in the open market. Mistakes like these are easy to make in a relatively new market like podcasting but Spotify are making these mistakes publicly at 9 figure prices which puts pressure on the company to make their big bets come good. However, Spotify plan to profit off podcasts is falling apart at the seams because of one key reason, it doesn’t own the audience.
All companies have ambitions to dominate markets and while Spotify won’t admit it, its vying to dominate the market for podcasting from production to distribution. However, there’s one of big problem: it has no real leverage to determine value and with Amazon stating its intention to enter the podcast market and Apple already in a dominant position in the marketplace, Spotify may see its podcast acquisition costs go through the roof. What should concern Spotify is that both companies have greater reach and penetration into our lives than Spotify ever will through their hardware (iphone, Macbook, Siri, Alexa, Prime) and thanks to their dominant position in other markets, they don’t have bet the ranch on every play.
The coming weeks and months are going to be interesting as the Joe Budden Network (previously known as the Joe Budden Podcast) hits the open market as other podcast creators/owners took note that one Spotify’s first exclusive content partners couldn’t find a deal that matched their value and if they managed to secure a large exclusive licensing deal or even get picked up by OTT streaming provider, Spotify are in real trouble as it might set the market price for other creators at a clip that Spotify, a loss-making company, can’t match.
Outside of that, podcast creators/owners (particularly those with larger audiences) can exist and thrive outside Spotify’s walled garden even without exclusive deals as they can secure their own ad and sponsorship deals that may even dwarf what Spotify is offering in splits, rates and in some cases, exclusive deals.
Why the recent controversy surrounding Rogan is a problem at least to Spotify isn’t only its employees taking a stand but that other podcast creators/owners are watching what Spotify does and if they cave to their own employees, other podcast creators/owners will take note or even choose a competitor over their editorial potentially being compromised.
However, what may keep Spotify executives up at night is the very real possibility of Rogan leaving the platform in lieu of Spotify attempts to censor some of his content. Rogan is currently now playing defense thanks to his controversial takes in past episodes but when the noise subsides, Rogan won’t forget that Spotify is excluding episodes from its platform or its employees want to control his content they don’t own or have the right to. Come time to renew his deal, Spotify are going to have pay through the nose keep him should he outperform projections, the market continues its rapid growth and more players with larger pockets, reach and audience than Spotify enter the market asking Rogan to name his price (all of which are possible).
In sum, Spotify podcasting play could be in tatters already as it finds out it has no leverage over its content partners in either music or podcasting where one can dictate value (Record Labels) and another can find their value elsewhere at a multiple if they don’t buy them outright (podcast creators/ owners). Once again, Europe biggest tech success story finds itself in an unfavorable bargaining position and if Spotify don’t find a way to add value beyond distribution and audience, the Swedish based company will be toast before it knows it.
