In writing this article, I’ve got to admit a bias: I love Spotify. I think it’s a good company with a great service I personally use and despite the issues we’ll note later in this piece, I think it has a great future but looking at the company recent ambitions to own the booming podcasting marketspace, it may end up ruffling feathers it can’t afford to.
Podcasting isn’t new but with its recent rise to prominence, plenty of companies have piled into the space spending heavily with Spotify alone ploughing over $700 million into the market through exclusives and acquisitions. However, in its haste to become a podcast hub it has run into issues it will have a difficult time solving in the near future at least.
However, arguably the biggest issue we think could unravel Spotify’s podcast strategy is how exactly do you value a podcast? The simple answer would be whatever someone is willing to pay for it but that brings up another question of what would you actually be paying for? Neither of these questions have easy answers and it’ll be interesting seeing how Spotify deals with these questions down the line but the early signs aren’t encouraging to say the least.
Spotify look set to lose the Joe Budden Podcast (JBP) after Joe Budden, the host and founder of the highly popular podcast (must admit bias here: big fan of Joe Budden the podcaster and rapper. WAAIITT A MINUTE!!!!), spoke for nearly two hours about his dealings with Spotify and how the whole experience left him with the sense that the Swedish based company undervalued him and the podcast duly announcing that the five-year-old podcast will be leaving their platform.
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| Joe Budden (middle) with co-hosts Mal (left) and Rory (right) |
I listened to every minute of that podcast and made a mental note of every gripe and was left with the strong impression that Spotify had no idea how to value his podcast and in doing so managed to offend one of its most popular titles in trying to address its initial mistake. However, looking at Spotify’s history, it’s alleged folly in valuing the JBP isn’t surprising as one of the main reasons Spotify has been so bullish about podcasting is it gives an edge that hasn’t had since its founding: pricing power. I could argue Spotify would be well on its way to becoming a FAANG stock if it had pricing power but unfortunately for its shareholders and executive team, Spotify has been a glorified bust out for music rightsholders (predominantly labels) with music licensing costs accounting for just over 70% of Spotify’s revenues. This is only possible as Spotify’s business model only works at scale and the music industry is dominated by three players which means labels can set exorbitant prices for their large and prestigious catalogues and Spotify, with no real leverage, has to accept them.
This isn’t exactly Spotify’s fault as the music industry learned from its bruising encounters with Apple and its legendary Founder and CEO Steve Jobs that letting a digital distributor dictate the pricing and, ultimately, the value of your product is a bad idea. Since then, Labels have realized much of the value in the music business doesn’t lie in streams (a running theme on the JBP and in the recent “View from The Spot” episode) or even sales but in catalogue and has preceded to focus on its music licensing business which has seen music revenues and labels make a resurgence in recent years.
Now a public company, under pressure to grow and unable to negotiate prices for content, Spotify has made ambitious moves into podcasting where it’s in a better position to negotiate prices with podcast creators but in doing so it finds itself in a position to determine something else, value. Spotify has made some notable deals with podcast creators mixing outright acquisitions (buying “The Ringer” from Bill Simmons) with content licensing (paying Joe Rogan £100 million) but Spotify through mixing completely different content acquisition models to bolster its content library brings up the issue of just how much a podcast is worth. In any case, it's clear Spotify has no idea as its conflicting content acquisition strategy is confusing content creators, Budden especially.
With Spotify spending big on its podcast library, Budden who signed an exclusive licensing deal with the company, is looking at Spotify throwing money at fellow podcast creators and with his deal soon to expire, was looking forward to favorable negotiations taking into account the podcast (according to Budden) beating projections and the growth of marketplace increasing their value. However, with Spotify clearly unable to value podcasts (largely to their aforementioned two-pronged content acquisition strategy requiring two completely different pricing models) or only taking on platform performance into account (which is arguably worse), the value of the JBP hasn’t been taking into account because Spotify, quite simply, don’t know what they’re buying.
Budden, clearly offended by how Spotify has handled him and his podcast, looks set to be on the market and they’ll be a growing number of suitors namely Apple who have been sitting on a billion-dollar industry for the best part of two decades and look set to secure a foothold in a market they’ve dominated but never really developed beyond distribution.
However, despite the public embarrassment of one of its creators publicly shedding light on its weaknesses, Spotify can fix this by paying Budden then choosing one content acquisition model which will make it easier to value podcasts going forward but with Spotify’s recent track record, one can only hope that Swedish based company learns that using two different models to guide your acquisition strategy of product or service while neglecting value (unless you're getting paid on both sides) is a bad idea.
In sum, all companies make mistakes but Spotify’s mistake could leave its podcast ambitions in tatters without changes.
