Spotify’s big bet on podcasts is paying off

PLUS: Micro-scoops are pretty worthless.

Jul 24, 2024

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Spotify’s big bet on podcasts is paying off

A narrative set in over the last two years that Spotify’s multi-billion dollar investment in podcasts was a bust. Critics pointed to its sizable layoffs within its podcast division, several high-profile cancellations of shows, and the reporting that its podcast advertising revenue was still lagging behind costs.

I always found this analysis to be a bit reductive. The layoffs, in my opinion, were more a reflection of a market correction whereby Spotify acknowledged it was throwing a lot of money at shows that hardly anyone listened to. While it’s true the platform had signed huge multi-million dollar advances to launch shows with celebrities who had no track record in the podcasting space, those bad bets didn’t alter the fact that Spotify had quickly become one of the largest destinations for podcast listening.

As for podcast advertising, that was always going to be subjected to slow growth given that the platform needed to coax brands into becoming more accustomed to the audio medium. US podcast ad revenue only crossed $1 billion in 2022 — it wasn’t going to balloon up to $5 billion overnight.

But I think one thing analysts always overlooked was how podcasts helped Spotify differentiate its services from every other music streaming platform out there. Right now, virtually every streamer has access to the same exact music library, making it difficult for any one product to stand out. Sure, you can make improvements to the UI and the recommendation algorithms, but those only help at the margins.

By integrating podcasts into its app, Spotify increased the stickiness of its platform and therefore gave music listeners a reason to pick it over all the other streamers. As a result, it’s seen consistent profitability over the past year, driven in large part by paid subscriptions:

Operating income in the second quarter was €266 million ($288 million) after a loss of €247 million a year earlier, with gross margins of 29.2%. Earnings were €1.33 a share, beating analysts’ estimates.
Paid subscribers increased 12% from a year earlier to 246 million, also beating the average analyst estimate compiled by Bloomberg. Monthly active users jumped 14% to 626 million.

Did Spotify’s podcasts directly drive those subscriptions? Nope. Podcasts are exempted from its ad-free benefits offered to subscribers. But if you do listen to podcasts on Spotify, why would you ever want to access a second app for your music? CEO Daniel Ek made an early bet you wouldn’t want to make that switch, and it turns out he was right.

Slate’s early bet on podcast subscriptions is also paying off

It’s been evident for quite some time that podcast consumers are willing to pay for premium content — I remember coming across shows pulling in six figures a month on Patreon all the way back in 2016 — and yet traditional publishers were extremely slow to incorporate podcasts into their subscription strategies. It’s only relatively recently that outlets like the New York Times and the Economist moved to put their podcasts behind a paywall.

Slate was one of the few exceptions. It was one of the very earliest mainstream outlets to adopt a premium podcast strategy into its membership program, Slate Plus. Today, its podcasts not only generate 50% of its advertising revenue, but they also play a huge role in converting non-paying audiences into subscribers:

You might be wondering: Why, exactly, would someone stop listening to a free podcast to sign up for a paid subscription? The answer is built into Slate’s strategy.
“Within each show, we talk a lot about what the benefits you’ll get by joining Slate Plus,” says Heidi Strom Moon. “Those include ad free (listening) benefits, extended listening, and premium episodes that you’ll get as a member. And a lot of that is what drives people to subscribe. Across many of our shows, we have exclusive episodes, extended episodes, and other kinds of bonus content, which we’ll be doing even more of in the weeks and months to come. ”

How Political Wire built its successful subscription offering

When Taegan Goddard launched a paid subscription product for his blog Political Wire, he had been running the site for close to 16 years. By that point, the site was attracting millions of pageviews per month and generating a healthy amount of revenue through advertising. But Taegan had long wanted to diversify his monetization and create a product for his most loyal readers.

So he installed Memberful and announced the membership to his audience. At first, members got access to extra content, but over the next few years Taegan rolled out more and more member perks. Today, Political Wire members get access to op-eds, extra newsletters, a podcast, and an ad-free experience.

In a recent interview, Taegan walked through every aspect of his subscription product including how he announced it to his audience, what he does to drive conversions, which perks are most highly valued by his subscribers, and how he reduces his churn rates:

I was there in that hotel room. I had been thinking about it on a four-hour drive to get to where I was going. And then I got to the hotel, I installed the software, I got the whole thing working, and then I wrote the blog post introducing it. It was probably nine o'clock or ten o'clock at night, and I described what I was trying to do. I described what you would get in return for a paid subscription, and I just pressed publish.
And I went to bed and I closed my computer, and the next morning I was really pleasantly surprised by how many readers immediately saw the value in that, immediately wanted to support Political Wire through a subscription. And I had dozens and dozens of memberships within the first 12 hours. It was a pleasant thing to wake up to.

Micro-scoops are pretty worthless

Spend enough time observing journalists on social media, and you’ll notice that they’re extremely obsessed with being “first” to a story, even if they’ve reported on news that would have broken anyway and only beat their competitors by a few hours. They’ll even include the word “scoop” in the headline as if that delivers any pertinent information to the news consumer. Occasionally, they get so worked up about this that they’ll snipe at other journalists who don’t properly “credit” them as having broken a story.

I’ve never understood this obsession. Fighting over being the first to report on commoditized news coverage doesn’t make it any less commoditized; it just delivers a short-lived burst of adrenaline. Theoretically, a publication that publishes lots of scoops will see those efforts reflected in their traffic numbers, but in general I doubt most scoops have any meaningful impact on a media outlet’s business.

This is especially true now that news discovery is incredibly fragmented. Taylor Lorenz reported on the increasing number of non-news meme accounts that are now rushing to post about breaking news simply because it delivers engagement, which meant that a lot of Americans learned of Biden's decision to drop out via these accounts:

When I polled a group of friends, one person heard the news in the comment section of a bird's Instagram account, another learned of it in a Discord gaming lobby. Lots more saw it on meme pages and random X accounts.
It's clear that no central news source has a monopoly on breaking news anymore, and certainly not legacy media. Though many people undoubtedly received a Washington Post or CNN breaking news alert, the number of people becoming informed about the world through disparate networks of online accounts and creators is growing.

This is why media outlets need to focus more on deeply-researched, original reporting. The platforms have pivoted away from links, so they’ll only reward native content with engagement and distribution, hence why all these meme accounts are rushing to post commodity news. The only antidote to this is content that delivers value beyond the headline.

What do you think?

Quick hits

It used to be that celebrities endorsed brands, but the new generation of stars simply launch their own. [WSJ]

"WBD’s stock is down 65% since Zaz formed the company. Disney’s stock is down 32% in the past 5 years. Comcast’s stock is down a more modest 9% in the past 5 years, thanks probably to its lucrative cable and theme park businesses. Paramount Global’s stock is down 77% in the past 5 years, and that’s after the Ellison buyout agreement. Meanwhile, Netflix’s stock is up 101% in the past 5 years." [Puck]

I like how Semafor is approaching expansion by slowly building out new verticals. This is much more disciplined compared to the spray-and-pray strategy we saw with The Messenger. [Semafor]

This company that uses AI to aggregate news across dozens of B2B newsletters has reached 1 million subscribers. But don't get worried about them replacing journalists anytime soon; there's very little actual content in these newsletters and they mostly link to outside news sources. [Press Gazette]

Linear TV may be dying, but CBS has found a winning formula for attracting the dwindling number of consumers who still tune into traditional cable and broadcast. [Bloomberg]

I’m looking for more media entrepreneurs to feature on my newsletter and podcast

One of the things I really pride myself on is that I don’t just focus this newsletter on covering the handful of mainstream media companies that every other industry outlet features. Instead, I go the extra mile to find and interview media entrepreneurs who have been quietly killing it behind the scenes. In most cases, the operators I feature have completely bootstrapped their outlets.

In that vein, I’m looking for even more entrepreneurs to feature. Specifically, I’m looking for people succeeding in these areas:

Niche news sites
Video channels like YouTube, TikTok, and Instagram Reels
Podcasts
Newsletters
Affiliate/ecommerce

Interested in speaking to me? You can find my contact info over here. (please don’t simply hit reply to this newsletter because that’ll go to a different email address. )

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