The Rundown - Deep Dive: How Spotify is Using Podcasts to Climb the Media Food Chain

Episode Date: November 23, 2024

In this episode of The Rundown, we take a deep dive into how Spotify is rapidly transforming from a music streaming service into a media powerhouse, with podcasts at the center of its strategy. After investing over $1 billion in podcasting, including acquisitions like Gimlet Media and the high-profile deal with Joe Rogan, Spotify has surpassed Apple to become the leading podcast platform in the U.S. We explore how the rise of the creator economy and the shift towards video content are fueling Spotify’s growth, while traditional media giants like CNN and ESPN shrink their budgets. With record financial results and a new focus on creator-friendly features, Spotify is positioning itself to dominate the future of digital media.

Welcome back to the rundown for a weekend deep dive. Today, we are digging into one of the most innovative and fastest growing players in the media world right now, Spotify. You might think of Spotify as just a music streaming platform, but they've evolved to be a media giant, aggregating everything from music and news to entertainment and audiobooks. And with the rise of the creator economy and growing skepticism towards legacy media, Spotify is positioning itself to take advantage of this shift in media. and the way people consume content. And at the center of that strategy, podcasts.

So that's what we're diving into today. Spotify's bold bet on podcast, they're pushing to the creator economy, and the numbers that has Wall Street taking notice. All right, let's get into it. All right, so let's talk about podcasts and why Spotify is betting so big on them. Podcast listenership has more than doubled

in the last eight years or so. According to the data, nearly half of U.S. adults, so around 136 million people listen to at least one podcast per month. Globally, that number jumps up to more than 500 million. And if you're anything like me, you're listening to multiple podcasts a day. And the popularity of podcasts is only expected to grow.

Spotify kind of saw this coming. They actually jumped headfirst into podcasts over five years ago. Back in 2019, the company made a $400 million investment across two podcasting studios. They bought Gimlet Media and Parcasts. Both of these companies produced scripted narrative-style podcasts. And then in 2020, they bought the ringer, which was founded by the podfather Bill Simmons for $250 million. Bill Simmons was one of the first podcasts I ever listened to, and I still listen to the ringer podcast all the time. They knew a lot of sports content.

But Spotify didn't stop there. The most shocking deal came in 2020 when they offered Joe Rogan $200 million to make his super popular podcast exclusive on Spotify. That shocked a lot of people. And then in 2021, they acquired the Call Her Daddy podcast for, like $60 million. So yeah, Spotify was spending money left and right back in 2019 and 2020 to beef up their podcast offering. And I gotta say, I think it paid off because in 2021, Spotify surpassed Apple Podcasts to become the top podcast platform in the U.S. And going back to the Joe Rogan deal, that was a big gamble, but I think it paid off

because the Joe Rogan podcast has more than 16 million subscribers on Spotify alone. That's nearly triple the next largest podcast, which is Ted Talks Daily. So all in all, Spotify dished out like a billion dollars to build out its podcast arsenal. And that investment puts Spotify in a pretty strong position as podcasts continued to enter the mainstream. Like some people are calling the 2024 election to be the podcast election. Both candidates, Donald Trump and Kamala Harris, went on to large podcasts in an effort to reach younger voters. Donald Trump went on the Theo Vaughn podcast and the Joe Rogan podcast, while Vice President Kamala Harris went on the Call Her Daddy podcast, which has about $4.4 million. followers on Spotify alone. There seems to be a level of trust between the podcast listener and the host.

I mean, if you're listening to someone's voice for multiple hours a week, you're going to develop some sort of trust and relationship with them, you know? According to a study, 75% of podcast listeners say they trust the host they listen to. Compare that to only 31% of Americans that say they trust the news. And that just shows you how powerful and influential podcasts have become these days because you wouldn't have a presidential candidate sit down for a podcast for two to three hours if they weren't effective. I think the key element here is that it's a young audience, with the average age of a podcast listener in the U.S. being 34 years old.

If you compare that to cable news, the average viewer watching cable news is like 70. Podcasts seem to have replaced cable news for anyone under the age of 40. And the audience numbers just speak for themselves. Joe Rogan's interview with Donald Trump has a whopping 52 million views on YouTube. And that's a good transition to talk about YouTube because YouTube is actually now the leading platform for which people listen to podcasts. They currently have a 31% share of podcast listeners.

Spotify isn't too far behind at 29% and Apple holds a 15% share. So Spotify is now competing with YouTube and things are just starting to heat up because Spotify is ready to go all in on video podcasts and steal some viewership shares from YouTube. Traditionally, podcasts have been audio only. But lately, more and more people are starting to consume video podcasts. Now, Spotify has been experimenting with video podcasts. In fact, they first turned on video podcasts back in 2020 because of Joe Rogan. And they say more than 240 million users have streamed a video podcast on Spotify.

But Spotify wants to pump those numbers up. Spotify recently announced a new playbook for video and a move to attract more creators. They're rebranding their Spotify for podcasters platform into Spotify for creators. The headline feature being a new monetization program for video podcasts and a refresh analytics tool. See right now, the reason YouTube dominates video podcasts is that YouTube shares 55% of ad revenue with the creator. Well, Spotify plans to offer something similar. So Spotify is hoping that by offering monetization opportunities, they can attract more creators. And it's not just the money, but also the opportunity for discovery.

See, one of the hardest parts about a podcast is growing the podcast and getting new listeners. And the timing of this is pretty interesting because a lot of traditional media companies are planning to lay off their talent. Like I said, not many people under the age of 40 are watching CNN these days. That's why CNN is now expected to lay off a bunch of high-priced talent as part of a wider layoff. And maybe some of those hosts will turn to podcasting. We've seen that in the past, like Tucker Carlson got fired from Fox News and ended up starting his own podcasts. Another longtime broadcast news host Chris Wallace, who was making $8.5 million a year at CNN, is leaving the cable news channel after refusing to take a pay cut,

and he plans to pursue podcasting full time. So if you thought that we had too many podcasts before, I think we're about to get a lot more. Now let's talk about Spotify's numbers, because Spotify's financials are telling a pretty compelling story as well. The company's on track to have a profitable year for the first time ever. Spotify continues to add new users. They added 14 million new monthly active users last quarter,

bringing its total to 640 million people that use the platform, every month. That is a massive audience. And out of those 640 million people, 252 million of those are premium subscribers. I count myself as one of them. To put that into perspective, Netflix has 283 million paying subscribers. The Spotify has almost as many paying subscribers as Netflix does. They continue to grow and the performance has been reflected in the stock price. Spotify's stock has jumped 150% this year. So investors are loving Spotify's performance. And Spotify seems to think that their next phase of growth is just embracing the YouTube model, trying to become YouTube essentially, because YouTube is an absolute juggernaut. They have over 2.5 billion monthly active

users, which is like 46% of all internet users worldwide use YouTube at least once a month. And they make a ton of money. According to the latest earnings report, YouTube's ad revenue jumped to $8.9 billion in the most recent quarter. It's up 13% from a year ago. So YouTube's ad revenue by itself is more than double Spotify's total revenue per the latest quarter. So Spotify is trying to become YouTube before YouTube beats Spotify at its own game. I love a good competition. And the biggest winners here are the content creators. So what's the takeaway here? Well, I think it's pretty clear that Spotify is trying to position itself as more than just a music service. It wants to become a true powerhouse in the creator economy, a media aggregator and a leader in the podcasting space. They're focusing on

creators by giving them an incentive to create video podcast on their platform for not just money, but also discovery. Spotify has a huge audience, which could be future podcast listeners. I think Spotify is in a good spot here with a trust in legacy media at an all-time low, and the creator economy continue to thrive. I think Spotify is putting themselves in a position to be a major player in the future of media. Well, all right, guys, that's it for today's weekend, deep dive. Thank you guys so much for spending part of your weekend with me. Hope you guys enjoyed today's episode. Let us know what you thought about it by leaving a comment on Spotify. And while you're there, hit us with a five-star review. That engagement really does help us

out and it helps other people find the show. Thank you guys again for listening. Shout out to Mike and Connor for all the help behind the scenes. Have a great weekend, everybody. And we'll see you guys back here on Monday. This is the rundown. Your real-time resource for news events and trends in the markets. All views presented in the show reflect the opinions of the guests. You should not mention of a publicly traded security as recommendation to buy, sell or hold that security. Run-down guests are not financial advisors and are not affiliated with public holdings or its subsidiaries. You should make your own financial and investment decisions or consult, respective professionals. Learn more at public.com disclosures.

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