Spo­tify aims to be the big noise in pod­cast war

Stream­ing ser­vice is trans­form­ing the lis­ten­ing land­scape with star sign­ings, find Lau­rence Dodds in San Fran­cisco and James Cook

The Daily Telegraph - Business - - Technology Intelligen­ce -

‘We think the in­dus­try is vastly un­der-mon­e­tised – con­sump­tion con­tin­ues to out­pace mon­eti­sa­tion’

‘Ap­ple didn’t grow the mar­ket, give pod­cast­ers the tools they wanted ... or seal their po­si­tion at the top’

Joe Ro­gan is an un­usual kind of king­maker. A co­me­dian who is fond of smok­ing cannabis in his stu­dio, his anar­chic pod­casts have in­spired great loy­alty among mil­lions of oth­er­wise dis­en­chanted young men. His in­flu­ence has buoyed the cam­paign of US pres­i­den­tial hope­ful Bernie San­ders and wiped more than $3bn (£2.3bn) from the mar­ket cap­i­tal­i­sa­tion of Tesla.

His lat­est ben­e­fi­ciary? Spo­tify, whose value jumped by $1.7bn in 23 min­utes af­ter an­nounc­ing that it now had exclusive rights to Ro­gan’s out­put in a $100m deal. But Spo­tify isn’t stop­ping with Ro­gan. The com­pany has also signed up Michelle Obama, Kim Kar­dashian West and the sem­i­nal doc­u­men­tary show This Amer­i­can Life.

Mean­while, Spo­tify is de­vel­op­ing its own tar­geted ad­ver­tis­ing in­fra­struc­ture to make pod­cast pro­mo­tions as pre­cise, and there­fore lu­cra­tive, as Face­book’s or Google’s – a long-awaited mile­stone that could both gal­vanise and up­end the in­dus­try.

All these ef­forts seem to be pay­ing off. Yes­ter­day, the Swedish mu­sic stream­ing ser­vice an­nounced that it has 299m monthly ac­tive users, a 29pc in­crease from the sec­ond quar­ter last year. It also re­ported rev­enues of €1.89bn (£1.71bn), a 13pc year-on-year in­crease.

The num­ber of users lis­ten­ing to pod­casts in­creased to 62.7m, around 21pc of the ser­vice’s monthly ac­tive users, only slightly up from 19pc a year ear­lier. How­ever, the amount of pod­casts lis­ten­ers con­sumed al­most dou­bled. “Over­all, pod­cast ad­ver­tis­ing out­per­formed in the quar­ter with mo­men­tum con­tin­u­ing into July,” the com­pany said.

Spo­tify is in com­pe­ti­tion with Ap­ple, Google and smaller, ded­i­cated au­dio firms such as Stitcher in what has some­times been called the “pod­cast wars”. But one and a half years on from its eye-catch­ing ac­qui­si­tion of the Gim­let Me­dia, a ma­jor pod­cast­ing stu­dio, it’s not clear there’s much war left to fight. Or, as one stu­dio boss quipped af­ter the Ro­gan deal be­came public: “Game, set and match.”

“Ap­ple was the place peo­ple lis­tened to pod­casts, un­til just a cou­ple of years ago,” says Joseph Evans, head of tech at En­ders Anal­y­sis. “But they were asleep at the wheel, and didn’t do any­thing to grow the mar­ket, give pod­cast­ers the tools they wanted ... or de­fend their po­si­tion at the top.

“Prob­a­bly pod­casts were just too small to worry about for a com­pany mak­ing a quar­ter of a tril­lion dol­lars a year. But that care­less­ness has al­lowed Spo­tify to chal­lenge for the top spot.”

With 138m pay­ing sub­scribers com­pared to Ap­ple Mu­sic’s 60m, Spo­tify has plenty of lis­ten­ers who could be lured into its new of­fer­ings.

Ex­act fig­ures are hard to come by, but Evans says that Ap­ple is still ahead in the US, while Spo­tify beats it in mar­kets where An­droid smart­phones are the norm.

The Swedes’ big­gest as­set, how­ever, is their will­ing­ness to aban­don the ba­sic tech­nol­ogy which has both shel­tered and re­stricted the pod­cast­ing in­dus­try for al­most two decades – some­thing Ap­ple has not yet been will­ing to do.

Tra­di­tion­ally, pod­casts have been dis­trib­uted via a sys­tem called RSS, in which apps such as Ap­ple Pod­casts sim­ply list and di­rect users to­wards au­dio files that are hosted else­where.

That has made the tech­nol­ogy fairly in­cred­i­bly open and dif­fi­cult to cen­sor, pre­vent­ing it from be­ing swal­lowed by large com­pa­nies. Yet it has also win­nowed its rev­enue by block­ing the so­phis­ti­cated tar­geted ad­ver­tis­ing com­mon in other me­dia in­dus­tries.

“We still think the in­dus­try as a whole is vastly un­der-mon­e­tised

– year over year, the level of pod­cast cre­ation and con­sump­tion con­tin­ues to out­pace mon­eti­sa­tion,” said

Joel Withrow, a se­nior prod­uct man­ager of pod­cast mon­eti­sa­tion at Spo­tify.

By con­trast, Spo­tify pod­casts are hosted and played en­tirely within Spo­tify’s ser­vice, al­low­ing it to know ex­actly who is lis­ten­ing, how long they are lis­ten­ing and where they stop or skip.

The com­pany can eas­ily insert per­son­alised ad­verts at any point rather than forc­ing hosts to pre-record them into the pod­casts them­selves. “Right now, most pod­casts don’t make any money from ad­ver­tis­ing, be­cause they aren’t big enough to sell ads di­rectly to an agency,” says Evans. “But Spo­tify could ag­gre­gate pod­casts and sell to ad­ver­tis­ers based on who’s lis­ten­ing, rather than what they’re lis­ten­ing to, and make pod­cast ad­ver­tis­ing work more like ads on the web.”

In Jan­uary, Spo­tify an­nounced a suite of new ad­ver­tis­ing tools for pod­casts which will hand in­for­ma­tion such as lis­ten­ing statis­tics, age, gen­der, and de­vice to pod­cast hosts and ad­ver­tis­ers pay­ing for pro­mo­tions in episodes. Its hope is that mak­ing this in­for­ma­tion avail­able could drive up the rate charged for pod­cast ads.

Withrow has de­scribed a “vir­tu­ous cy­cle” in which the new tools “pull more rev­enue into the in­dus­try” and there­fore makes it more at­trac­tive to new pod­cast­ers.

And so the plan emerges – fiendish in the eyes of some pod­cast fans, but fairly sim­ple. Af­ter a pe­riod of ini­tial spend­ing to get stars on board, its lis­ten­er­ship will grow large

enough, and its ad­ver­tis­ing sys­tem lu­cra­tive enough, to the point where other pod­cast­ers can­not af­ford not to use it. That would give it as much power over pod­casts as Face­book has over news pub­lish­ers.

But the path ahead is not with­out ob­sta­cles. The coro­n­avirus pan­demic caused lis­tener num­bers of some pod­casts to drop as much as 30pc. Pod­trac, a pod­casts an­a­lyt­ics busi­ness, warned in April that it had seen to­tal unique lis­ten­ers drop 20pc since the be­gin­ning of March as many lis­ten­ers worked from home and stopped lis­ten­ing to pod­casts dur­ing their com­mutes.

And many in­dus­try ex­perts have ex­pressed their dis­com­fort at Spo­tify end­ing the pre­vi­ously open world of pod­casts avail­able on hun­dreds of dif­fer­ent apps.

“Most likely, this deal will come to sym­bol­ise the mo­ment when the open, RSS-based pod­cast ecosys­tem be­gan to col­lapse,” wrote Prod­uct Hunt co-founder Nathan Baschez fol­low­ing the an­nounce­ment of Spo­tify’s deal with Ro­gan.

“If there are any big hold­outs among pop­u­lar pod­cast­ers, who maybe don’t like Spo­tify’s closed ecosys­tem, or who sign exclusive deals with other play­ers, then Spo­tify can’t present it­self as a one-stop-shop, and pod­cast lis­ten­ing could be­come frag­mented across a num­ber of apps,” says Evans. “Some peo­ple even refuse to call what Spo­tify is able to avoid the cen­sor­ship de­bates and toxic speech scan­dals that have dogged the likes of YouTube, Face­book, Twit­ter and TikTok since their be­gin­nings.

There are ex­cep­tions, how­ever. Spo­tify pulled mu­sic by R Kelly and XXXTenta­cion from its cu­rated playlists in 2018, cit­ing a new “hate con­tent and hate­ful con­duct” pol­icy. Their mu­sic re­mained avail­able on Spo­tify, but the ser­vice re­duced their po­ten­tial reach by hid­ing their al­bums from its in­flu­en­tial playlists.

Spo­tify’s de­ci­sion was later re­versed fol­low­ing a back­lash by mu­sic la­bels, show­ing the dif­fi­cult task of at­tempt­ing to cre­ate mod­er­a­tion poli­cies from scratch.

But dis­putes over mu­sic and lyrics are noth­ing com­pared to the headaches that will arise from the news pro­grammes, po­lit­i­cal de­bates and fringe soap­boxes that will soon fall into its baili­wick.

Ro­gan in par­tic­u­lar is pop­u­lar but highly con­tro­ver­sial. An en­dorse­ment by Ro­gan of Bernie San­ders in Jan­uary gen­er­ated crit­i­cism on­line from peo­ple who ac­cused the pod­cast host of pre­vi­ously mak­ing trans­pho­bic com­ments and in­ter­view­ing con­spir­acy the­o­rists such as In­fowars host Alex Jones.

Ro­gan has de­nied the ac­cu­sa­tions and said they were based on a clip that was “com­pletely out of con­text.”.

“If there are some trans peo­ple lis­ten­ing to this, I’ve got noth­ing but love for you, for ev­ery­body,” he added.

The com­pany will be espe­cially vul­ner­a­ble to such blow-ups dur­ing this open­ing phase of its cam­paign. Un­til it at­tracts enough lis­ten­ers to grow via Face­book-style net­work ef­fects – that is, every­one uses it be­cause every­one is us­ing it – it will have to rely on big names.

Stars like Ro­gan could be­come Spo­tify’s ver­sion of PewDiePie, the YouTube star so big that he still se­cured an exclusive con­tract af­ter years of racism ac­cu­sa­tions, which he has con­sis­tently de­nied.

More­over, the old RSS sys­tem gave pod­cast ser­vices only lim­ited pow­ers of cen­sor­ship – and there­fore lim­ited re­spon­si­bil­ity. Though com­pa­nies have “delisted” pod­casts in the past (most no­tably the In­fowars pod­cast fea­tur­ing Jones), even giants like Ap­ple had no con­trol over the con­tent it­self, whereas in Spo­tify’s walled gar­den the buck will stop with Ek. So the same cen­tralised con­trol that en­ables its ad­ver­tis­ing gold mine is also a PR time bomb.

Kim Kar­dashian West, Michelle Obama and Joe Ro­gan are help­ing Spo­tify of­fer­ing ‘pod­casts’.” And if Spo­tify does suc­ceed, it may strug­gle to gov­ern its new con­quests. In the past, it has largely been

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