The Push for Podcasts

Spotify’s Podcast Strategy

The podcast industry is booming. Listeners and media companies are hungry for content. Spotify (SPOT), for example, just signed a deal with Joe Rogan which could earn the podcaster over $100 million. The Stockholm-based company has been working to become “the Netflix (NFLX) of audio,” but it, and other music streaming companies, face unique challenges.

For each dollar Spotify earns from music, 65 cents go to the record industry. This is different from Netflix, which sometimes pays a flat fee for its content no matter how many people watch it. Spotify’s gross margin is expected to be about 25% of revenue this year. On the other hand, Netflix will likely have a gross profit that represents 39% of sales in 2020, despite the billions of dollars it spends on content.

Spotify is in a difficult position because three major record labels dominate the music industry and big-name artists are reluctant to make content just for Spotify. However, podcasts are a different story. They provide a revenue stream that is easier to control. For this reason, Spotify has recently acquired four major podcasting companies—the Ringer, Gimlet Media, Anchor and Parcast—for about $600 million.

Apple Hopes to Boost TV Content Through Podcasts

Not to be outdone, Apple (AAPL) is also churning out original podcast content and buying already-existing shows. Apple is hoping to couple its podcast content with its TV+ material. This includes two main types of podcasts: audio content inspired by movies and television, and new podcasts that could be adapted into other forms of media.

Apple was a pioneer in the podcast industry 15 years ago when the company began popularizing the medium on iTunes. Since then, podcast popularity has grown explosively. Currently, about 37% of adults in the US listen to podcasts at least once a month. Apple is working to ensure it stays in the podcast game as other companies strive to gain traction.

Amazon’s Podcast Ploys

Amazon (AMZ) also recognizes the huge potential for growth in the podcast market and is making sure it stays in the race for listeners’ attention.

Amazon’s audiobook division, Audible, is working on purchasing podcasts for several hundred thousand dollars to several million dollars per show. It has acquired podcasts from comedians Tiffany Haddish and Kevin Hart, as well as from documentary producer John Battsek. Audible is also looking at restructuring its business model to make it so customers could buy individual shows without having to pay a subscription fee.

Amazon’s other audio division, Amazon Music, which is particularly popular for people who use Amazon’s Alexa, is also planning to begin offering podcasts. The race for podcast dominance is on, and Spotify, Apple, and Amazon are all striving to draw in listeners.

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