It was February 2019 when Spotify signalled its move to an “audio-first” strategy, pushing towards a future where more than 20% of its listening would come from “non-music content”. A succession of acquisitions and exclusivity deals around podcasts ensued, and the company’s share price surged – from $24.5bn on the day of that announcement to its recent peak of nearly $67bn.
2021, we’d venture, is going to be the year of properly intensifying competition for Spotify around podcasts specifically, and spoken-word content more generally. From Amazon Music adding podcasts and buying production firm Wondery to the continuing convergence of Sirius XM and Pandora, and well beyond.
On the ‘beyond’ side: Apple has long been the biggest player in podcasts, but Spotify’s aggressive push into the format appears to have poked the bear awake. Bloomberg and The Information both reported on Friday that Apple is working on a podcast subscription service that could launch this year. Details other than that it would be a paid service are thin, however.
There is more to ‘non-music content’ than podcasts though. Also on Friday, Tencent Music announced that it was paying RMB 2.7bn (around $415.8m) to buy Lazy Audio, a Chinese service offering audiobooks, comedy, podcasts and other radio-like content to its free and paying users. Audiobooks being the key here. “Lazy Audio’s catalogue is set to expand our audio content library, and its recording capacity will significantly boost our production of audiobooks,” said CEO Cussion Pang.
Tencent Music isn’t a direct competitor to Spotify – indeed, they’re mutual stakeholders – but the move points to a new frontier for non-music competition in the west. And remember Spotify’s job ad last August for an executive to “imagine new possibilities for what audioBooks can be” on its service. Or, thinking of today’s Apple story, remember Spotify’s survey last November hinting at plans for a standalone podcasts subscription tier.
It’s going to be an interesting year. However, analysts at Citi aren’t convinced that podcasts are yet having the kind of impact on Spotify’s business that it hoped for. On Friday, their latest note for clients claimed that “to date, we have not seen a material positive inflection in app downloads or Premium subscriptions” from podcasts on Spotify. “Our fear is that if podcasting doesn’t provide a way for Spotify to shift away from music label dependence, the Street may reassess the underlying value of the business.”
Spotify and its fellow streaming services are, in truth, thinking more about challenging radio over the next decade – and siphoning off more of its huge audiences and advertising revenues – than they are on shorter-term economics of music licensing. Citi’s analysts may be sceptical, but we don’t see a slowdown in Spotify and its rivals’ non-music investment any time soon.
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Do you know that Spotify and the other streaming broadcaster pay as much as 60% of revenue right off the top to the recording artists and their music labels. Legacy analog radio stations pay not a cent of revenue to the artists, only a minor amount to songwriters. Why? Because OTA radio has a very strong lobby in the NAB and because that’s the way Congress wrote the law. If Congress ever levels the playing field you will see traditional radio in trouble.