With podcasts, Spotify wants to create the audio Netflix
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With podcasts, Spotify wants to create the audio Netflix

Streaming music market leader Spotify might be looking to find its own Netflix moment with the recent purchase of two major podcast companies. Recent headlines surrounding the company have focussed on its on-going anti-trust dispute with Apple. And even before that came to light, podcasts aren’t big enough business to rock markets on their own (for frame of reference, Spotify’s $340 million spending spree easily pegs it as the world’s biggest podcast company). So, what’s the big deal? And why is Spotify making such a big song and dance about becoming an “audio-first” enterprise? Two reasons: monetisation, and Netflix.

Spotify’s share price has appreciated by 24% so far year to date

26 03 spotify

Source: Yahoo Finance

Spotify, being a market leader in audio-streaming, and Netflix, being a market leader in streaming video on demand (SVOD) are naturally seen, by some, as birds of a feather. But, in regards to profitability, at least, the two have not flocked together. Netflix has been able to dominate its respective market and rake in far more cash than the smaller Spotify. Why?

One reason is original content. While many of the shows that Netflix is best known for (Stranger Things, House of Cards, Bojack Horseman, Orange is the New Black, and more) are owned outright by Netflix, there’s no audio equivalent for Spotify. That’s a problem, because Netflix’s own-brand shows and movies not only translate directly into better margins, but also provide a potent incentive to new audiences. If you want to watch the next series of The Chilling Adventures of Sabrina this year, you’ll need a Netflix account.

Netflix’s move into content creation was relatively unprecedented – but if you think Spotify could do the same and start its own music label, you’d be wrong: that would put it in direct competition with everyone from whom it licenses content, translating into a major advantage for Spotify’s rivals. The reason? Because Spotify would have turned itself into an existential threat to record labels’ business – no one who looks at the SVOD market today wants to find themselves in the shows of traditional TV networks.

Podcasts, although a nascent industry, provide one way for Spotify to rectify this situation. With the acquisition of Gimlet and Anchor, it’s the world’s largest podcast publisher. If it can turn podcasts into a big deal, it will be perfectly positioned to create rafts of original content and pursue its own Netflix moment.

A month and a half ago, the company’s founder and CEO, Daniel Ek, wrote the following: “take the current value of the video industry. Consumers spend roughly the same amount of time on video as they do on audio. Video is about a trillion dollar market. And the music and radio industry is worth around a hundred billion dollars. I always come back to the same question: Are our eyes really worth 10 times more than our ears? I firmly believe this is not the case. This opportunity starts with the next phase of growth in audio — podcasting.”

Disclosure

Dominion holds Spotify in its Global Trends Luxury Fund.


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