ANLOVE THE With the noise of chat programs, dramas and documentaries broadcast to voice activated speakers, a louder sound can be heard: ker-ching. On December 29, Spotify, an audio streaming service, aired the first in a series of exclusive podcasts by Prince Harry and Meghan Markle. The next day, Amazon bought Wondery, a producer of popular podcasts, including “Dirty John” and “Dr Death”, for a reportedly more than $ 300 million. The tech giant, which entered podcasting only in September, also hired expensive stars like Will Smith and DJ Khaled.
The deals are the latest in a spree that spans the entire industry. Last year, Daniel Ek, head of Spotify, declared that “audio – not just music – would be the future” of his company. Since then, Spotify has been on a billion dollar podcasting spree, acquiring production and advertising technology companies such as Gimlet, Anchor and Megaphone, as well as programs; in May, he paid $ 100 million for “The Joe Rogan Experience”. Apple, the largest podcast distributor, bought Scout FM, a podcasting app and has entered stars like Oprah Winfrey.
Podcasting earns most of its money from ads, which last year generated revenue of just $ 1.3 billion, according to Omdia, a data company – equivalent to 6% or more of music industry sales recorded, or the box office of a Hollywood blockbuster. Why so much fuss about a small business?
One reason is growth. Global podcast listeners will exceed 2 billion by 2025, estimates Omdia, from 800 million in 2019. Ad sales could almost triple, to $ 3.5 billion. While giants suck programs, advertisers discouraged by fragmentation can buy many ads in one place.
Second, podcasts give audio streamers a chance to have content, which they cannot do with music. Most of the music in the world is owned by three record companies, which absorb about 70% of streamers’ revenues. No matter how much they grow, companies like Spotify find that their costs go up with them. The fixed cost of purchasing a podcast means that growth can increase margins.
Finally, the ability to own podcasts offers streaming services a way to differentiate themselves. In contrast to video streamers, which compete for content, Spotify, Amazon and Apple offer approximately the same library of 40 million songs. Artists, who see streaming primarily as a way to promote their most profitable live shows, have little incentive to be exclusive to a service. Original podcasts are a way to attract fans.
If the podcast rating model is based on music catalogs, streamers may be paying dearly for some of them. Will Page, a former chief economist at Spotify, notes that while old catalogs like Bob Dylan’s, recently sold to Universal Music Group, are valuable because the songs have been played for years, podcasts are perishable. “A podcast about Dylan is from his time; a Dylan song is timeless, ”he says.
Spotify’s move to podcasting has helped its stock price double this year. But rivals like Apple and Amazon, which offer audio, video, games and more, can attract stars with promises of a spin-off TV show or game. Tech giants can also rely on hardware: iPhones come with Apple’s podcast app, and Amazon’s speakers default to Amazon Music. The battle over consumers’ ears is likely to get louder. ■
Editor’s note (December 30, 2020): This article has been updated since its first publication.
This article appeared in the Business section of the print edition under the heading “Solid investments”