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Insider: February 4, 2021 — Notes on Spotify Q4 2020 Earnings, and others

Notebook Dump…

  • From the Hollywood Reporter’s Natalie Jarvey: “Joe Budden to Launch Membership Business via Patreon. The podcaster will also work with the company as head of creator equity.”
  • Trend piece watch: Vanity Fair on celebrities flocking to pods. It’s mostly covered territory, but I think this is the first time I’ve seen the following data point made public: “It was also around 2018 that agencies like CAA began incorporating audio deals into their development packages. One insider estimates that many celebrities could get a six-figure guarantee per year, with the biggest actors receiving between $1 million and $3 million to launch an unscripted podcast. Scripted projects offer less up-front money but can be adapted into TV shows, films, books, and so on.”
  • More follow on the Daily-public radio station situation, here’s the first in a Wemple thread: “The New York Times is making quite an effort to reassure public radio stations after the demise of “Caliphate” and related controversies. Leadership at WAMU, for instance, sent out a memo today alerting staffers to NYT’s promises.”
  • Speaking of public radio…. NPR launches “Station Investigations” team.
  • The Experiment, the new collaboration from The Atlantic and WNYC, debuts today.
  • WBUR’s Anything For Selena gets the Times Q&A treatment. Pair that with my own interview with host and creator Maria Garcia on Servant of Pod.
  • Reply All is dropping the first of its four-parter, led by Sruthi Pinnamaneni, on the Bon Appetit scandal today.
  • *squints at press release* Bill Clinton launches… a new podcast? Wait, doesn’t he already have one?
  • Shout-out to Squadcast, which adds video podcast recording.
  • Probably the only podcast I listen to religiously, Time To Say Goodbye, now has a Patreon.
  • My 1.5x Speed column this week includes a torrent of stonks.

SPOTIFY Q4 2020

One of the bigger themes coming out of last year was the fact that, for all intents and purposes, Spotify was no longer alone in its for whatever podcasting is supposed to be in the days to come.

SiriusXM now owns Stitcher, which is being reorganized in a bunch of ways as we speak to add value to its various existing components. Amazon Music now has Wondery, though it’s unclear what, exactly, is the strategy there. Apple’s apparently thinking about a paid subscription service, though it’s something we may or may not see, and in any case, it’s not really a framework that’s been effectively executed from scratch before. And then there’s always iHeartMedia lurking in the corner, pouncing on deals and pumping out an abundance of new podcasts to put all those old radio advertising dollars somewhere.

And while all these increases in competition — primarily manifesting, at this point, in bumped-up costs for talent deals (particularly when it comes to bigger-name talent) and bumped-up frictions for existing listener acquisition — Spotify remains the most intriguing player, in part because they were first to dive headfirst into the pool, and in part because they seem to be the most interested in and best-positioned to fundamentally changing the existing business.

Though, the way Spotify would phrase it is that they’re best-positioned to benefit from big changes in the audio business. Here’s CEO Daniel Ek in his prepared remarks during the earnings call yesterday:

Linear video fell apart as viewers flocked to on-demand. And the companies who were not prepared to take advantage of this disruption faced huge challenges as their business models were upended.

A similar shift hasn’t happened…yet…to linear radio, but you’ve long heard me say that it’s coming. And I am more confident today that it’s inevitable. But unlike video, there are only a handful of companies who will be able to take advantage of this disruption in audio. No other company has the capabilities, or is as well positioned, as Spotify for this massive opportunity.

Here’s what I think were the most important takeaways from the earnings call (here’s the transcript): the company performed well down the stretch last year, particularly in terms of new subscriptions. Given the sheer volatility of 2020, that’s an achievement, though Ek set a conservative tone for the coming year. Last year was weird and volatile, yes, and the company adapted accordingly, but it continues to be deeply uncertain just how listeners will shift in their behavior as the world opens back up. Will this lead to less listening, as people break free from their isolated state and kick off a revival of the Roaring 20s? We are, of course, still far from being able to answer this question given the choppy nature of the vaccine roll-out, but within the United States and globally, and so it makes sense for Spotify to hedge its perception of 2021.

Because of this uncertainty, there was talk of a shift in tactical emphasis in the coming year from focusing on subscriber numbers towards focusing on revenue growth. (The key metric here is ARPU, or average revenue per user.) Podcast monetization on the platform, one figures, would play a considerable role in this shift. As previously established, and reiterated in this earnings call, in addition to potential serving as a driver of new users and paid subscribers, a considerable part of podcasting’s value for the platform is that it’s effective in expanding the Lifetime Value of a user on the platform; a Spotify user that listens to podcasts on the platform tends to do a lot of listening on the platform, which deepens their value as a source of subscription dollars and monetization impression. (Key metric here: 25% of Spotify’s monthly active users are now said to engage with podcasts, up from 22% the previous quarter. Listening hours are said to have doubled year-over-year.)

To that end, Ek emphasized the “number of podcasts on platform” metric, citing around 2.2 million shows present at this point in time, up from 700,000 a year prior — a trend aided, no doubt, by Anchor — and further emphasized the importance of original and exclusive content. Which, again, makes sense: offering what’s easily available everywhere else is a table stakes move, if only to provide the experience of having everything accessible on one platform, but original and exclusive programming — as well as experiences, as its various tinkerings with vodcasting suggests — are going to be a pillar of the company’s gambit. That will be the area of content that will most likely realize the intended economics of the platform’s podcast business, though the timeline for that remains TBD.

“Our exclusive programming is already proving to be an essential part of our differentiation,” Ek said. “That said, with a small number of these shows on our platform today have many more in the pipeline, it is very difficult to know exactly when we will see the compounding effect of these investments, but all early indications are very positive.”

An analyst on the call brought up The Verge’s report on Anchor’s sponsorship program, and Ek responded by emphasizing the early-stage nature of Spotify’s podcast investments, in particular its monetization efforts. In other words, podcasts are driving engagement on the platform, but revenue gains off this new engagement remain TBD.* He noted that the company has been conducting a number of experiments in this area, which I guess means Anchor is being framed here as one of those experimental zones. Whether you buy that is up to you. “We are very bullish on the opportunity to provide meaningful ways for podcasters and monetize through the platform efforts,” he said. “And I hope to be able to talk a little bit more about what our plans are in the near future.”**

That near future is almost certainly later this month. In many ways, the earnings call feels like a bit of throat clearing before the main event. Just a day before, the company released a teaser for… something… that’s slated for February 22. I’ve been hearing whispers about this thing for a bit, but for the record, I have no specific knowledge yet about what announcements it will contain. It’s a safe bet to assume that it will involve lots of new original and exclusive content announcements, though what I’ll be specifically looking out for are announcements around podcast/vodcasting monetization features: will there be creator-facing storefronts for its Streaming Ad Insertion tech, what will the ad units look like, will be alternate monetization tools built out for podcast creators on the platform, will it look like existing music monetization tools on the platform, to what extent will those two things be paradigmatically different on the platform.

We’ll see.

Leftover Notes:

  • One has to imagine that somebody’s thinking about a DSP billboard market for podcasts on the platform.

  • On the non-podcast side of things, Spotify is now available in South Korea. I shan’t forget the international angle.

* One interesting point of note here is that, later in the call, a question was asked about The Joe Rogan Experience’s value to the platform: having established that it was the “most popular” podcast on Spotify last year, and recognizing it went exclusive in December, have they broken down the proportions of its listeners that are new to the platform versus existing users? The response: “We haven’t broken out how much of his usage has come from existing users or new users.” But they did say: “We do believe that Joe Rogan has contributed positively to user growth on the platform.” As far as I can tell, there wasn’t any discussion on Rogan-content policy stuff.

** Though the Spotify execs did talk about podcasts being monetized in diverse ways on the platform on the earnings call, I think the bulk of the money will almost certainly go through advertising, which means we should continue to pay close attention to that metric in the earnings reports. Ad revenue grew by 29% this past quarter, something of a turnaround from the picture earlier in the year, when the initial widespread lockdowns coincided with a slowdown in advertising revenue on Spotify. Seems inevitable that I’m going to have to write about Clubhouse at length at some point. Which means I should use the invite that’s sitting in my inbox somewhere, if I can remember where I put it.

Anyway, in the meantime, let me know your thoughts on the platform, if you have ‘em. Would love to take the temperature, and accordingly, run an “anonymous reader thoughts” thread in the next Insider or something.On a separate note… I’m doing a column on Preet Bharara’s podcast operation for next week, with some interviews being done today. What would you want to know?Revolving Door.Got a new job? Tell me, would love to Let The People Know.