Spotify Is Coming for Apple With a $500 Million Podcast Buying Spree
Its latest deals with Kim Kardashian and Joe Rogan are aggressive moves to combat commodification
Earlier this month, Spotify signed a deal with Kim Kardashian to co-produce and co-host a criminal justice podcast that will air exclusively on the platform. The deal with the reality TV megastar is only the most recent installment of Spotify’s investments in podcasts. In 2019, it acquired podcast companies Gimlet Media and Anchor for just under $340 million combined. In February 2020, it purchased The Ringer, Bill Simmons’ sports and pop culture publication and podcast network, for nearly $200 million. Last month, Spotify signed an exclusive agreement with podcast star Joe Rogan worth reportedly more than $100 million. Rogan’s show, The Joe Rogan Experience, consistently tops the podcast audience charts globally, with nearly 200 million downloads a month.
So, why is Spotify investing so heavily in podcasts? The largest reason is probably that its core business — music streaming — is an inherently low-margin business. This is due mainly to three factors.
1. Spotify doesn’t own the songs we listen to
Whenever we hit “play” on a song on Spotify, the company has to pay the rights of each song back to music labels, like Universal or Warner Music Group. That means, on average, Spotify spends spends 70% of its music revenues on royalties. Unless Spotify branches out from streaming music, this is a dangerously tight margin to manage long term.
2. There is intense competition from tech giants
As music streaming services have become the most popular way to listen to music, it would make sense for Spotify to slowly and marginally increase its price, similar to what Netflix did with its video streaming service.
Apple and Amazon have the money to go cheaper for longer than Spotify if Spotify doesn’t diversify from music.
The main issue with raising prices is that Spotify’s main competitors — namely Apple Music and Amazon Music — are funded by behemoth…