Spotify’s Very Expensive Podcast Moat

Music streaming is crowded with competitors. Can Spotify’s podcast gamble keep it ahead of the pack?

Kevin LaBuz
Marker
Published in
7 min readJun 21, 2021

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Thomas Trutschel / Getty

“When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.” — Warren Buffett

Music streaming is a business with bad economics. The industry’s byzantine licensing structure has many mouths to feed. For each dollar that Spotify earns streaming music, over $0.60 goes to artists, labels, and publishers. This doesn’t leave it much to build a reputation on.

Smart Pipes Become Dumb Pipes

Before the internet, buying music meant going to a store to buy a digital file on a plastic CD. Napster changed this by launching (illegal) peer-to-peer file sharing. Instead of buying whole albums, users could download single tracks. Unlike record stores, online shelf space is unlimited. People could access any song. Record stores became redundant. RIP, Tower Records. This is a classic case of the internet disintermediating the middleman. Distribution innovations, like the shift from physical CDs to digital downloads, enable new business models while hamstringing others.

Spotify made Napster legal, charging users for speed and convenience. For a monthly fee, subscribers could access the world’s largest music library. But streaming music isn’t a durable advantage. Distribution innovations seldom are. Today, convenience and speed are table-stakes, not differentiators. Amazon Music, Apple Music, and YouTube offer similar services. What’s more, music is a commodity. Artists and labels want songs to be ubiquitous. Justin Bieber is particular about the provenance of his peaches, but isn’t picky about where his music is streamed.

Initially, Spotify grew by providing a better user experience around commoditized content. But similar to distribution innovations, product innovations can be short-lived. For example…

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Kevin LaBuz
Marker

Head of IR & Corporate Development at 1stDibs. Previously finance at Etsy, Indeed, and internet equity research at Deutsche Bank. Find me on Twitter @kjlabuz.