When Spotify Technology SA ditches two popular and award-winning podcasts, does that tell us more about the company or the viability of the podcast business?
Just days after Heavyweight was named one of the New York Times’ best podcasts of 2023, the Stockholm-based streaming giant confirmed it will no longer produce it, nor Stolen, an investigative journalism podcast that had won both a Pulitzer Prize and a Peabody Award. Both will run to the end of their current seasons but no longer unless the shows can find new backers.
The news came in addition to the company’s announcement on Monday that it was laying off around 1,500 employees in a drastic cost-cutting drive. And Spotify is one of several companies in recent months that have cut back spending on podcasting operations. While it might be tempting to see all this as an ominous sign for the health of the podcasting industry at large — don’t worry.
You would think such successes would be seen as a triumph for Spotify and its bold, billion-dollar move into podcasting. Beginning several years ago, it had sought to establish itself as both the leading platform for listening while also producing high-end content itself. It brought on top talent such as Joe Rogan, the Kardashians and the Obamas and then acquired independent podcast outfit Gimlet for $230 million in 2019 and the Ringer for a reported $200 million in 2020.
But while these moves did indeed propel Spotify into a leading podcast player — it said in 2021 that it had overtaken Apple as the largest platform for listening — its strategy was hitting serious hiccups. The Obamas didn’t renew their deal when it expired in 2022. Meghan Markle’s podcast was a dud. Spotify’s hope that it could make big-name podcasts exclusive to its platform backfired when those making the shows revolted, worried about infuriating fans who preferred listening through other platforms and losing access to new listeners. In October 2022, Spotify canceled 10 original podcast series.
But this is a Spotify problem, not a podcast one. The latest round of job cuts comes after two smaller ones earlier this year, adding up to an approximate 24% reduction in its workforce since the start of 2023. This despite the technology industry in general experiencing a rebound after a grisly 2022 and Spotify’s own stock rising more than 140% this year. Concern had been growing around the company’s mounting costs, of which podcasts are a significant part. In February, it emerged that activist investor ValueAct Capital had taken an undisclosed stake. “Its operating expenses and funding for content exploded. It is now sorting out what was built to last and what was built for the bubble,” Mason Morfit, ValueAct’s chief executive officer, said at the time.
Those new rules have made Spotify’s 2023 unacceptable. Through the first nine months, the company’s total losses were €462 million ($499 million), more than double its losses in the period a year earlier, though the company recently recorded its first profitable quarter since early 2022. While tech companies used to get free rein to plow huge amounts into revenue growth, Wall Street investors are now pushing them to drive harder for profitable growth. And so Spotify CEO Daniel Ek felt he had no choice but to take a hacksaw to the business he co-founded 17 years ago. “Despite our efforts to reduce costs this past year, our cost structure for where we need to be is still too big,” he said in a memo to staff.
But while these cuts have fallen on some of Spotify’s podcasting operation, this should not be considered a litmus test for the health of the podcast industry more broadly. Thankfully, both Heavyweight and Stolen can live on — they have the option to find other companies to take them on or go it alone, most likely relying on advertising. I’m pleased to say there’s good news on that front. The commercial podcast space, which has been routinely written off over the years, seems in robust health — if a little bruised because of recent contractions thanks to the over-exuberant spending in the wake of the pandemic.
According to Edison Research — albeit in a study sponsored by Amazon.com Inc., a chief producer of podcasts — 31% of Americans 12 and older now listen to a podcast at least once a week, or around 90 million people, up from 24% in 2020. Of these, 59% listened to at least four podcast episodes weekly.
Advertising dollars have followed and are projected to grow to an estimated $2.3 billion this year in the US, up from $1.8 billion in 2022, according to the Interactive Advertising Bureau, which projects $4 billion by 2025. The rate of growth for podcast ads is double that of the total internet advertising business. Dynamic advertising — in which new ads can be automatically placed into old shows — now makes up the bulk of podcast ads, and generative AI voices will drive the cost of making ads lower and could make more lucrative targeting easier — by, for example, generating ads tailored to a listener’s location.
But this doesn’t mean Spotify’s recent moves shouldn’t give us a little pause. The company says it still loves podcasts. But, as reported by Bloomberg, it is lately more enamored with licensing yearlong shows like Rogan’s or Anything Goes With Emma Chamberlain. Even though acquisition costs are large — Rogan is on a reported $200 million exclusive deal, up for renewal soon — the cost-effectiveness and reliability of a chat or interview show is more appealing to Spotify at this time of belt-tightening. (In a statement, Spotify wanted to emphasize that there will still be investigative shows on its podcast roster ‘like The Journal, Science Vs. and Café da Manhã.’)
Investigative journalism, or similar narrative-led series, by contrast, require significant teams of extremely talented people, working often on storylines that may not go anywhere, or if they do, risk not resonating when the show is delivered to the masses. Podcast listeners have come to expect clear, crisp audio, and a glimpse at the process — which requires podcasters flying from place to place just to get that sound of walking up a gravel path and knocking on a subject’s door. Why do that when you can just have Rogan in his man cave or Chamberlain in her bed? In the podcast industry, and on Spotify’s refreshed balance sheet, talk may not be cheap, but at least it’s more efficient.