Audio streaming platform Spotify dealt the entire podcast industry a major blow in the past year with the rollout of Spotify Exclusive Podcasts. It’s a competitive strategy with massive implications for an audio genre built on an open-access ecosystem. Worse yet, it might be a bad omen for the future freedom of podcast creators.
The Rollout
After quietly trying their hand at an exclusive-deal strategy with a few key podcasters on their network, Spotify announced the launch of Spotify Exclusive Podcasts with a bang. In May 2020, media outlets buzzed over Spotify’s widely-publicized deal with Joe Rogan — one of the most well-known and highest-earning podcasters of all time.
The terms of the reported $100 million dollar deal required the host of The Joe Rogan Experience to move 10+ years’ worth of his podcast content (roughly 1,500 episodes) exclusively onto Spotify. The contract also underlined the removal of Rogan’s podcasts from his YouTube channel, where Rogan had amassed a following of over 8 million subscribers.
From there, Spotify rapidly funneled large sums of money into locking down major names for Spotify Exclusive Podcasts, leaving major competitors in their wake. Deals signed in 2020 included podcasts headlined by A-listers like Michelle Obama, Brené Brown and Kim Kardashian West.
However, the music-streaming-platform-turned-audio-giant has a strategy for Spotify Exclusive Podcasts that extends beyond traditional celebrities. Their 2020 rollout has also focused on securing deals with major social media influencers.
Like their celebrity counterpart, influencers mean big dollar signs for Spotify. That’s because both celebrities and influencers bring with them a built-in audience of devoted fans — and that means a bump in streaming traffic and new paid users for Spotify’s platform.
The Money Behind Spotify Exclusive Podcasts
Any upfront cash being given to the big-name hosts on Spotify Exclusive Podcasts is likely to appear to be more generous than it actually is. No matter how much money the exclusive deals are costing Spotify up front, it’s hardly a financial misstep for the audio industry veteran. Spotify has the data to prove that their substantial initial investment in locking down key podcasters will pale in comparison to their future earning power.
On the music side of their platform, Spotify has to pay the record label a cut of every song streamed on their platform. But Spotify Exclusive Podcasts enable Spotify to retain 100% ownership of some of their most-streamed content. This allows them to forgo making a payment to the owner of the content every time it gets played.
Not only that, but by developing exclusive deals and their own programming, Spotify is able to make more money off of each listen because of the ads it places. Spotify is even able to double-dip with revenue when it comes to their premium users, who aren’t exempt from listening to ads in Spotify podcasts.
The Controversy with the Music Industry
Like many high-profile and well-funded change agents, Spotify Exclusive Podcasts have generated a great deal of controversy. One of the main grievances against their new business strategy has been lodged by the musical artists for which the Spotify platform was originally created to represent.
There is a glaring difference between Spotify’s treatment of top podcasters vs. their top musicians. Artists who post music on Spotify have never been given the option to sign highly lucrative exclusive deals like those being offered to podcasters today. No matter how popular a musician may be, Spotify has only offered one model of compensation — for the artist to receive a cut of the revenue every time their song is streamed.
The problem with this compensation model is that artists are only able to earn a fraction of single penny per stream. Meanwhile, their record label — and Spotify — receives a far larger percentage of the earnings. As Spotify became ubiquitous with music listenership, musicians were forced into a lose-lose situation: to either make their music available on Spotify and accept inadequate compensation; or to refuse to share their music on Spotify and forgo the access and discoverability offered by Spotify’s hundreds of millions of users.
In May 2020, MIDiA Research managing director Mark Mulligan laid out the heart of the issue for Rolling Stone.
“Artists need tens of billions of streams to get the same money that Joe Rogan was just given for his show. What Spotify is saying basically is ‘We value this podcast more than we value any single artist on our platform. At the same time, Spotify wants to push back on rate fees because it says it can’t afford it, and yet it spent $100 million on a podcast. That may lead to a very real question. Spotify has to make a really big bet on what to do beyond music, but it can’t afford to lose the music in the mean time. With labels, artists, songwriters and publishers we’ve already seen some discontent before. Will the music industry let Spotify be successful with podcasts?”
Given Spotify’s longstanding method of doling out inadequate compensation for artists, it’s hardly surprising that many in the music industry are disgruntled over the massive amounts of cash being offered to close deals with prominent figures on Spotify Exclusive Podcasts. As a platform built on the backs of artists, Spotify’s new strategy feels remarkably tone deaf.
Implications for the Podcast Industry
The controversy over Spotify Exclusive Podcasts extends to the podcast industry as well, as reported by The Verge in May 2020.
“The deal […] might foreshadow a future for the broader podcasting industry in which two sects develop: one that values privacy and an open ecosystem and another that’s closed-off and built around locked-down shows and targeted ads, like Spotify.”
Spotify Exclusive Podcasts also presents the serious potential for a conflict of interest with their podcast content creators. By holding some of their most popular podcasters to the terms of their in-house contract, Spotify wields a substantial degree of control over their podcasters — not only with regard to their content, but also in their earning potential.
At the end of 2020, rapper-turned-podcaster Joe Budden spoke out publicly about why he decided not to renew his exclusive contract with Spotify. The host of The Joe Budden Podcast was one of the first podcasters that Spotify approached about their plans to expand into non-music audio programming, and they offered him an exclusive two-year licensing deal.
When Budden, whose episodes have regularly ranked in Spotify’s Top 10 since the beginning his contract, began to hear the dollar amounts that Spotify was putting toward other exclusive deals and acquisitions, he fought back.
Despite limitations on what he could share publicly due to the many NDAs Budden had signed in the deal, Budden took to his podcast to express his extreme displeasure toward the amount he had earned for Spotify versus the compensation package he’d received. Spotify responded to Budden by offering him a significantly larger deal than the one he’d been offered in 2018 to resign his contract, but Budden declined, stating, “The offer comprises more than just the podcast,” and that, if he were to accept, “I would not be able to sleep at night.”
What’s Next for 2021?
In 2021, we expect that the controversy will continue as audio industry power players try to get the upper hand on their competition. As the podcast industry skyrockets, we will see a rise in big spending on podcast industry infrastructure and assets.
Spotify’s biggest competitors — like Apple Podcasts and new contender Amazon — are likely to rollout a platform that responds to Spotify Exclusive Podcasts. Major networks are likely to be more interested than ever in closing exclusive deals with big-name podcasters. These networks may also double-down on in-house content production as a competitive strategy that will get the name of their network on lists of trending podcasts.
It’s a safe bet that the controversy surrounding Spotify’s business decisions will not subside anytime soon. With a bullish strategy that has strengthened their stronghold on the audio industry, Spotify seems quite comfortable being everyone’s lightning rod in the name of growth and expansion.
Audio consumers and creators should keep a close eye on Spotify’s growing market share. The performance of strong market competitors in 2021 will be a determining factor in how much control Spotify captures over the future of the audio industry.
There may be serious implications for podcasters if Spotify continues to outpace their competition in the audio space. If Spotify captures a disproportionate share of the market, they will have the power to become overlords of many aspects of podcasting that have been free, thus far, from industry regulation — including the content, the creators, and the money.
Alban Brooke, Head of Marketing at Buzzsprout, echoes this prediction. He agrees that Spotify’s exclusive deals are “good for the platform, and often good for the individual podcasters, but terrible for the ecosystem as a whole.”
Spotify’s decision to strike out against podcasting’s open-access ecosystem just might have the potential to shift the core ethos of the podcast industry forever.