The Netflix of Podcasting

Last April, Luminary made waves proclaiming that “Podcasts don’t need ads” and pitched themselves as the “Netflix of Podcasting” These days, after acquisitions like Gimlet and The Ringer, I hear many people assuming that Spotify is using the same playbook. But if you presume that Spotify just wants to put podcasts behind a paywall to sell more Premium subscriptions, you’re not paying attention.

So far, they haven’t locked any of their Spotify-exclusive shows behind a paywall. As we can see from the prospects of Luminary, that strategy is an uphill battle without a dominant market share in podcast listening. From Bloomberg:

Initially, Luminary pursued a programming strategy that looked a lot like the game plan at Netflix, offering established podcasters more money than they could get elsewhere in exchange for exclusive rights to their shows.

A year later, Luminary is still struggling to live up to those grand ambitions…Several podcasters who have worked with Luminary said that few people seem to be listening to their shows, despite being given big budgets and creative freedom.

Spotify, which has to pay record labels a percentage of total revenue, would absolutely love to have the unit economics of Netflix. Podcasting is absolutely an escape hatch for Spotify to grow their profit without sabotaging their relationship with the record labels. Ben Thompson explained the value of podcasts to Spotify after the Gimlet acquisition:

What I think Spotify senses is that, while podcasts solve many of their business model problems, Spotify is also uniquely positioned to solve the problems of many podcasters/suppliers.

Increasing advertising revenue for the entire industry requires a centralized player that can leverage a large userbase. Spotify is still a distant second to Apple in podcasts, but they are growing fast. Just as importantly, Spotify already has a strongly growing advertising business — again, larger than the entire podcast market — that it can extend to podcasts.

Spotify Advertising, as I just suggested, makes a strong play to be the dominant provider for the entire podcasting industry. Spotify Advertising is already operating at a far larger scale than Midroll, the incumbent player, and Spotify has access to the data of the second-largest podcast player in the market.

I think Spotify wants to be the YouTube of Podcasting. Centralizing free shows and consolidating the supply of podcast advertising feels like it’s much more likely to be their immediate goal. Not only does that attract new users to the platform, but more importantly, they are acquiring premium inventory for their Streaming Ad Insertion technology.

Offering more comprehensive and insightful ad technology than anyone else on the market puts Spotify at a major advantage and could cause other podcast networks to lose business…Spotify is positioning itself to become the center of the podcast universe, and everyone, from listeners to creators to advertisers, has to contend with that fact.

Unlike every other podcast player, they have the scale that only Apple has achieved, but more importantly, the appetite to monetize their users with targeting advertising. Their recent acquisitions position them for greater success no matter the strategy. Yet, conquering the podcast advertising market will have much broader implications than yet another subscription offering.