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ADRINK IT talk shows, dramas and documentaries streamed through booming voice speakers, louder sound can be heard: ker-ching. On December 29, Spotify, an audio streaming service, broadcast the first in a series of exclusive podcasts from Prince Harry and Meghan Markle. The next day, Amazon bought Wondery, a producer of popular podcasts, including “Dirty John” and “Dr Death,” for a sum that would have exceeded $ 300 million. The tech giant, which only entered podcasting in September, also recruited dear stars such as Will Smith and DJ Khaled.
The offers are the latest in an industry-wide frenzy. Spotify boss Daniel Ek said last year that “audio – not just music – is the future” of his business. Since then, Spotify has embarked on a billion dollar podcasting frenzy, acquiring production and ad technology companies such as Gimlet, Anchor and Megaphone, as well as shows; in May, he paid $ 100 million for “The Joe Rogan Experience”. Apple, the world’s largest podcast distributor, bought Scout FM, a podcasting app, and listed stars like Oprah Winfrey.
Podcasting makes most of its money from ads, which generated just $ 1.3 billion in revenue last year, according to Omdia, a data company, accounting for about 6% of sales of. the recorded music industry or the box office receipts of a Hollywood. blockbuster. Why the noise of a small business?
One of the reasons is growth. Global podcast listeners will exceed 2 billion by 2025, according to Omdia, up from 800 million in 2019. Ad sales could almost triple, to reach $ 3.5 billion. As the giants vacuum, advertisers put off by fragmentation can buy many spots in one place.
Second, podcasts give audio broadcasters a chance to own content, which they cannot with music. Most of the songs in the world are owned by three record companies, which nibble about 70% of streamers’ earnings. No matter how much they grow, companies like Spotify find that their costs increase with them. The fixed cost of acquiring a podcast means that growth can increase margins.
Finally, the ability to own podcasts gives streaming services a way to differentiate themselves. Unlike video streamers, who compete on content, Spotify, Amazon, and Apple have roughly the same library of 40 million songs. Artists, who view streaming primarily as a way to promote their more profitable live shows, have little incentive to be service-exclusive. Original podcasts are one way to get fans.
If their podcast rating model is based on music catalogs, streamers may overpay some of them. Will Page, former chief economist at Spotify, notes that while old catalogs like Bob Dylan’s, recently sold to Universal Music Group, are valuable because songs are replayed for years, podcasts are perishable. “A podcast on Dylan is of its day; a Dylan song is timeless, ”he says.
Spotify’s switch to podcasting has helped its share price double this year. But rivals like Apple and Amazon, which offer bundles of audio, video, games and more, can lure stars in with spin-off promises. TV show or game. Tech giants can rely on hardware as well: iPhones come with Apple’s podcast app, and Amazon’s speakers come by default on Amazon Music. The battle for the ears of consumers will only get louder. ■
Editor’s Note (December 30, 2020): This article has been updated since it was first published.
This article appeared in the Business section of the print edition under the title “Solid Investments”
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