Don’t forget about podcasting
Spotify became the No. 1 podcast-listening platform in 2019, surpassing Apple Podcasts and Google Podcasts. That said, podcasting remains a bigger cost to Spotify in the near term than a source of revenue. Investments in technology and original content have put pressure on gross margin over the past year.
CEO Daniel Ek said 2020 will be the year the company starts exploring ways to monetize podcast listening more directly. The company unveiled its first step toward that end at CES earlier this month, introducing Spotify Podcast Ads. The product programmatically inserts advertisements into podcast streams, similar to how it inserts ads in between songs.
Theoretically, the new product should enable improved monetization for podcast creators compared to the hard-coded ad copy included in most podcasts. Additionally, it should make it easier for smaller podcasters to monetize their product without the large audience requirements for direct sales.
Importantly, Podcast Ads, like Sponsored Recommendations, is an ad product that reaches both free and paid listeners, monetizing Spotify’s full audience.
Spotify’s business doesn’t rely on squeezing better deals out of record labels in order to expand gross margin. The big tech companies it competes with will prevent that, as record labels now have several popular options to pit against the streaming leader.
Instead, Spotify’s expanding its products to make content production, consumption, and monetization easier for everyone on its platform, and that’s where it’ll unlock profits.