In Depth

Spotify aims for podcast dominance with The Ringer deal

The audio streaming giant wants to move with consumer tastes, and lessen its dependency on music

Spotify has added to its portfolio of podcast companies, securing the acquisition of US sports digital media group The Ringer as it pushes to achieve profitability, despite a strong growth in paying subscribers.

The move into podcasts is a strategic one for the audio streaming giant - the largest in the world if measured by subscribers - as it tries to reverse its loss-making last quarter of 2019.

Paying subscribers increased to 124 million in the same period, while the company had 271 million monthly total active users.

As things stand, the majority of Spotify’s revenues from subscriptions goes to the music rights holders with whom it has contracts. As such, despite its size, the Stockholm-based company has always struggled to make a profit.

Spotify’s venture into podcasts tries to remedy this in two ways. First, by capitalising on the ever-increasing consumer demand for podcasts, it hopes to incentivise subscribers to its free service to move into the paid tier.

Second, if music consumption declines relative to alternative media like podcasts, Spotify hopes it will be able to justify reducing the percentage of its revenue that ends up in the hands of music rights owners. It is using this argument currently in ongoing negotiations with record labels.

“They are constantly trying to chip away at that share of music on the platform,” said a music executive familiar with negotiations. “Of course there is friction there. We are playing a defensive play right now and they are playing offensive.”

Spotify chief executive Daniel Ek said that the move into podcasts was the company’s “number one priority”, and sports will be a key part of these efforts. “We look at this as we just bought the next ESPN,” he said after the deal was announced.

Ek also said that Spotify could make some of The Ringer’s podcasts exclusive. “We are going to be opportunistic about it… but we haven’t firmly made any plans.”

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The Ringer was founded by former ESPN commentator Bill Simmons in 2016, and has grown to offer more than 30 podcasts, with 100 million downloads each month.

“Spotify can take us to another level,” he said in a statement on Wednesday.

Podcast listening is burgeoning on Spotify, as it is globally, and 2019 saw the company spend $400m on three other podcast companies, as well as striking more than two dozen deals for exclusive or original content.

Executives have likened its move into podcasts “to Netflix’s push into original programming, as audio transitions from the radio to podcasts”, says the Financial Times.

At the same time as it announced its deal for The Ringer, “Spotify reported a 29 percent rise in paid subscribers for its audio streaming services in the fourth quarter of 2019, to 124 million, giving it a significant lead over its main rival, Apple,” reports The New York Times.

“Meanwhile,” says The Wall Street Journal. “Spotify has made moves to build out its ‘two-sided marketplace,’ selling tools and services to artists and their teams. Late last year, the company acquired SoundBetter, a music-production service for artists and producers, and introduced sponsored recommendations, which let labels pay to promote new music to specific listeners. The company said it expects that business to help it become more profitable in the coming years.”

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