What Spotify’s podcast layoffs indicate about the changing audio market
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For the last few years, audio companies have funnelled millions of dollars into the podcast market. Yet, the economic recession indicates that the boom of investment into podcasts may be reaching its peak. Essentially, the chessboard has been set and major streaming platforms can now shift their focus to format development.
Spotify had to go big on the podcast bet
Major platforms like Spotify had to build completely new verticals to compete in the podcast market. Even though part of the reason for Spotify’s push into podcasting was that it is cheaper to license than music, Spotify seems to have been anything but frugal, investing roughly $1 billion into podcasting-related acquisitions over the past four years. Spotify’s major content acquisitions include Gimlet Media, Parcast, and The Ringer Podcast Network as well as Megaphone, Podsights, and Chartable to boost its advertising sector. It has also spent hundreds of millions on exclusive podcast deals with figures like Joe Rogan and Meghan Markle. To Spotify’s credit, these investments have paid off as it is the most regularly used podcast platform amongst monthly podcast listeners, at 44% penetration (MIDiA Research consumer survey Q3 2022).
Spotify and other major platforms should shift their focus to streamlining their podcast businesses and innovating the format. While the investments in infrastructure were necessary for Spotify to enter the market, it can now focus more on audience development and experiment with the format as more platforms begin competing in the podcasting realm.
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The reliance on advertising is a risk in 2023
Podcast market penetration has been growing for some time, but companies have been investing for growth in a market dependent largely on ad revenue – a vulnerable dependency during a recessionary period. However, some companies have been experimenting with models that reduce this reliance. Apple Podcasts supports subscriptions for both individual shows and channels that provide ad-free content for paying listeners. Amazon Prime has also differentiated its podcast service by giving Prime members ad-free listening. Finally, podcast videos could become a new and lucrative space for advertisers to reach consumers.
The future moves beyond streaming platforms
The good news is that Spotify’s layoffs do not indicate a slowdown in podcast consumption. While podcasts had their initial boom in listenership during the recent pandemic, they continue to grow in the world’s new normal. In Q3 2021, 20% of consumers listened to podcasts monthly, growing to 29% in Q3 2022. This is a positive sign for social video platforms like YouTube and TikTok, which have the opportunity to expand their positions in the space. This is especially true as producing mainstream podcast hits is increasingly difficult in the fragmented market. By providing meaningful context to podcasts and podcast creators through social posts, utilising effective algorithmic recommendations, and building on the strength of video, these platforms have a unique advantage to help more niche creators find and retain their audiences.
Although Spotify is a leader in the audio space, the company’s layoffs do not necessarily foretell the downfall of podcasting. On the contrary, consumption remains strong. The changing market allows for more platforms, particularly social video platforms, to grow the format and give more opportunities to independent voices.