Spotify Technologies SA pulled off a royal coup by announcing an exclusive podcast deal with the Duke and Duchess of Sussex this week. But in a sense, Prince Harry and Meghan Markle need the venture to be a success more than the music streaming giant does.
The Stockholm-based company has gone on a recent podcast bender, spending more than $1 billion to acquire production houses and technology firms and sign exclusive agreements with figures such as the Obamas and comedian Joe Rogan. These efforts have helped double its stock price this year.
The push into podcasts is astute because it should boost Spotify’s profitability and ability to attract new users. The earnings potential of the company’s core music business is held back by the fixed percentage of revenue it pays the recording industry in the form of royalties. Podcasts, on the other hand, have economies of scale. There’s a one-off production cost, so the profit margin increases as the audience grows. Podcast listeners also skew younger and college-educated, making them appealing to advertisers. Cha-ching.
And just as Netflix Inc. found that exclusive video programming can accelerate subscriptions, Spotify is gambling that podcasts can do the same. Chief Executive Officer Daniel Ek told investors in October that almost one in five podcasts on Spotify was an original exclusive.
Meanwhile, exclusive music content is hard to come by. Although streaming has helped make the recording industry financially viable again, musicians still make the lion’s share of their income from touring. They therefore want their tunes to reach the greatest possible audience to foster demand for their live shows. It’s simply not in their interest to restrict their music to just one platform, be it Spotify, Apple Music, Amazon Music or YouTube Music.
Such exclusives that exist are usually temporary: The accompanying album to Mariah Carey’s “Magical Christmas Special” on Apple TV+ was restricted to Apple Music for only a week before becoming available elsewhere. That may have encouraged some additional subscriptions, but probably not many. Even Beyonce and Jay-Z, part-owners of the streaming service Tidal, only made their 2018 album “Everything is Love” exclusive to that platform for a few days.
So far there is little detail about Meghan and Harry’s “multi-year” agreement with Spotify, beyond that it will encompass several different series starting with a Christmas special. The financial value is unclear, though it will probably be far less than Rogan’s $100 million arrangement.
What we do know is this show will be the first serious test of the couple’s creative chops. Their royal status secured them the contracts — they also signed a production deal with Netflix in September — but now is when the rubber really hits the road.
Although I’m sure Spotify CEO Ek wants their productions to be compelling, the deal doesn’t represent a significant risk for him. The Sussexes will bring an audience with them, and therefore subscribers, irrespective of how good the shows turn out to be. The Swedish firm is betting it has enough other appealing content that any new listeners will stick around. One show can drive a sign-up, but it alone is unlikely to retain it.
Much of the risk instead falls on the Sussexes and their production company Archewell. Spotify could readily ditch them if the data show they’re no longer attracting listeners. There is evidence that it’s better to invest in fewer, higher quality programs, which may explain why the morass of undifferentiated interview-style shows are often slowly phased out — it’s what’s called the great “podfade.” If the Sussexes produce dross, their reinvention as media impresarios will peter out too.
The couple’s main clout will be the strength of their contact book and ability to rope in other prominent figures. If they can parlay that into good listening, then they’ll benefit just as much as Spotify.
Bloomberg
