The Spotify Hurdle

Earlier this month, Ben Thompson of Stratechery announced the launch of Dithering, a new podcast co-hosted with John Gruber, founder of Daring Fireball. The podcast operates on a subscription basis, costing $5/month or $50/year (less for existing Stratechery subscribers). In his article explaining the launch, Thompson highlighted that just because Dithering wasn’t free did not mean it wasn’t open. New episodes are sent via email over the open SMTP protocol, thus circumventing gatekeepers.

Many large consumer-facing platforms claim to endorse similar values, but there are different flavors of openness at play. Netflix show creators may get larger upfront payments, but at the expense of international rights. YouTube could choose to demonetize its content creators for whatever reason, at any time. And Spotify’s “pro-rata” system for royalty payments has been frequently denounced for being unfair to artists.

Thompson’s definition of subscriptions is “paying for the regular delivery of well-defined value.” Dithering’s model of openness is not like that of Apple Music or Spotify, in that it is user-centric, “even as it takes advantage of the same foundation of zero marginal costs.” And although there are more avenues to publish content than ever before, traditional publishers will suffer as such platforms continue to aggregate resources — from Stratechery:

It is important to note that, the constant griping of traditional gatekeepers notwithstanding, Aggregators are by definition good for most content creators; after all, everyone is now a content creator, whereas previously publishing was reserved for those who had access to physical assets like printing presses, recording studios, or broadcast towers. That means most people are publishing for the first time (with effects both good and bad).

It also means that traditional publishers face more competition for attention, and, as long as they rely on Aggregators, an inherently unstable source of income: one big song, show, video, or article can make some money, but without an ongoing connection and commitment from the consumer to the content creator, it is increasingly impossible to make a living.

An ongoing commitment is all the more difficult to lock-in when the mode of delivery isn’t a feed the consumer often checks, or when the publishing ecosystem isn’t open. Exclusive content has forced readers and listeners onto a handful of platforms and redefined the landscape for content creation. That’s where Spotify comes in.

The Exclusive Experience

On May 19th, Joe Rogan, an internet-famous podcast host and comedian, announced that his podcast would become a Spotify exclusive in a multi-year licensing agreement reportedly worth over $100 million. Rogan’s full podcast library will be available on Spotify starting in September, and become exclusive to the platform by the end of year. On news of the deal, Spotify’s stock surged by more than 11%.

In his announcement, Rogan assured fans that nothing would fundamentally change:

It will be the exact same show. I am not going to be an employee of Spotify. We’re going to be working with the same crew, doing the exact same show. The only difference will be that it will now be available on the largest audio platform in the world. Nothing else will change. It will be free. It will be free to you. You just have to go to Spotify to get it.

Rogan’s framing is somewhat disingenuous. By limiting his podcast to a single distribution platform, he is not increasing its reach, but instead restricting access from the open ecosystem. Ostensibly, the Joe Rogan Experience (JRE) could have been made available to Spotify without removing its wider availability on competing podcast apps. Clips from the show will continue to be posted to YouTube, but episodes will only be uploaded in full to Spotify.

Spotify has been experimenting with exclusivity for some time. Last year, the company made three acquisitions, including two podcast networks (Gimlet Media and Parcast) and a podcast creation company (Anchor). It has created new methods of generating playlists and inserting targeted ads, alongside video podcasts as an alternative to YouTube. The advent of exclusive content on Spotify has made it a hybrid platform that functions simultaneously as a distributor and publisher.

The aim of Spotify’s single-minded focus on increasing engagement is to take over podcast advertising — at the expense of wider accessibility; from Stratechery’s prescient post:

That, though, is bad for openness — indeed, Spotify isn’t open at all. You can’t simply add an RSS feed to Spotify, as you can most other podcast players. Rather, podcasters have to submit their feeds to Spotify and agree to the service’s terms of service, which can be changed at any time at Spotify‘s sole discretion. Sure, the terms are relatively benign today; they could include the right to insert advertising tomorrow. Even if that doesn’t happen, though, Spotify still is not open: they can take down your content or choose not to play it, just as Facebook could not show your page unless you were willing to pay-to-play.

Why, then, is podcasting such a critical part of Spotify’s advertising strategy? The main reason is that unlike music, where Spotify needs to pay record labels every time someone listens to a song, podcasts allow the company to deal with creators directly. Late last year, Rogan said his podcast approximated 200 million monthly listens and views. If transposed to Spotify — where advertisers pay anywhere from $18 to $50 for every 1,000 listeners a show reaches, according to Midroll, a leading podcast ad network — this could be in the range of $3 million in monthly advertising revenue.

But for a show that owes much of its fame to YouTube (from which came millions of additional views from top-rated episodes), exclusivity could remove an important entry point for a certain demographic. Younger audiences may associate podcasts with YouTube instead of Apple or Spotify, and not because of the type of content. Rather, YouTube represents a different way of consuming information.

In Spotify’s blog post announcing the Joe Rogan deal, the company stated that “in addition to the wildly popular podcast format, JRE also produces corresponding video episodes, which will also be available on Spotify as in-app vodcasts,” a feature that it only started testing earlier this month. It’s no coincidence that Spotify’s first vodcast subjects were coming from YouTube.

Anchored

Some were quick to denounce the move. Marco Arment, a host of the Accidental Tech Podcast and the founder of Overcast, a popular iOS podcast app, reacted to the deal by underlining the importance of an open ecosystem in driving engagement in the long-term.

Overcast, unlike Spotify, does not have exclusive podcasts on its platform — and went so far as to release a clip sharing feature for any public podcast, making it easy to share audio and video clips up to a minute each. Overcast also offers the option to include their ‘Sharing with Overcast’ badge, or add an Apple Podcasts badge instead.

App-agnosticism helps spread podcasts. It benefits listeners, but also podcasters, who are trying to expand their audience; from Arment’s blog post:

It’s important for me to promote other apps like this, and to make it easy even for other people’s customers to benefit from Overcast’s sharing features, because there are much bigger threats than letting other open-ecosystem podcast apps get a few more users.

For podcasting to remain open and free, we must not leave major shortcomings for proprietary, locked-down services to exploit. Conversely, the more we strengthen the open podcast ecosystem with content, functionality, and ease of use, the larger the barrier becomes that any walled garden must overcome to be compelling.

More recently, the discussion has been around how to define a podcast in the first place. A few months after Spotify acquired Anchor, John Gruber argued in Daring Fireball that audio shows exclusive to any one platform are not podcasts, because they only work in one app, and don’t have RSS feeds that can be exported. In other words, they are not open.

None of this makes paid-for or subscription-only audio content antithetical to openness — but it doesn’t make it a podcast. It may be easy to dismiss terminology as semantics, but podcasting has historically been a fundamentally open medium. Companies like Spotify have an incentive to build a walled garden not because it improves engagement short-term, but it makes content creators dependent on their platform. Spotify doesn’t just know how many times a file has been streamed or downloaded; it also collects data on what other podcasts users have subscribed to, what parts of an episode have been skipped, and whether the episode has even been listened to in the first place.

Closed ecosystems also give rise to different advertising models. With Spotify’s announcement this year that it would launch Streaming Ad Insertion (SAI), the company took one step closer to becoming a full-blown ad network. Spotify says that its ad insertion technology will allow it to put real-time ads into its shows based on data like “age, gender, device type, and listening behavior of the audience reached.” That kind of granular user data would just not be available to podcast apps like Overcast.

All of this makes strategic sense for Spotify, which is leveraging its reporting and measurement capabilities as consumption patterns move away from downloading and towards streaming. This creates an ecosystem in which there are two sets of winners:

  • Large incumbents like Spotify and Apple, which increasingly have a financial incentive to build a moat, at the expense of openness.
  • Challengers like Overcast, which thrive on interconnectedness and an open ecosystem.

The benefits of openness are overwhelming. Large platforms can make the discovery of certain podcasts difficult, but cannot remove them from the Internet altogether. If users are disgruntled with a podcast app’s privacy policy, which could change at any time, they can simply choose to use a different platform. And finally, some third-party apps offer better user interfaces or audio controls than the incumbents.

The JRE might still be free. But the implications of its exclusivity on Spotify, for data privacy and choice, are concerning. It runs counter to the initial promise of podcasting: openness.

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