SPOTIFY: AN AUDIENCE IS AN ASSET

Why build an audience when you can buy one?

365 million users. 165 million paying subscribers. A 34% market share. A $40 billion company.

Spotify was founded in 2006, by Daniel Ek and Martin Lorentzon as a way to deal with the problem of music piracy.

If you have never heard of Spotify. Spotify is a music streaming platform that gives users access to a large catalog of music. It uses a freemium revenue model that offers a basic, limited, ad-supported service for free and an unlimited premium service for a subscription fee.

When look at Spotify’s user growth over the last 4 years you see that Spotify has done an amazing job at consistently growing their platform year on year.

(Credit: Music Row)

There are many reasons why Spotify has been leading the pack for so many years. From their subscription model (which Apple Music quickly copied), their ability to pivot and adapt the platform as times change and of course their talented marketing plays that consistently go viral.

If I tried to breakdown all of Spotify’s marketing over the last 5 years; I would be writing a book rather than an article. So, in this breakdown I’m going to focus on their recent marketing strategy. Which involves Spotify identifying the fact audiences are assets and handpicking certain artists and bringing their content exclusively to Spotify.

Breaking Down The Strategy

In May 2020, Spotify shocked the world when it was announced that they had signed one of the world's most popular podcasts, "The Joe Rogan Experience," for a multi-year exclusive licensing deal. The Wall Street Journal reported the deal was worth more than $100 million.

On announcement, many people had varying thoughts on the topic…

Some were furious at the fact their favorite podcast would no longer be on their preferred platform and nearly everyone questioned the huge figure involved in the deal.

What they didn’t understand though, was that Spotify paid $100 million for an asset, an audience… of 11 million weekly listeners.

(Photo Credit: Market Watch)

Now, this might not seem like the deal of the century to the common eye. You may be right, maybe it’s not the deal of the century. But the value for money Spotify have and will get from this deal, is out of this world. Let me show you.

Firstly, if you’ve never heard of the Joe Rogan Experience; to put it simply it has been one of the biggest podcast’s in the space for 5+ years now. Joe brings some of the craziest guests on the show including: Jack Dorsey, Elon Musk, Kanye West and so many more. To really get a feel for how big the show is: one of the JRE episodes with Elon Musk even pulled in over 44 million unique viewers.

When you begin to compare the numbers between the JRE podcast and mainstream media you begin to realise how great of a deal this was Spotify. For reference as mentioned previously, JRE is estimated to have 11 million weekly listeners. So, let’s take a look at the mainstream media’s viewership.

According to Forbes: FNC’s Tucker Carlson Tonight was the most-watched show in cable news for the quarter, with a total audience of 2.924 million viewers. Out of the top five most-watched shows in cable news, Fox News made up 4 of them with Tucker Carlson Tonight in first place among total viewers (as mentioned), followed by Hannity (2.653 million viewers), The Five (2.632 million viewers), MSNBC’s The Rachel Maddow Show (2.504 million viewers) and FNC’s The Ingraham Angle (2.071 million viewers).

Yes…. The Joe Rogan Experience pulls in over 3.5X the weekly viewers that America’s most-watched cable news show does.

Then, take into account that Fox News has an estimated value of $18.94B (source).

This comparison really shows the huge value for money that Spotify got within this deal. Of course, an argument can be made that Fox News is much more than just their cable news channels. You could also argue that Spotify didn’t acquire JRE and that the deal is simply a multi-year licensing deal.

These arguments would all be true. That, however, does not take away from the fact the JRE/Spotify deal brought 11 million weekly listeners to the platform.

An absolute bargain!

Spotify didn’t stop their licensing deals after their JRE deal though. In fact, bringing JRE to the platform was just one of many deals that Spotify have struck over the last few years. Below is just a short list of the huge podcasts and stars who have signed exclusive podcasting deals with the platform:

  • Call Her Daddy - 3 year deal worth an estimated $60 million.

  • Addison Rae - One of the biggest upcoming influencers.

  • Lele Pons - A huge Latino influencer.

On top of signing separate deals with Barack and Michelle Obama to have their podcasts as Spotify Original’s.

(Photo Credit: HIGHSNOBRIETY)

As you can tell, Spotify went all in their podcast game. But, why would they do this and how are they expected to make a return on these investments?

The question of why they would do this is simple, yet extremely intelligent. Spotify identified the fact that the user experience between Spotify and their biggest competitors was virtually negligible. However, once people had began using a platform they stuck to it. Leaving it virtually impossible for Spotify to lure their competitors users over to their platform. The situation can easily be compared to the Android/Apple debate; they’re all great devices but once you’ve picked a side you’re committed for life.

Spotify knew that all they had to do was break the users habit of going to the other platforms over theirs. So they simply went out and paid to have the content users love only available on Spotify, and all the listeners of those shows moved over to their platform.

So simple! But at what cost?

As previously stated it is clear Spotify went all in on podcasts; especially when you see the money they were throwing around. Was it worth hundreds of millions of dollars to bring those listeners to the platform?

The Motley Fool did a great job of breaking the finances down:

The obvious reason Spotify would sign exclusive deals is that it wants the listeners of these shows to move from other podcast apps to Spotify. It can then make money directly off these programs by getting them on its new advertising platform called the Spotify Audience Network.

For example, let's look at the recent Call Her Daddy deal, which is for three years and $60 million. If the show averages three million listeners a week, at a $50 CPM (the dollar payout per thousand ad impressions, the standard measurement in podcast advertising), that is $150,000 in sales per week, or $7.8 million annually.

This may look low relative to the $20 million Spotify is shelling out to make the show exclusive each year. However, what a lot of investors aren't considering are the indirect benefits of bringing a show like Call Her Daddy to Spotify. For one, if it convinces people to listen to all of their podcasts on Spotify, the potential for advertising revenue is a lot higher than what Spotify is getting from direct listens of that specific show, especially when looking at a multi-year time horizon.

It will also help advertise Spotify's ad-free music subscription, which is where it currently makes the majority of its revenue. The more free users it gets listening to podcasts on the service, the closer they are to paying up for the monthly subscription.

These indirect benefits, while hard to quantify, show how these large exclusive deals can be profitable for Spotify. Investors shouldn't think of them purely as content deals but as customer acquisition tools to get more and more people to listen to podcasts on Spotify and/or subscribe to its paid music tier. 

All in all, this audience acquisition method is one of the best marketing strategies of the last couple of years. It has sent Spotify right to the top of the podcast game and revamped the whole brand. As I write this Spotify currently stands at No.1 in the App Store’s Top Charts - Music Category. A great indicator of their current success.

Why you should bring exclusive content to your business

When you bring anything exclusively to your business you bring the audience that used, viewed or listened to it to your business also.

Of course, not everyone reading this has a streaming business that can bring podcasts or music exclusively to the platform. That doesn’t mean that other products or services can’t be exclusively sold by you.

Example: You own a business that sells sporting goods. You come across a football accessory that you find awesome and think you could sell. You could come to an agreement with the creator of the accessory that he exclusively sells his product through your business.

Not only will you bring all the football accessory brands audience to your website, but you’ll also be able to offer your audience a brand new product.

It’s a win-win!

How you can bring exclusive content/items to your business

Understandably, not every business has millions of dollars to throw at people to bring their content or product to your business. But in some cases you’ll be able to bring people exclusively to your platform without paying them anything at all.

Take the above example of the football accessory brand. Let’s say right now the football accessory brand has a yearly revenue of $50,000 and sells around 3500 units annually.

If you have the audience, you may already know that you can sell 3500 units of his product easily. So you could simply structure the deal something like this:

  • X year deal.

  • Accessory brand owner receives 100% of profit for first 4000 units (of his product) sold per year.

  • Drops to 70% after 4000 sales.

This way the accessory brand owner would be happy because he’ll make the same (if not more) money than last year; without having to worry about marketing his product. You on the other hand would have all his audience come over to your business - think about all the other items they would buy from you. On top of that after 4000 sales you would begin getting a cut of the profits from selling the football accessory.

A deal almost as good as Spotify’s!

Give it a try!

This has been a breakdown of Spotify’s marketing strategy. I hope you have learned something and are able to implement a similar strategy into your business.

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