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Spotify: Dramatically revolutionize podcast advertising (earnings follow-up)

Spotify CEO Daniel Ek

Spotify’s recent earnings report and investor call held to an interesting format. The call was preceded by publication of financial metrics, and the call was devoted to investor Q&A. In our view this is sensible — financials are best examined by looking, not listening, so why repeat them? Also, the Q&A often results in the most interesting part of the call.

Accordingly, Spotify’s call provided a rich record of responses from CEO Daniel Ek and CFO Barry McCarthy about podcasting.

Revolutionizing Podcast Advertising

Spotify’s pre-call letter to investors included a bit about improving podcast advertising solutions for marketers. An investor from Stifel asked for detail around that.

CFO Barry McCarthy, Ek’s on-the-phone partner in this exercise, addressed podcast advertising. It is particularly interesting in reference to an original “ad sourcing technology.”

“Apple, of course, historically been largest player in the podcast space. They don’t have an advertising business, and there’s been no innovation in podcast advertising in its entire history. So ads gets baked into RSS feeds and delivered to all listeners regardless of their interest in the demographic profile and any particular interest in any particular ad. So we’re working hard on building digital ad sourcing technology, and we’ll use that technology to dramatically revolutionize ad experience of podcast group listeners.”

Daniel Ek replied to the question from the perspective of podcasters trying to monetize their shows:

“When it comes to monetization, it is true that a lot of podcasters are struggling and have to set up their own sales forces in order to succeed creating revenue for themselves. We look at that long term as a massive opportunity, and podcasters are eager for us to get into this space. And I think advertisers alike is very eager for us to get into this space with all of the measurability tools and all those things that we’re bringing to the industry.”

The upshot is that Spotify recognizes demand for its participation in podcasting both from podcasters and podcast advertisers. The company’s highly publicized acquisitions of Gimlet, Anchor, and Parcast are about content and creation technology. It seems, from these quotes, that we can look forward to Spotify leveraging its detailed audience profiling to build a presence in podcast buying, targeting, and attribution.

“Best-in-class”

One question asked Daniel Ek to “assess Spotify’s ability to curate and help users find podcasts they will enjoy.” Ek noted that it’s a priority, and said that personalization was a core pillar of Spotify’s strategy across podcasting and music. (He hammered that home a few times during the call.)

“We are working on that and improving quarter-over-quarter, and I think you can see it today in the product compared to last quarter that there’s a tremendous amount of new things that are shipping. I think we went in all honesty from being an okay product at the beginning of 2018 to now a year later being best-in-class in this area.”

If You Build It, They Won’t Necessarily Come

An investor from Raymond James noted the rising competition in podcast distribution, with so many apps in the marketplace. The question was whether that competition affects what Spotify will be willing to pay new podcast talent. Daniel Ek’s response had an “early innings” attitude:

“While it’s not that difficult to build a podcast player, it doesn’t mean it will be successful. And as we’ve seen before on the App Store, it is really a very much a top-of-the-pyramid game where there are few apps that have the majority of the traffic, and we happened to be one of those apps. As we’re looking at building this out, I think it’s way too early to talk about pricing of deals. This is a very, very early market that we’re seeing. And our view obviously is that while users are starting to flock to listen to podcasts, there’s still tremendous amounts of growth both in the U.S. and internationally on the demand side. And on the supply side, we don’t think yet that the best talent has come to the podcast format, and we’re seeing stronger and stronger growth on that side as well.”

 

Brad Hill

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