Spotify’s $1B Podcast Bet: Mistakes & Learnings

September 8, 2023 by  Chris Erwin

RockWater Roundup

RockWater analysis to make you a better investor and operator. Today we discuss Spotify’s 1 billion dollar podcast bet, what went wrong, and how the podcast industry can be better going forward.

Spotify’s $1B Podcast Bet: Mistakes + Learnings

by Chris Erwin


Spotify made a $1 billion bet on podcasts. ROI is NOT good.

But that doesn’t mean podcasts are a bad investment. Let’s break it down…

Good ROI comes from investing the right amount, at the right price, in the right direction, at the right time.

Spotify got the timing right. But based on current market data, they got everything else wrong.

They overspent, from both a unit economics POV, as well as relative to industry size → 8-figure talent deals, 6-figure show costs, and frothy prices for acquisitions (sometimes > 10x revenue).

A massive 9-figure overall podcasting bet.

Now, the US podcast market is attractive. 2023E revenue is $2.3 billion, up 25% YoY, and is forecast to be $5B by 2025.

But Spotify’s outsized bet didn’t match the market. Further, as an audio incumbent, Spotify influenced peer operator playbooks.

And so, some bad industry behavior resulted…

  • High-cost content slates

  • Gimmicky UX investments

  • Inflated talent / show deals, MGs

  • More focus on show VS audience development

  • Lack of investment in advertiser-based businesses

  • Undisciplined P&L mgmt: bad unit economics, no path to profitability

Instead, based on current market data, what is more likely to work…

  • Lower content slate costs, higher output volume

  • Aligned talent & biz incentives (cost recoupment, then rev share)

  • Focus on audience building (smart mktg, broader distro)

  • Deeply understand fandoms, monetize in new ways via fan delight

  • Bottom-line focus. Rightsize team, cost-cutting

Hindsight is always 20/20. I thus have no intent to demonize Spotify.

Smart people on their team looked at a lot of audio data (incl the multi-billion radio market), and made some assumptions. And then took initiative.

I respect that A LOT.

But good investors and builders are also keen industry observers. We now have new market data to inform which strategies are more likely to work going forward.

So it’s time to use what we’ve learned, and build better.

Podcasts have many market tailwinds. Good times are ahead.

…welcome back from August holiday, onward!

If these insights are relevant to projects you’re working on, ping us here. We love talking all things media x commerce!

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