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Spotify ups its podcast game

February 23, 2021, 9:03 PM UTC

It’s been a busy few years for Spotify’s effort to diversify into podcasting. You’ll recall it was almost exactly two years ago that the music-streaming giant paid $340 million to acquire podcast producer Gimlet Media and podcast authoring service Anchor. At the time, CEO Daniel Ek said “audio — not just music — would be the future of Spotify.” Next came deals for true crime-focused podcast producer Parcast and Bill Simmons’ network, The Ringer. But the biggest stunner came in May when Spotify struck a rumored $100 million exclusive deal to carry comedian Joe Rogan’s podcast. Further deals have come with Kim Kardashian, the Obamas, and Prince Harry and Meghan, The Duchess of Sussex.

Any big tech company can target a new market and make a splash with expensive acquisitions. It doesn’t always equal a successful new business. IBM built up its Watson Health unit through M&A but is now looking to spin it off. Intel has tried to buy its way into security, embedded systems, and A.I. chips with mixed results. And Google, as noted in yesterday’s essay, flopped with phones and disappointed with home automation gear.

So there was a lot riding on Spotify’s strategy and product presentation on Monday, dubbed Stream On. Ek and his team announced an expansion into 85 new countries, unveiled new promotional tools for music artists and labels, and spent plenty of time promoting the podcasting push. They also debuted a new higher-quality (and presumably higher priced) music-streaming option called Spotify HiFi.

Spotify’s bottom line could use some help from podcasting. One challenge from being in the music-streaming business is that customers pay a set subscription fee but the streaming service must pay music rights owners based on the amount of listening. So even as Spotify’s revenue has grown from $6.4 billion in 2018 to $8.2 billion in 2019 to $9.6 billion last year, its net loss has increased even faster, hitting $706 million last year, seven-times higher than in 2018. Still investors are bullish that Ek can find a way to reduce the music rights expenses and find new revenue from avenues like podcasting—Spotify’s stock has more than doubled over the past year.

Podcasting works on a very different business model than music streaming. Spotify pays nothing at all to carry most podcasts, which are produced elsewhere, and generally pays only the fixed costs of production for its in-house podcast programming. Revenue comes from attracting more subscribers and from advertising inserted into its shows.

At Monday’s event, Spotify highlighted some of its most promising new podcasts, including programming developed with DC Comics and a new show with Barack Obama and Bruce Springsteen called Renegades: Born in the USA. The company also explained a new podcast ad sales effort called the Spotify Audience Network and a coming option for podcast producers to create premium podcasts (with Spotify likely taking a cut of the subscription sales).

In an interview with The Verge after the event, Ek addressed the threat from a newer, buzzy startup, the audio chat platform Clubhouse. He pointed out one overlooked reason why it may not challenge podcasts as much as some fear: Clubhouse shows run live and can’t be played on demand. “It’s a really interesting format from a creation perspective, but I suspect that from the consumption perspective, most of the time consumed will still be on-demand which is what Spotify is known for today,” Ek said.

With Amazon, Apple, Google and others battling Spotify for podcasting supremacy, it’s probably a good thing for Ek that Clubhouse has remained so limited—at least for now.

Aaron Pressman
@ampressman
aaron.pressman@fortune.com

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(Some of these stories require a subscription to access.Thank you for supporting our journalism.)

BEFORE YOU GO

Yesterday NASA released footage of its Perseverance rover landing on Mars, a first-of-its-kind video recording that you can watch here. The space agency also released first-ever audio recordings taken on the Martian surface. If you listen closely, you can hear a gust of wind roll across the rock-strewn regolith, like a Buddhist's Om.

Will our descendants one day hear a Martian breeze with their own ears?