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Why Spotify Is Still Sprinting for Maximum Market Share

Spotify's podcasting push has helped the streaming company accelerate its user growth. Will other services follow?

At 12 years old, and 23 months after going public, Spotify is still acting more like a venture capital-funded startup than a company traded on the New York Stock Exchange.

From one point of view, Spotify is presciently building for the future, embracing podcasts and shifting its identity from music to audio in general. But from another vantage, Spotify is running for its life — because it has to.

Key Takeaways:

1. The race is on: Spotify and other streaming services face an enormous addressable market in the next five years. The music subscription market alone will grow from about $8.9 billion in 2019 to $17.3 billion by 2024.

2. The pace is quickening: Spotify’s average monthly users have grown at a faster pace over the last three quarters (26% sequential growth in Q2 2019, 30% in Q3 and 31% in Q4), an impressive run for a 12-year-old company facing stiff competition.

3. The plot is thickening: Music services are quickly adding podcasts and retooling themselves as audio companies.

In a race for market domination, Spotify is “blitzscaling,” a term coined by Reid Hoffman, founder of LinkedIn and partner at venture capital firm Greylock Partners, that typically applies to young startups, not global companies with $7.4 billion in annual revenue. But Spotify isn’t acting its age. Instead, Spotify is hiring talent, making acquisitions and “focused on its goal of being the world’s No. 1 audio platform,” as CEO Daniel Ek said in a Feb. 5, 2019, earnings call.

A fast-growing company burns through capital “because the first to reach customers may own them” and take “a winner-takes-most position,” Hoffman told the Harvard Business Review in 2016. In PayPal’s earliest days, recalled Hoffman, to maintain a breakneck pace, the company would rather hire people quickly than hire the right person. Not that Spotify doesn’t make thoughtful decisions. Its operating loss has improved to just 1% of revenue as income rises, But it is hiring talent — there’s an open position for a global head of business affairs for podcasts — and expanding like it’s a category killer flush with fresh venture capital.


Like David successfully fighting two Goliaths, Spotify is racing ahead of Apple and Amazon in a frenzied land grab. Apple Music has quickly gained 61 million subscribers since launching in 2015. Amazon has roughly 55 million subscribers across its three paid tiers, a 16 million increase in 2019, MiDIA Research estimates. But while both companies are lagging behind Spotify, Apple’s iPhone and Amazon’s Echo smart speaker give them advantages over a standalone company without complementary hardware — and deep pockets. No wonder Spotify is trying to build a lead.

In the winners-take-most streaming business, a few lucky companies will command the bulk of $21.9 billion in 2024, with 75-80% of revenue coming from subscriptions, assuming a 15% cumulative annual growth rate, Billboard estimates. Growth hasn’t been a problem: for the past five years, U.S. paid subscription revenues have grown between $1 billion to $1.3 billion annually, reaching $5.93 billion in 2019. Ad-supported streaming revenues, through uneven spurts, grew from $372 million $908 million in five years, according to new RIAA figures.

The question is, which companies get what shares? Winner-take-most markets abound in cloud-based services. Google has a 92.5% global search engine share, according to Statcounter. Google and Apple command 77% of email client market share, says Litmus Email Analytics. Video streaming appears to be a better parallel, though. Netflix, still the market leader, has ceded share to its followers, Hulu, Amazon Prime and HBO Now. Then last year, Apple launched its TV service, Apple TV+, while NBCUniversal preps its entrant, Peacock, and AT&T WarnerMedia readies HBO Max. The difference is overlap: most consumers will subscribe to multiple video services but just one music service.


In 2018, when Spotify filed with the SEC for a public stock sale, the S-1 filing revealed its long-term vision: “Music has just been the beginning. We’re an audio first platform,’” Ek said in a note to investors. Spotify has dabbled in video, but Ek’s statement revealed the importance of another audio format — the podcast.

Podcasting is the next front in the battle for subscribers, listeners and ad dollars. Here, Spotify competes against podcast networks, broadcast radio and Apple for a global podcast ad market growing 26% each year to about $2.6 billion by 2024, according to Deloitte. That’s good money for companies that own podcasts like Spotify and iHeartMedia, rather than those that simply stream them like Deezer and Amazon. Apple, slow to leverage its popular podcast app, is taking podcasts seriously, too, having hired podcast producer Emily Ochsenschlager, ex-NPR and National Geographic, to help build a slate of original podcasts.

For streaming services fighting for consumers’ listening time, podcasts are a route to longer listening and more subscribers. Helped by original content and more discovery tools, such as personalized podcast recommendations, Spotify’s podcast listening in the fourth quarter of 2019 increased 200% year-over-year and reached 16% of Spotify’s total monthly users, the company said. Not only did user growth accelerate in the last three quarters of 2019, Spotify has added more new subscribers each of the last four years: from 20 million new subscriptions in 2016 to 29 million last year. In an investor note following Spotify’s Feb. 5 earnings release, analysts at RBC Capital Markets said subscriber growth is proof the “wise” podcast investments have helped boost listener and subscriber counts.

Podcasts can also give margin relief to music services that owe about 70% of subscription revenue to music rights holders. (Will some revenue be off limits when podcasts are responsible for subscription revenue growth? For example, SiriusXM pays music rights holders a percentage of only music-related income by carving out revenue attributed to non-music programming like news and talk shows.) Spotify’s advertising, necessary for the free service that drives subscriber acquisition, was $745 million in 2019, just 10% of total revenue. But podcasts won’t pay royalties to music rights holders. Instead, Spotify sells ads for its original podcasts. To that end, on Jan. 7 Spotify unveiled new technology to improve how ads are bought and inserted into podcasts.

But growth isn’t cheap. Each year, Spotify has spent more in sales and marketing for each new subscriber, from $20 in 2016 to $32.40 in 2019. Podcast-related acquisitions will cost Spotify between $535 million and $608 million at current exchange rates. Ek also attributed the growth spurt to product improvements such as Daily Drive, a personalized playlist of music and podcasts meant for morning commutes. With podcasts, people listen longer and are more likely to become subscribers — a huge average revenue per user (ARPU) bump.


Spotify’s purchase of The Ringer, producer of The Bill Simmons Podcast and other franchises, for between $143 million and $215 million could be a game changer. The Ringer comes with a bankable personality in Simmons and an emphasis on sports, “one of the most-consumed genres of podcasts,” James Cridland, editor of Podnews, told Billboard. “The Ringer has done a great job with sports content, turning it into daily podcasts that monetize well and keep audiences listening.”

Along with Gimlet Media and Parcast, Spotify has arguably the best stable of original programming outside of NPR. In addition to sports, pop culture and tech, Spotify has the sort of true crime podcasts — such as Crimetown — that appeal to women, said Cridland, “and is one of the reasons podcasting audiences now broadly reflect the U.S population.”

The company to watch in the podcast space is iHeartMedia. The largest broadcast radio company in the U.S., iHeartMedia has the second-largest podcast audience in the U.S., according to Podtrac, and popular franchises such as Disgraceland, a mix of music and true crime, and Stuff You Should Know. Its enthusiasm for podcasts extends to its broadcast radio stations. Three broadcast radio stations — in Albuquerque, New Mexico; Erie, Pennsylvania; and Allentown-Bethlehem, Pennsylvania — have an all-podcast format, and 270 stations air iHeartMedia podcasts on Sundays.

So many podcasts now exist that pundits have wondered if the market has reached its peak podcast level. Companies are blitzscaling their podcast portfolios, while producers churn out episodes in hopes that a few shows will resonate with listeners. Even iHeartMedia chairman and CEO Bob Pittman has a podcast. That’s something not even Spotify’s Ek has… yet?