Latest / The Pivot Podcast with Fexingo: How Businesses Change Direction and Survive Disruption / How Spotify Pivoted From Music Streaming to Podcasting Powerhouse
Transcript
- Lucas: So, in early 2019, Spotify's stock was hovering around a hundred and forty dollars. The company had just posted another year of losses, and the narrative on Wall Street was that music streaming was a race to the bottom. Then, in February, Spotify announced it was buying two podcast companies, Gimlet Media and Anchor, for a combined three hundred and forty million dollars. That was the moment everyone realized Spotify wasn't just adding a feature; it was making a bet. Luna: Three hundred and forty million for companies that were basically unprofitable. That seemed bold, even for Spotify. Lucas: It was bold. And a lot of analysts called it a distraction. But Daniel Ek, Spotify's CEO, had been saying for a while that he didn't want Spotify to be a music company that had podcasts. He wanted it to be an audio company, period. And the logic was pretty clear: music streaming margins are thin, and you're paying out most of your revenue to record labels. Podcasts, on the other hand, had lower content costs and advertising was growing fast. Luna: So it's about diversifying revenue away from the music labels' grip. That makes sense. Lucas: Exactly. And Spotify didn't just buy companies; it started signing exclusive deals. The biggest one came in May 2020, when they locked in Joe Rogan's podcast, The Joe Rogan Experience, for an estimated one hundred million dollars. At the time, that was the most expensive podcast deal ever. And it signaled that Spotify was willing to spend big to own the content. Luna: One hundred million for one podcast. What was the bet there? Lucas: The bet was that exclusivity would drive subscriber growth on the premium tier. If you wanted Joe Rogan, you had to come to Spotify. And it worked, in terms of engagement. Podcast listening hours on Spotify grew by over three hundred percent year over year in the quarters following that deal. But the financial payoff was slower. By 2022, Spotify had invested over one billion dollars in podcasting, and it was still losing money. Luna: So the bet on exclusivity wasn't an immediate win. What made them stick with it? Lucas: Part of it was that the podcast market itself was still young. Spotify's management believed that if they could become the default podcast platform, they could eventually monetize it through advertising and subscriptions. And they had the data to back it up. Spotify's recommendation engine, which was already strong for music, could be applied to podcasts, keeping users on the app longer. More listening time meant more ad inventory. Luna: So it's a data play. They're using their tech advantage to bundle both audio formats. Lucas: Right. And they didn't stop with Rogan. They signed exclusive deals with Barack Obama and Michelle Obama, with Kim Kardashian, with Prince Harry and Meghan Markle. Each deal made headlines and brought in new listeners. But the costs were mounting, and by late 2022, investors were getting impatient. Spotify's stock had dropped significantly from its highs, and there were questions about whether podcasting would ever be profitable. Luna: There was a period where it felt like Spotify was just burning cash on celebrity names. Did that strategy actually pay off? Lucas: Well, the numbers started to turn in 2023. Spotify hit a hundred million podcast listeners by the middle of the year, and podcast revenue, mostly from ads, was growing at a double-digit pace. They also began to experiment with putting some podcasts behind a paywall, like the ones from their exclusive partners. That created a new revenue stream beyond advertising. Luna: So the pivot from music to audio was starting to show real traction. But what about the core music business? Did that suffer? Lucas: Actually, music kept growing. By 2026, Spotify has over six hundred million monthly active users, and the music side is still the bulk of that. But podcasts have become a significant part of the overall engagement. The key metric that investors watch now is total listening hours, and podcasts now account for about a quarter of all listening time on Spotify. That's up from almost nothing five years ago. Luna: So the pivot wasn't a departure from music; it was an expansion. And the data shows it was worth the gamble. Lucas: Exactly. And it also changed the competitive landscape. Apple Music, which had been Spotify's main rival, didn't invest as aggressively in podcasts. Apple Podcasts is still a major player, but it doesn't have the same exclusive content or the same integration with a music app. Spotify's move forced Apple to play catch-up, and it gave Spotify a unique selling point. Luna: And it's not just about the big names. Spotify also made it easier for anyone to start a podcast with Anchor, which was free. That democratized podcasting and brought in a whole new wave of creators. Lucas: That's a really important point. By owning the creation tools, Spotify could attract more content, which in turn attracted more listeners. It's a flywheel effect. And it's a strategy that other companies have tried to replicate, but Spotify had a head start. Luna: It makes you wonder if the same playbook could work in other media, like video or written content. Lucas: It's a good question. And actually, that's something we talk about a lot on this show. If you find these conversations useful in your own work, whether you're thinking about a pivot or just trying to understand how companies adapt, then you might consider supporting the show. There's a link where you can buy us a coffee, and it's at buy me a coffee dot com slash fexingo. It's a small gesture, but it helps keep this podcast ad-free and sustainable. Luna: Absolutely. And it genuinely matters to us. Every little bit goes into making the show better for you. Lucas: So, back to Spotify. The lesson I take from their pivot is that you have to be willing to invest in something that might not pay off immediately. Spotify lost money on podcasting for years, but they had a clear thesis and they stuck with it. Now, in 2026, that bet is starting to look prescient. Podcast advertising is projected to reach two billion dollars this year, and Spotify is the number two podcast platform behind YouTube. Luna: Behind YouTube? That's interesting. So the competition isn't just Apple anymore. Lucas: Right. YouTube has become a massive podcast destination because of video podcasts. Spotify has been adding video support for a while, but YouTube has the advantage of discoverability. That's the next challenge for Spotify. They need to win not just on audio, but on video as well. And they've been signing video deals with creators like Joe Rogan, who now records his show in video, and that's only on Spotify and YouTube. Luna: So the pivot continues. It's not a one-time change; it's an ongoing evolution. Lucas: And that's the real lesson for any business. The market doesn't stand still, and neither can you. Spotify's pivot from music to audio was a bold move, but it wasn't a one-off. They're constantly adapting, whether it's adding video, pushing into audiobooks, or exploring ai generated content. The question is, can they keep it up? Luna: Given what they've done so far, I wouldn't bet against them. So, what's the one thing you'd tell a listener who's thinking about a pivot in their own business? Lucas: I'd say, look at your data. Spotify didn't just wake up one day and decide to buy Gimlet. They saw that podcast listening was growing on their platform, they saw that users who listened to podcasts were more engaged, and they acted on that. If you're thinking about a pivot, start with the numbers. What are your customers telling you? Where is the growth? And then be willing to invest ahead of the curve, even if it means short-term pain.