Spotify isn’t making money on podcasts.
At least, not yet.
During its 2022 Investor Day event, the streamer said that last year, the podcast side of its business had a negative gross margin of -57%–meaning it spent 57% more on podcasts than it made from them.
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And for now, those margins aren’t getting better. Per Variety, CFO Paul Vogel said Spotify believes podcasts will lose even more money this year.
However, Spotify added, it doesn’t expect to be stuck in the negatives for much longer. It thinks that within the next five years, podcasts will jump to generating gross margins of between 40% and 50%.
For comparison, the music half of Spotify generated a gross margin of 28.3% in 2021, and Spotify aims to pull that up to 30-35% within the next five years.
So why are podcasts’ profits so dramatically lower, and why does Spotify expect them to surge above those of music?
CEO Daniel Ek told investors that the difference between breaking into music streaming and breaking into podcast streaming has been significant. “[W]e had to do a lot more heavy lifting,” he explained.
By “heavy lifting,” he means spending more than a billion dollars on exclusive content deals (ahem, Joe Rogan) and on buying up companies like Gimlet and Anchor, so Spotify could do podcast production and distribution in-house.
Ek said in February that the $200 million acquisition of Rogan’s podcast (despite it being populated with questionable guests spreading questionable information) was what gave Spotify’s podcast ambitions a foundation—and gave it a chance at competing with other giants looking to enter the space, like Amazon and Google.
That amount of upfront investment is contributing to the negative gross margin. Also in play is the fact that, as Spotify revealed this week, it’s only monetizing 14% of the more than 3 million podcasts on its platform through in-stream ads.
Considering just those 14% of shows have already helped push Spotify to all-time-high record ad sales, it makes sense that the streamer is betting big on podcasts being a major part of its future earnings.
