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Nov. 9, 2020, 2:34 p.m.

Can Spotify be the one to convince people to pay for podcasts?

The Swedish music giant is apparently testing out podcast-only subscription offers. But the market for paid premium podcasts is pointedly unproven.

More than a decade ago, Spotify was the company that began to convince people to pay a monthly subscription for the world’s music. Before that, music was mostly something you owned (on a CD, or in MP3 files on your iPod) or something you stole (on Napster, Limewire, Soulseek, or whatever your P2P platform of choice was). The idea that music was something you rented access to month to month took some time to get used to. But Spotify (and successors like Apple Music) won in the end.

Now: Can it do the same for podcasts?

Spotify is reportedly considering a subscription service just for its podcasts, a segment it’s invested in heavily the past couple of years. It was originally spotted by Variety’s Andrew Wallenstein

The various options being subjected to Qualtricsification range from $2.99 to $7.99 a month. They all involve access to some variety of exclusive content — with or without ads, with or without early access.

Will it work? It’s hard to bet against Spotify, which has played the game very well in its growth from Stockholm startup to 144 million paying subscribers in 92 countries. But there are a number of things that make a podcast subscription service a significantly tougher sell than music was.

You’re competing with free and easy.

Music has been for sale for more than a century, dating back to sheet music and player piano rolls. When Napster & Co. came along, free music was thrilling, but also confusing and unreliable to many. More importantly, music companies were highly motivated to sue P2P file-sharing services into the ground, which they accomplished with Napster and most of its peers. A few high-profile, high-dollar lawsuits against random schmoes who downloaded a samizdat copy of The Bodyguard: Original Soundtrack Album went a long way toward discouraging P2P. So when Steve Jobs and Apple came along with 99-cent downloads — straightforward, legal, tied to the explosive growth of the iPod — the market was ready for it.

Podcasts are different. Podcasts have been free by default for as long as they’ve existed. There are plenty of apps that make the acts of subscribing, downloading, and listening to podcasts straightforward. That’s hard to compete with. Imagine if, when Spotify first launched, there was already a free product that gave you access to all the world’s music — but Spotify said that, for $9.99 a month, you could also get this super-good tier of premium, exclusive music. If the choices are “98% of the world’s music for free” and “100% of the world’s music for $9.99/month,” most people are going to be happy with the free option.

You know who else thought they had content that was awesome enough to get subscribers, despite an endless sea of free competition? Quibi.

Previous attempts haven’t gone too well.

The poster child for paid podcasting is Luminary, which launched to much excitement (and then much annoyance) last spring. It hasn’t taken off: Despite raising at least $130 million from investors, Luminary had only 80,000 paying subscribers one year in, Bloomberg reported.

But others have tried, too. Audible Channels, launched in 2016 and backed by both the might of Amazon and Audible’s audiobook dominance, never got very far. Stitcher Premium has been around for nearly four years and hasn’t set the world on fire. (It was recently bought by SiriusXM, which has its own established paid model.)

Things can change, of course. There wasn’t much of a market for paid digital news until The New York Times put up a paywall, after all, and it took the better part of a decade to really get that business whirring. But at this point, there’s been very little evidence of a market that’s just itching to pay for podcasts.

Podcasts don’t play well with each other in a subscription.

People need to be at least somewhat passionate about a podcast to want to pay for it. They need to think that its absence from their lives would be bad enough to merit 2 or 5 or 10 bucks a month. But those passions are hard to stretch across a broad-based subscription. If Spotify’s premium package includes, say, 40 shows, what share of them is any individual user going to be passionate about? HBO had to establish a reputation for quality and exclusivity — the idea that an “HBO show” was a thing — to get subscribers. Netflix had to have a huge library of existing TV shows and movies that weren’t easily available elsewhere, and then its own catalog of exclusives. A package of premium podcasts is likely to be less coherent editorially than, say, the package of premium stories you get with a subscription to The New York Times.

The subscription model is less congruent with the ad model than in other media formats.

In the digital news business, most smart publishers know not to be too reliant on a single revenue type. If you’re all about advertising, you’re subject to the vagaries of the ad market and constantly worried about attracting new audience. If you’re all about subscriptions, you risk dropping out of the public conversation and making it harder for people to sample your wares.

But news sites can generally pull this off because the two types of revenue come from two different audiences. At most, the majority of pageviews they get — and thus the majority of ad impressions they serve — come from users who click on one or two stories a month. They’re unlikely to be candidates for a subscription, but you can monetize them in this other way. Your subscribers, meanwhile, are your superfans — the 2% or 3% of your uniques who come back all the time and consume dozens or hundreds of stories a month.

What lets these two models coexist? The metered paywall. If you don’t put up a “Subscribe Now!” until someone’s fifth article, you’re letting the grazers be while serving them ads. And you’re identifying your potential superfans — those who hit 5 or 10 or however many articles.

It’s not clear how well that sort of model can work with podcasts. Limiting someone to, say, two premium episodes a month is a higher bar, technologically and in terms of marketing, that a clear free/paid split. And podcast audiences tend to be more loyal than news site readers: They subscribe to individual shows and listen to a large share of the episodes that get delivered to them, which is a level of commitment far greater than clicking a random link on Twitter.

All of that means, I think, that a podcast subscription model would make it very hard to successfully monetize those shows with advertising — which is the way nearly all podcasts are monetized. News sites could work both angles; podcasts will find that tougher.

Spotify, of course, would enter this business with a ton of advantages. It has a massive existing userbase to market to. It already charges more than 100 million credit cards every month. It’s spent a ton of money buying up high-value content, whether that’s The Ringer, Gimlet, or its exclusive distribution deal with The Joe Rogan Show.

Those are all advantages, and betting against Spotify has not typically been a good call over the past decade. But it’s still not clear the market’s there — whether at Spotify’s scale or even something smaller.

POSTED     Nov. 9, 2020, 2:34 p.m.
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