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the exclusivity tradeoff

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Today’s memo is about exclusive audio. Spotify’s recent layoffs have called its podcasting strategy into question, but exclusive audio strategies have struggled well before Spotify’s recent push. Let’s dive in.

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why exclusive audio strategies often struggle

It’s been a rough few years for exclusive audio content.

It wasn’t that long ago when we had to subscribe to multiple music streaming services to hear both Drake’s Views and Beyonce’s Lemonade. That didn’t last long, but that same energy transitioned into podcasting. Startups like Luminary couldn’t make “Netflix for podcasting” happen and big companies like Spotify have yet to convince Wall Street that its podcast strategy is the answer.

This is because exclusive audio has been a mixed bag. There are some long-term success stories, like Howard Stern’s deal with Sirius XM, but that says more about the company’s longstanding partnership with car companies than it does the business model. In audio streaming, the short-term user growth gained from exclusives doesn’t always lead to lifetime value. Similar challenges exist across audio platforms and mediums, and they’re all connected.

the perception of audio as a “utility”

One of music’s strengths is its abundance. People want to hear music on the radio, at the club, at the supermarket, during workouts, on their devices, and more. Its passive consumption nature has led to more licensing deals, which drives revenue back to the rights holders. But in the post-Napster era, music’s abundance has unfortunately led many to see it as a utility. Users want access to every song at their fingertips, which Spotify and its competitors have largely made possible.

But this “utility” mindset made it hard for consumers to justify multiple paid subscriptions to Apple Music, Tidal, and Spotify. Even if Universal Music Group CEO Lucian Grainge didn’t ban exclusives for signed artists, the strategy has plenty of cracks.

A lot of music consumption happens while multitasking. Most users don’t want to switch platforms between podcast episodes, let alone a four-minute song. Switching breaks the concept of playlisting, which is how a lot of streaming music gets consumed today.

Former Apple Music execs like Jimmy Iovine often compared music streaming exclusives to video streaming, but it’s easier for consumers to justify paying for multiple video services. We watch shows while sitting on our couch for extended periods of time. It’s an active experience, and switching platforms is less frequent. The friction of consuming high-quality video content also increases the willingness to pay for multiple services. Sure, we may see a clip of Succession on YouTube or in a TikTok video, but we can’t watch it (legally) from start to finish without access to HBO.

the low-entry barriers to producing high-quality content

Songs and podcasts have similarities. But the low barriers to entry for podcasting made it harder for exclusive premium podcasts to stand out over free alternatives that are ad-supported and widely distributed.

This is one of many reasons why Luminary’s $8 per-month premium podcast network never took off. Its “no ads” proposition was a nice feature, but consumers cared more about content, and there were plenty of other options. If I wanted to hear Guy Raz, I didn’t need to pay for Luminary to hear his exclusive show. I could still hear him on How I Built This. If my favorite sports podcasters went behind a paywall, there are several other free alternatives on that same topic.

Plus, the barriers to producing high-quality content are higher in video than podcasting. Only a handful of networks can pull off a 10-episode show with a $10+ million per episode budget. A successful YouTube channel can more easily disrupt a cheap show on a forgotten cable channel, but it’s harder to disrupt Euphoria. Even a great lower-budget hit like South Side still requires capital and access to gatekeepers to pull off. Meanwhile, it only takes a few thousand dollars for a podcaster to replicate the production setup that Joe Rogan has.

exclusives offer money, but podcasters (and artists) want reach

Speaking of Rogan, his exclusive licensing deal with Spotify has been one of the company’s bigger bets in podcasting. The Joe Rogan Experience has boosted Spotify subscribers while limiting his impact. Several studios like Gimlet took big checks in exchange for Spotify exclusivity, which led some of its shows to lose up to 75% of their listeners. Gimlet’s complaints are a flashback to Lady Gaga, who once said that if her music ever went exclusive on a streaming service, she would leak it.

Spotify has dealt with its own tradeoff on podcasting. Under former chief content officer Dawn Ostroff, the company became the most-listened podcast player in the U.S., but the revenue from that has lagged behind and at a much slower pace than its board and investors would prefer. It led to Dawn’s departure and an inevitable strategy shift.

Unsurprisingly, Spotify’s best podcast deal may be the one with the least exclusive terms, The Ringer, which has likely generated more ad revenue for Spotify than other deals. Most of The Ringer’s flagship podcasts have been widely available on all platforms. The Ringer has launched several new shows as Spotify exclusives, but those are fewer and farther between.

exclusives still work in niches

Even though mainstream audio exclusives have struggled, there are still success stories in music and podcasting. Anghami, a Middle Eastern music streaming service, has signed Arab music star Amr Diab to an exclusive licensing deal. As local language music continues to rise in the streaming era, we may see more wins from digital streaming providers that aren’t based in the western world.

In podcasting, paid products have found value in the right circles. Ben Thompson’s Stratechery has evolved into a paid podcast network, which was tied to his subscription-based media business. And despite the polarizing narratives on web3 music, there are many artists who have sold exclusive access to their music to diehard fans who want to collect their NFTs, hear their music, and are willing to pay for it.

These paid exclusives may not live at the scale that Spotify, Tidal, Apple Music, and others wished for, but they highlight that the mass consumer value proposition for exclusive audio was overstated.

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