What happened after that acquisition was a lot of bureaucracy that we weren't used to, a lot of having to defend the decisions that we wanted to make. Everything took way longer to get done. We became part of a company which is ultimately there to make money, but we were still in the middle of coming up with creative ideas. So, it just changed — it changed the morale, it changed our priorities.
— Me, in conversation with Sam Sethi on an episode of Podnews Weekly Review
In 1998, the “dot-com” startup I worked for was acquired by Microsoft for an exorbitant sum (this issue’s Big Reveal is that I’m older than you). After an initial honeymoon period, it became clear that executives at the software giant didn’t know WTF to do with us. Directives from on high kept changing, morale plummeted, and the founders left.Meanwhile, we watched as legacy companies and venture capitalists continued to sink outrageous amounts of money into any company with “dot-com” at the end of its name (revenue be damned), fueling a bubble that inevitably burst, causing the shuttering of hundreds of businesses and widespread layoffs, and contributing to an economic recession. By that time, most of my (demoralized) colleagues and I had quit, and much of what we had created was gone.
Last fall, in conversation with Podnews Weekly Review co-host Sam Sethi, I explained that the experience had made me a skeptic of Spotify’s exuberant dealmaking in the podcasting space. Here’s more from our conversation:
Sam: I looked at Spotify and their acquisition trail, and they've got Megaphone, The Ringer, Gimlet, Anchor, Podsights, Chartable, the list goes on. And yet they all seem to have been — maybe it's just my perception — but they've all seemed to have been lost in the bigger company. I don't know whether we’re repeating history in the podcasting industry, but it feels very “same-y” to the early days of the Internet.
Skye: It's hard to know, without being part of these companies and hearing from those people, what these acquisitions have meant for them from a creative standpoint. But from the outside, it certainly looks like a number of these companies have been acquired to position Spotify on the map as a player in podcasting versus acquiring companies so that they can have the capital and the resources that they need to continue to build incredible content. Has making all of these acquisitions actually advanced our industry, or has it been just a press release for a big company that wants to be seen as a big player in podcasting? I don't know the answer, but it does feel similar to what I saw happen with the tech acquisitions of the nineties and two thousands.
Weirdly, the day after Sam and I recorded this conversation, Spotify announced the cancelation of eleven shows, and layoffs at Gimlet and Parcast. Within 48 hours of wondering how employees had felt about the acquisitions, I was finding out, as I interviewed them for the following week’s issue. I have a lot of empathy for the people I spoke with that week — and over the last few weeks, I’ve continued to fret over everyone affected by the latest rounds of (industry-wide) layoffs, shutterings, and budget cuts. Losing your job sucks, and staying at a job where morale is low, your colleagues are gone, and you’re now expected to do more with less (or “less with less”) sucks, too.
Sadly, though — just as it was in the 90s — this was inevitable.
Last summer Spotify told investors that its investments of $1 billion on podcasting had brought in $215 million in revenue. A flurry of headlines hinted at what was to come. In a piece from Bloomberg titled“Spotify's billion-dollar bet on podcasting has yet to pay off,” reporter Lucas Shaw wrote that while Spotify might become the market leader thanks to “brute force,” it had “built a multibillion-dollar subscription business without turning a profit.”
What goes up must come down. It’s not that deep.
However, Daniel Ek’s decision-making along the way has been somewhat puzzling.
In an October 2019 episode of Gimlet Media’s StartUp titled “Our Company Has Problems,” CEO Alex Blumberg is informed by a colleague that listenership is flatlining, and some shows are selling less than 20% of available ad inventory. In the following scene, Alex moans to his wife that “half of the business is working and the other half isn’t.” By the end of the series, the listener has been led to believe that without an acquisition, Gimlet might not have survived. (This week, Semafor reporter Max Tani appeared to confirm this, writing “Spotify had saved the podcast production company, which had been seeking a buyer.”)
Did Daniel Ek understand the position Gimlet was in? That it needed to be “saved”? If so, perhaps that $230 million price tag should have been more thoroughly interrogated. Or perhaps Gimlet should have been given more resources and support post-acquisition.
That said, overspending on media shops appears to have been only one of a number of strategic errors made by the company. Spotify’s decision to double-down on celebrities hasn’t turned out as well as expected, and the company’s decision to limit the vast majority of its podcast content to its own platform has certainly left advertising dollars on the table. (Interestingly, Ek didn’t limit The Ringer’s reach, and two days ago Edison announced that its flagship show The Bill Simmons Podcast earned the highest number of U.S. podcast listeners among sports listeners in the third and fourth quarters of 2022.)
Widespread fears over a global recession has given the mistakes of Daniel Ek and his team some amount of cover, but make no mistake, what we’re seeing at Spotify is a result of the irrational exuberance and grave mistakes of a powerful few. As Tani put it in his article, “Spotify was a one-company podcast bubble.”
So — is Ek a man out of his depth? Does he understand the ramifications of his decisions? The CEO did nothing to convince me otherwise during his January earnings call in which he “apologized” for his shopping spree by saying “I got carried away.”
He got carried away!
Lost in the moment!
Seduced by fairies!
Whisked into a whirl!
Sadly, one man’s “I got carried away” is another man’s “I have no job.”
But wait —
Before we all start crying, I see three bright spots:
First, in a prediction published in Nieman Labs, Jenna Weiss-Berman wrote:
We will have to make deals that are sensible for all parties involved, and the players who tend to have dumb money to throw around will have a lot less of it. I think 2023 could be a very equalizing time in the podcast dealmaking space, a time where we think realistically and intelligently about the return on investment in the deals we make.
She’s right. The disastrous dot-com meltdown of the 90s made room for new entrepreneurs with better ideas, backed by smarter money, to step forward (granted, there were exceptions). Let’s hope the same thing happens here.
Second, the carnage of the last few months makes the case for staying independent stronger than ever before. In fact, what I’m hearing from indie creators & proprietors is that they’re doing just fine, thank you very much. They point out that they’re not beholden to the whims of the power-hungry, and their niche audiences are engaged and loyal.
Indie podcasters would probably appreciate what “Mark R. from Long Island, NY” had to say in the comments section of Reggie Ugwu’s piece for The New York Times this week, “Podcast Companies, Once Walking on Air, Feel the Strain of Gravity”:
Advertisers have to realize that they can make a LOT of money if they pay attention to the niche podcasts who have an audience who self-select for what they're selling. The current star-power/advertising model being applied to podcasting is ripe for disruption, and hopefully after this shake-out the industry will find another way to survive and that money will find wider distribution among smaller podcasts.
And third, after multiple shakedowns and cancelations at Spotify, RSS feeds are looking better than ever — but it’s up to independent creators to keep them strong. In early 2020, I visited OG podcaster Leo Laporte’s studio and we discussed this very thing. Given what’s at stake, his words feel even more urgent now than they did then —
Are you familiar with The Dawn and Drew Show? They were a couple in a farmhouse in the Midwest who started a podcast in 2004. Their setup was much like the setup we're using right now. They had TV trays, and they put their microphones on hangers and they would just talk. They had no background in it, but to me, it was an important show because it was just about the people, the connection.
Over the last 15+ years, podcasting has been able to support a lot of people like Dawn and Drew with a decent income. I talk to people all the time who say hey, I'm now a professional podcaster — but that could change.
I think we're gonna see another shakeout.
It's going to be the same thing that happened in blogging. In the early days of blogging, it was possible for many people to make a little money with like, Google ads. What happened was a shakeout, a conglomeration. It basically split it into professional blogs — like The Verge and Engadget — and hobbyist blogs that didn't make much money or any money at all.
In podcasting, it’s starting with Spotify, as they acquire podcast networks for vast sums. The idea that Gimlet is worth $230 million or that The Ringer is worth $170 million is mind-boggling! And they aren't worth that much. I know because we have similar revenue and so I know it's a ridiculous multiplier of revenue.
It only makes sense if you understand Spotify's long-term strategy: to move podcasting away from RSS feeds, which are hard to monetize, to something that exists only on the Spotify platform, which is easy to monetize. If every podcast has to be listened to on Spotify, then Spotify knows exactly who's listening, and how much they've listened. They know the demographics; they have your credit card number; they know everything about you. And then they can go to advertisers and say — like Facebook and Google do today — what would you like? We can slice it and dice it. Advertisers want that; they desperately want that.
It's the same reason web or ad tech has taken over on blogs on the Internet. But it's been a terrible thing, hasn't it? On blogs, it's created this war with ad blockers and anti-ad blockers and so forth. And I think the same thing is about to happen.
I do have high hopes that it won't happen — that there are enough podcasters like me who will say, no, it really needs to be RSS so people can get it anywhere, anytime. It can be on your Amazon Echo, it can be on your phone, it can be on your computer, it can be anywhere you want it. My fear is that advertisers are going to say, well, if you can't give us what Spotify can give us, then the heck with you.
And you hate to admit it, but the content that you get is somewhat driven by the needs of the advertisers, not by the needs of the audience.
Let me give you an example. The reason true crime succeeds is that the end of every episode is a cliffhanger, right? It keeps you listening. So one of the reasons there are so many true crime podcasts is because they drive traffic better. We had an interview podcast, much like [Inside Podcasting]. The problem with an interview podcast is people pick and choose which episodes to listen to. Take Fresh Air — one of the best interview shows of all time. But you don't listen to every episode; no one does. You listen to the ones you're interested in. That's fine on public radio, but it's not good for advertising. You're only getting one-fifth of the downloads, even though you're beloved. We had an interview show [Triangulation], and we realized this is what's happening. My guess is that we had 100,000 to 120,00 regular listeners, but no individual show had more than 20,000 or 30,000 downloads because nobody listened to every show.
I bring that up not to bemoan what happened to Triangulation, but to point out that ratings and advertising drive the type of content you hear. So this is why I'm unhappy about what Spotify is trying to do. It won't be just Spotify. Eventually, there will be three or four companies that own all podcasts, and it will very dramatically change the kind of stuff you listen to. The Dawn and Drew Show does not exist in that world unless Dawn and Drew are willing to do it for free.
People will do it because they love it. But they're not making money on it. And then there will be commercial podcasts. But what I love is the great middle, right? Where independent podcasters can make money doing something they love.
That’s all for me this week! Have a good weekend,
Post Script: When I visited Leo, I was astounded at his collection of hats; he had over a hundred of them, hung up on the wall. After choosing a couple, we took a selfie.
For more from Leo, check out his recent interview on Podnews Weekly Review.
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The experience was so demoralizing that one of our founders, the late Tony Hsieh, made “delivering happiness” a company mantra at his next big venture, Zappos.
Great read, I attributed what I was seeing with Spotify, and other acquisitions in the industry to the dot-com bubble. Glad to know I wasn't the only one to see it.
This is an older post but im curious - i thought I had read somewhere that with podcasts if you were subscribed to them then they go the downloads automatically, and it didnt matter to them if i listen to an episode or