You should have heard about the Joe Rogan incident by now, regardless of whose podcasts you listen. The Rogan-related Spotify scandal has raged for long enough that it is time to take a step back, evaluate the bigger picture, and try to put together the economic dynamics at play. Let us speak about platforms, publishers, market reactions, and people voting through their agencies are not the same as the Chinese Communist Party this morning.
Recognizing the Spotify conundrum, Spotify was a pioneer in the music streaming industry and has done exceptionally well for itself. As a long-time Spotify user, admirer, and general believer in streaming music, I can attest to this. I believe that music streaming underpriced, in part because Apple can maintain a price ceiling thanks to its hardware-generated wealth, but that is another story.
Streaming music is a commodity industry. As a result, numerous sites offer essentially the same music and charge a similar fee. This is a difficult situation for musicians, as they must choose between not giving their music where their fans have gathered (streaming services) and accepting pricing that many feel to be too cheap for their work (Spotify streaming rates). That is all right. Spotify has a distinct problem that stems from the same roots: music commoditized, thus it has no price power. That is, it cannot charge $15 per month for the identical service that Apple provides for $10 per month.
This means that Spotify’s economics fixed, and that pricing adjustments will not have a significant influence on its gross margins. This has a negative impact on its profitability. As a result, the firm went on a podcasting buying spree, purchasing companies and shows in the hopes of eventually amassing enough unique content to be able to charge more for its service, thus increasing its revenue quality and overall economic profile. This is my interpretation of the issue, and I do not believe I am mistaken.
Spotify spent a lot of money to bring Joe Rogan’s podcast to its platform in what it called a “Exclusive Partnership” as part of this podcasting drive. Spotify’s massive investment in this was a risk that was part of the company’s bigger podcasting strategy and an editorial decision. This is significant since Spotify hosts almost all music without exercising editorial control. As an example, singer Chris Brown, who assaulted Rihanna, is still available on Spotify and Apple Music. Spotify, on the other hand, spent a lot of money to secure Rogan as an exclusive, which is a different option than simply streaming the same music as other, competing sites.
Many people in the Spotify community, both consumers and content providers, felt a number of guests on Rogan’s popular show to be offensive. The latter side made headlines when a few musicians opted to pull their music off Spotify in response to Spotify purchasing podcasting content with which they strongly disapproved for public-health reasons — we are still in the midst of a pandemic, mind you. Spotify was caught in a bind because of this. The company aspires to be a commodity music company as well as an exclusive podcasting company. Instead, its exclusive podcasting strategy was undermining its fundamental value proposition and revenue generator, which was to charge a regular fee for most recorded music.