The launch of Spotify’s Soundtrap for Storytellers, a cloud-based podcast creation tool. Spotify has committed to spending $500m to make itself the biggest player in the sector © Noam Galai/Getty

Former child actor Renay Richardson was ready to quit show business and start a vegan café. Then she fell into podcasting, taking a chance on a job at an unknown start-up Acast in 2014. She was its first employee in London. 

“When I got into podcasting I realised the industry was very sluggish,” she said. “I would go around and have meetings . . . and I would say, ‘the sharks need to come’ . . . someone [had] to come in and splash up and eat a couple of guys in order for us all to really raise our game.”

The sharks arrived last February when Spotify founder Daniel Ek announced that his company was no longer just a music streaming service but aspired to be the source for all things audio.

Staking its flag in the ground, it committed to spending $500m to make itself the biggest in the podcasting business, a title long held by Apple. 

Chart showing advertisers are spending more on podcasts, US podcast ad spending ($m) and % change

Once a nerdy niche industry populated by talk radio hosts, podcasting has become something everyone wants to get into, with big tech companies and record labels pouring hundreds of millions into landing the next big audio show.

Investors have certainly welcomed Spotify’s strategy. Its share price has risen 72 per cent since that announcement last year as the company has bought up businesses such as Parcast and unveiled podcast deals with the likes of Michelle Obama and Kim Kardashian. 

Apple and Amazon have also taken notice. Apple bought ScoutFM, a podcast “curation” app, and is reportedly looking to produce its own original podcasts. Amazon in September added podcasts to its music services, promoting popular shows such as Planet Money and Radiolab. Apple remains the biggest distributor of podcasts in the US through its Podcasts app.

RadioLab’s Jad Abumrad, Lulu Miller and Latif Nasser. Amazon has added podcasts to its music services, promoting popular shows such as Radiolab

“It’s like the streaming wars but in audio,” said the chief executive of a podcasting company. “The only difference is Spotify has realised it’s a war, whereas the others are just now waking up.

“You will end up with these big platforms with their own exclusive shows, and subscriptions [as a business model], which is what has happened in every form of media.”

But even the companies ploughing headfirst into the industry would admit that the money at stake is not huge. Most revenues come from advertising that airs during shows. In the US, podcast advertising revenue is expected to grow by 45 per cent to $1bn next year, according to eMarketer. Meanwhile, advertising on television, which is widely seen as an industry in decline, is worth $70bn a year. 

“It’s still such early days in podcasting. More widespread consumer adoption just started happening in the last two years,” said Steve Boom, head of Amazon Music. Mr Boom declined to say how much Amazon was investing in podcasts, but said the amount was “much more modest” than Spotify. 

Chart showing podcast listenership in the US is steadily rising, Number (m) and percentage of digital audio listeners

But it is the fact that podcasting is an underdeveloped market that makes it appealing. The music business that is Spotify’s bread and butter has long been dominated by a handful of companies that own the copyright to all the world’s music. These music rights holders take about 70 cents of every dollar Spotify makes. 

Podcasting, on the other hand, is a highly fragmented sector that is mostly owned by independent creators and dozens of small start-ups. This leaves Spotify with ample opportunity to enter a growing market that does not require pricey payments to someone else. There are exceptions, but most of the time Spotify does not pay podcast creators directly for their content. Podcasters instead make money from selling ads in their own shows. 

As streaming companies search the world for ways to boost subscription numbers, podcasts have emerged as another form of content that can be adapted for film or TV shows. Spotify last week struck a deal with Chernin Entertainment to turn podcasts into films. Labels such as Sony Music also see potential for ideas that cross over between podcasts, TV and film.

Most importantly, podcasts are a way to differentiate one streaming service from the next in a market where, until recently, all participants offered roughly the same product: access to about 40m songs. “We are in the subscription business and customer expectations are constantly rising,” said Mr Boom. “Music services are evolving to be more than just a catalogue of recorded music.”

In June, Goldman Sachs analyst Heath Terry raised his price target for Spotify from $205 to $280 a share, citing podcasts as a product that could differentiate the company “in a way that has proven more difficult in recorded music, even though it may take years to generate meaningful financial returns”. 

Three years ago, Spotify hired Courtney Holt, a Disney executive, to lead its push into the market. Mr Holt said the company was trying to expand podcasts from a niche to a mass-market business.

“Podcasting hasn’t changed much in 15 years. There’s definitely a market . . . but there hasn’t been the equivalent of a breakout streamer hit in podcasting,” he said. “You might know about Serial or The Daily, but it’s not in the masses yet.”

Mr Holt’s goal is to change that. Among other things, he is experimenting with scripted podcasts through a partnership with DC Comics, with a forthcoming podcast called Batman Unburied. Parcast, now under Spotify’s umbrella, is creating more podcasts that focus on crime, which Mr Holt calls “the Rihanna of podcasting — the thing that everyone likes”. 

Line chart of US TV ad spending ($bn) showing Traditional TV ad spending is declining as podcasts get more attention

Business remains tough for the companies that only sell podcasts, however. A start-up called Luminary has pitched itself as the Netflix of podcasts, offering subscriptions for access to its library of shows. It has raised more than $100m from investors including Sinai Ventures and Richard Plepler, former chief executive of HBO.

But it has struggled to sign up paying customers, only reaching a reported 80,000 subscribers in May. Luminary declined to comment. A source familiar with the company said sign-ups have grown faster during the pandemic because people had more time on their hands. 

For now, the deals appear set to continue. Wondery, a podcast group behind popular shows such as Dirty John, has been fielding takeover offers for the past two years, according to people familiar with the matter. This year, bankers approached the business about a public offering, one of the people said.

Renay Richardson: ‘When I got into podcasting I realised the industry was very sluggish . . . I would say, “the sharks need to come”’ © Keturah Cummings

Financial advisers anticipate the group could attract a price tag of more than $200m — more than double its valuation when it fundraised last year. Wondery, which was founded in 2016, is on track to make about $40m in revenues this year, according to a person who has seen its financials. 

As for Ms Richardson, she has no regrets about leaving acting behind.

Her About Race podcasts have attracted a following that landed her a plum joint-venture with Sony Music, and she has named her business Broccoli, after the vegetable was cited in the negative response to her first pitch for the show: “It’s good for you but nobody wants to eat it”. 

“I love TV, but I never felt that I [could] change it,” she said. “Whereas with podcasting, I could make a difference. This is an industry I could shape.”

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