In April, a pair of Spotify executives traveled to Washington, D.C., on a high-stakes mission to land two sought-after producers. Barack and Michelle Obama, enjoying their post-White House status as cultural uber influencers, already had struck a deal with Netflix to produce consequential film and TV projects. They were looking to make a splash with audio, too.
Content chief Dawn Ostroff and head of studios Courtney Holt already had met with the team at Higher Ground, the Obamas' production company, to share their podcasting tips. Now they were preparing to pitch the former first couple to explain why they should be making podcasts for Spotify, which after 13 years of music streaming needed to diversify its business — or risk being overtaken by much larger rivals-in-audio Apple and Amazon. Exclusive podcasts were central to that plan, but Spotify still was a relatively new player in that space. A deal with the Obamas would reverberate beyond the podcast world.
Working in Spotify's favor was the fact that the former president already used the Stockholm-based service for his popular music playlists. He'd even once jested that he was waiting for a job offer from the company, prompting it to post a joke job opening for a "President of Playlists." "When I met with the president, I said, 'Well, I'm glad you passed on the job because I was fortunate enough to get it,' " says Ostroff with a laugh. But ultimately, say sources familiar with the talks, it was Spotify's 248 million global monthly users, many of whom access the service via its free, ad-supported tier, that sealed the deal for the couple. A price tag said to be worth upward of $10 million was only a cherry on top.
On June 6, the Obamas announced they will make audio shows exclusively for Spotify and even plan to get behind the mic. While a slate still is being assembled, it's likely to include fiction projects and unscripted series, spanning genres such as entertainment and sports — don't expect anything overtly political.
Where the Obamas go, others follow. In 2019 alone, THR has learned, Spotify has quietly set up more than 30 new podcasts from partners including Jordan Peele, Paul Feig, Mark Wahlberg and YouTube influencer Lele Pons. "We're committed to this," says CEO Daniel Ek as he settles into a table at downtown L.A.'s Zinc Cafe & Market in late October. Across the street, construction is underway on a 154,000-square-foot Spotify campus destined to become the hub of the company's growing podcasting business, complete with 17 recording studios, a mixing suite, green rooms and live event space. It's being designed with talent in mind, with easy (and private) access for high-profile people who want to record a show. "We see a huge opportunity in front of us. It's going to be a big business," adds Ek.
While it can seem like everyone has a podcast these days, podcasting actually still is a relatively tiny business. In 2018, the entire global industry brought in a mere $650 million in revenue, as estimated by PwC, or just 12 percent of Spotify's annual revenue that year. Still, the future of Spotify hinges on its ability to grow. And while it is by far the largest music streamer, with 113 million paid subscribers worldwide, competition is reaching a fever pitch as Apple, Amazon and Google invest in the space. Unlike its rivals, which use music to sell iPhones or land Prime subscribers, Spotify's profit margins have been hampered by its deals with royalties-hungry record labels. "If you're in a position where you're trying to make money in an industry where your largest rivals don't need to make money, that's a challenging environment," says Kevin Rippey, an internet analyst at Evercore ISI.
Podcasting offers a way forward. In the past year, the company has doubled down on its efforts, spending $400 million to acquire production and technology capabilities, bulking up its library of shows and orchestrating a companywide pivot beyond music programming. As Ek sees it, the opportunity is not just to capture a big chunk of the podcasting market but to dominate the still-monstrous $40 billion radio industry (including the sports, talk radio and politics that dominate airwaves), especially as listeners increasingly ditch the dial for streaming options like his own. "Just like TV has moved from offline to now online, we're doing the same to radio," Ek says. "When you look at the amount of time that people consume audio, it's about the same in the U.S. as people spend watching video. But the audio industry is less than one-tenth of the size of the whole video industry. The question one needs to ask oneself, are your eyes worth 10 times as much as your ears? My view is that they aren't and that [audio] is going to be even more valuable in the future."
Though podcasting has been around for more than a decade, Spotify, with a nearly $25 billion market cap after an April 2018 IPO, is the first deep-pocketed tech platform to invest in high-profile original programming and exclusive distribution windows. That's rankled some independent creators worried about how smaller producers could be marginalized, but it also has given Ek's team immense leverage as they look to build up their library. "Not only is it the fastest-growing platform, but they're making a real commitment to pods and they have an intelligence that was important to us," says Bill Simmons, whose The Ringer Podcast Network agreed in September to license a daily show exclusively to Spotify. "It was the chance to work with somebody that in five years could be the leader in the space."
Ek, who in his standard black polo shirt and jeans looks every bit the millennial tech wunderkind who sold his first company at 23, shrugs off the notion that podcasts were all part of his master plan for Spotify. "I hate this portrayal of these founders as these all-knowing people; it's just not how it is," says the now-36-year-old married father of two. "I'm definitely not that founder, visionary kind of person who just dreams about something and it magically happens. I'm more of a tinkerer."
But on Oct. 28, just a few days after his trip to Los Angeles, Spotify released quarterly earnings that indicated he's got more foresight than he's willing to let on. For the three months from July through September, the amount of time people spent streaming podcasts grew 39 percent. And while only around 14 percent of its overall user base listened to podcasts during the period, the increase in conversions to subscription-based Spotify Premium as a result of that programming was deemed "almost too good to be true."
Ek traces his fixation with non-music programming back to 2017, when he began to notice a strange trend on Spotify. Usage of the app was skyrocketing in Germany. "I couldn't figure out why, and no one seemed to have an idea," recalls the soft-spoken Swede. So he boarded a plane to Berlin, where he huddled with his team and soon discovered that the German music labels own the rights to most audiobooks in the country and had been uploading them onto Spotify. "By accident, we ended up becoming one of the largest audio platforms, period, and one of the largest audiobook platforms in Germany," he says.
Spotify's technology wasn't built to serve up non-music programming. Its free service was shuffling the audiobook chapters and playing them out of order. But, still, people were listening. "It was an awful experience," acknowledges Ek. "If people [listened] in spite of all of those limitations, it tells you that you've got something special."
Until that point, Spotify — which Ek co-founded with Martin Lorentzon in 2006 — had been almost entirely focused on music. In fact, its fortunes had been directly tied to that of the record labels, which have been both helpless to stop the tide of music streaming and highly dependent upon its success. At first, the music industry, decimated by piracy and selling songs via iTunes, was skeptical of Spotify's all-you-can-stream model. It took the company five years to launch in the U.S., but when it finally did, Sony, Universal and Warner bought a combined 14 percent stake in the business. (Warner sold all of its shares and Sony sold some after the Spotify IPO.)
In 2018, digital dollars accounted for almost half of the global music industry's revenue, per IFPI, helping boost sales 34 percent in five years to $19.1 billion. But because of Spotify's licensing agreements with the labels — it pays out royalties based on share of streaming — the company has struggled to become hugely profitable; to wit, it made just $267 million in profit during the third quarter on $1.92 billion in revenue.
Ek's initial attempt to diversify Spotify's content — and decrease its reliance on the music labels — came in 2016, when the company launched a video hub featuring shortform programming from ESPN, Comedy Central, Vice News and others. It was a bust. "Video wasn't resonating with audiences, and we didn't really have a product that lent itself to video in a meaningful way," says Holt, a former MySpace Music and Maker Studios executive who joined Spotify in 2017. Spotify scrapped the effort.
Around the same time, podcasting was starting to take off as producers, encouraged by the 2014 breakout of Serial, rushed into the space. Gimlet Media, the shingle launched by former public radio host Alex Blumberg and Matt Lieber, had debuted scripted series Homecoming in late 2016 (Amazon Studios adapted it into a Julia Roberts-fronted TV show in November 2018). Then came Wondery true-crime series Dirty John, later turned into a Bravo show; and the hit New York Times news podcast The Daily. Domestic advertising revenue for podcasts nearly doubled to $314 million in 2017.
Sensing an opportunity based on the early performance of Spotify's small slate of non-music programming, Holt began to grow its library of podcasts to 15,000 or so. In 2018, he struck deals for a handful of originals and exclusives, including The Joe Budden Podcast and Amy Schumer's 3 Girls, 1 Keith. (Budden's regularly charts among the company's top podcasts, and Schumer's recently had a breakout interview with Bill Murray.)
That summer, Spotify tapped Ostroff, then president of Condé Nast Entertainment, as chief content officer. The former Lifetime and CW programming executive (who got her start in radio) says the experimentation in podcasting was a big reason that Ek sought her out. "When Daniel started to talk about how, as a technology company, they were ready to take the big step and become also a content company, it made me recognize that there was the opportunity to create a company that was a tech company first and foremost but also a content company hand in glove," she says. "I didn't believe there were too many companies who had achieved that."
That first big step came Feb. 6, when Spotify announced that it had earmarked $500 million for podcast acquisitions, starting with Gimlet and technology provider Anchor. "Spotify was pretty much the dream acquirer," says Gimlet's Blumberg. Although Gimlet had just recorded its first profitable quarter, the executive team wondered how they'd be able to grow beyond the core audience who already listened to Gimlet shows like Startup and Reply All. Spotify offered not only millions of listeners but also significantly more insight as to who was tuning in. "The thing Daniel said when he first talked to me was, 'We want to give you superpowers,' " says Blumberg.
In a blog post released the same day, Ek suggested that "over time, more than 20 percent of all Spotify listening will be non-music content," adding that his goal was to become "the world's No. 1 audio platform."
Spotify has faced little resistance as it has steamrolled its way into podcasting. Industry insiders estimate the company, which now distributes more than 500,000 podcasts, captures between 10 and 20 percent of the overall podcast audience. Its young listenership — 61 percent of which is under the age of 34, per Comscore — has given Spotify a leg up. "It does feel like Spotify is in the lead to shape the future of audio," says Nicholas Quah, who writes Hot Pod, a newsletter about the podcast industry. "Spotify has resources, they have an existing user base, they seem very motivated." Still, it lags behind Apple, which operates the Podcasts app that offers 750,000 shows and is used by an estimated 50 percent of listeners.
Most believe only Apple has the size and deep pockets — it recorded $59.5 billion in profits in fiscal 2019 — to spoil the party for Spotify. But the iPhone maker, which will strike marketing deals with studios to give podcasts preferred placement in its app, hasn't yet made a serious play to produce original or exclusive programming like it has in music, film and TV. Sources say Apple, which isn't currently in the ad-supported content business and doesn't take a cut of the ad revenue of podcasts it distributes, still is exploring its options. "One of the things you're seeing in [streaming] is a massive content arms race, and while it hasn't happened in podcasting yet, it's something to watch out for," says Jeffrey Wlodarczak, a media analyst at Pivotal Research Group. "Apple is always the 800-pound gorilla. If you've done exclusive music, you could do exclusive podcasts."
If and when Apple decides to get in the game, it would be an immediately formidable competitor with some 900 million iPhones already pre-installed with its Podcasts app.
For now, Spotify has been its own biggest impediment. A technology company at its core, it has taken time for it to evolve into a content producer — even with more than 500 people now working on podcasting across Gimlet, Anchor, Parcast (another acquisition focused on genre fare like true crime) and in-house shingle Spotify Studios. At first, recalls Ek, the engineering and content teams "had totally different languages and ways of describing things." The concept of quality, he explains, was especially challenging to define early on. "That led to this really interesting debate about how to measure how people relate [to content]," he continues, explaining that the company is now spending more time looking at whether its recommendations lead users to form a lasting habit with a new piece of content. "We've moved away from raw consumption as a metric and instead are focused on more qualitative metrics."
Almost immediately after the Gimlet acquisition, another issue cropped up that Spotify the tech platform had never had to deal with. Gimlet's staff was organizing. "In all honesty, it's been pretty smooth," Ek says, brushing off questions about how Spotify has handled the unionization effort, a rarity among technology companies. Gimlet recognized the union within a couple of months. "Like 70 or 80 percent of all companies in Sweden are unionized, so for me that wasn't a big negative."
While Ek might be a technologist, he's got an appreciation for the content on his platform. His current favorite podcast is a Swedish-language docuseries about an art robbery that plays out like a heist movie. "They still haven't caught the guys and it's been like 10 years," he says, the most animated he's been the whole afternoon. "It's pretty phenomenal."
Spotify's U.S. Headquarters at 4 World Trade Center in New York hums like a beehive on the first Friday in November. Tucked away from the hubbub in a sun-filled corner office, Ostroff, 59, convenes the content team for its regular status meeting. Interim music co-heads Marian Dicus and Jeremy Erlich are fired up over the debut of Arizona Zervas, who after breaking out on the social video app TikTok garnered enough attention on Spotify to earn a spot on the Today's Top Hits playlist and has been thrust into a label bidding war. "He DM'd me and said it was the best day of his life," says Dicus. Next up is Holt, who conferences in from L.A. to report that Jordan Peele's Monkeypaw studios has just agreed to produce a fiction podcast with Gimlet.
Also in the works are comedy The Case of Adirondack Rose from Paul Feig's Powderkeg; Komixx Entertainment's prequel series to the Netflix YA film The Kissing Booth from the original writers and featuring the film's principal cast; and a nonfiction show from Mark Wahlberg's Unrealistic Productions featuring the real-life stories of mercenaries. Influencers Lele Pons and Ryland Adams, meanwhile, are prepping their own pop culture shows. "We'll have a budget like we would have if we were doing a TV series," says Feig, who will produce the 11-episode true-crime satire from writer Amy Reed. "That is, for something audio-only, quite good because it allows for talented writers and name actors to do the voice work."
Of course, there are few names as big as Obama. Ostroff says she expects "to have at least one, maybe two projects [from them]" in 2020 but is otherwise mum on the subject. Multiple sources tell THR the Obamas have hired Dan Fierman, the former Grantland and MTV editorial director, to lead those efforts from Los Angeles. Only a few weeks into the job, he's still building up the slate, but if it looks anything like what Higher Ground is making for Netflix, and it probably will, listeners can anticipate stories that touch on issues like civil rights, race and class. Ostroff hopes to get the Obamas, who are expected to host and produce, commenting on pop culture, too. "Their thumbs are on the pulse of culture today," she says. "And their interests are wide and varied."
With the Higher Ground slate as its anchor, Spotify also is chasing projects in the sports and news categories. Deals also are underway on projects with a handful of high-profile recording artists that will blend music, video and other forms of audio in what Liz Gateley, who leads creative development, describes as a push for "culturally relevant and loud ideas." The former MTV executive, who knows a thing or two about reinvigorating a format after her work creating Laguna Beach, also suggests that podcasts, which have been dominated by talk-style shows, could stand to be shaken up.
Choosing to get into business with Spotify has become a careful calculation for many creators. In recent years, a market that once was predicated on wide distribution is seeing platforms like Spotify, app Stitcher and subscription podcast platform Luminary go after exclusive or first-window deals. As Spotify ramps up its efforts — it has nabbed Esther Perel's Where Should We Begin, which takes listeners inside her couples' therapy sessions, for a debut window and struck a deal to bring 8-year-old comedy show Last Podcast on the Left exclusively onto its platform — producers have to weigh money and marketing versus access to a wider audience. Spotify is said to be writing six- and seven-figure checks for some shows, but the concern is that creators will limit their potential reach. A Spotify spokesman says that's not the case, citing Joe Budden Podcast's 19 percent growth since becoming a Spotify exclusive. "I tell my clients, the kind of deal they do today is going to be fundamentally different than the deal they did six months ago," says WME digital media partner Ben Davis. "The industry is changing quickly, and Spotify is part of that."
Key to Spotify's plan is the development of products that can introduce podcasts to new listeners. In the summer, it launched the Daily Drive playlist, which uses algorithms to surface a mix of music and talk based on users' listening preferences. Already, Spotify has found that shorter podcasts work incredibly well in that mix, so it has started to invest in bite-sized shows like Simmons' new effort, The Hottest Take, which is less than 10 minutes an episode.
It's with products like Daily Drive where Spotify is able to most closely clone (and, executives would argue, improve upon) the experience of terrestrial radio, which still manages to attract nearly 3 billion people worldwide each week, per Deloitte. "Radio is actually remarkably resilient," says Wlodarczak. So Spotify is exploring what it would take to push into localized programming that could compete head-on.
As Ek sets his sights on a new direction for the company he's been building for most of his adult life, he acknowledges that music remains "the biggest source of consumption that we'll have for a very, very, very long time." Given the opportunity before Spotify, it's unlikely that the company will remain unchallenged. Just as they did with music, Apple, Google and Amazon are likely to go hard after the audio market, too. Ek says he's ready for the fight: "We certainly want to win, just to be very clear."
This story first appeared in the Nov. 20 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.