Podcasts are the new battleground between the music streaming sites and the record labels

Why the podcaster Joe Rogan is worth more than $100 million to Spotify.

To some people in the music industry, there is no more powerful player than online music streaming sites—Spotify, Apple Music, Pandora, Deezer, etc. Many see these sites as saviors for reversing the trend of declining revenues in the music business. Billboard even crowned Spotify CEO Daniel Ek as the most powerful person in the music business of 2017.

But the streaming sites lack true market power—they are marketplaces for a product largely owned by the Big Three record labels—Universal Music Group, Sony Music Entertainment, and Warner Music Group. These three earned about 67.5% of global music revenue in 2019, which gives them incredible leverage against the music streaming sites.

Podcasts are the new great hope for the music streaming sites to strengthen their negotiating position, although podcasts are just the latest step in the journey. First, let’s see what the streaming sites have done previously:

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The various ways that streaming sites have tried to wrest control from the labels

Exclusive album releases

It is hard for the streaming sites to differentiate themselves when most of their listening activity goes to the same major label superstar artists. Spotify has 286 million monthly active users as of March 31st. Today, Drake’s artist page on Spotify says that he has over 61.5 million monthly listeners—which suggests that (nearly?) a whopping one in five monthly Spotify users are monthly Drake listeners.

To try and build a differentiated catalog, TIDAL and Apple Music signed exclusive streaming deals for new album releases from artists like Rihanna, Beyoncé, Frank Ocean, Kanye West, and Drake. Most of these deals happened during the year 2016, but some were earlier. But the deals rarely lasted for long—the exclusive albums would eventually make their way to the competing streaming sites. Kanye West tweeted that his album The Life of Pablo would be forever exclusive to TIDAL, only for the album to become available on Apple Music and Spotify a few weeks later—prompting a lawsuit from a fan who felt tricked into buying a TIDAL subscription.

In August 2016, Universal Music CEO Lucian Grange ordered Universal labels to stop cutting exclusive deals for albums, but not necessarily for documentaries or other content. Even the billionaire rapper Jay-Z—who is one of the owners of TIDAL—returned his own solo catalog to Spotify last December after having removed it in April 2017.

But Spotify—for the most part—did not follow Apple and TIDAL’s exclusivity playbook. In April 2016, Jonathan Prince, then Spotify’s Global Head of Communications and Public Policy, commented to Mashable that “long-term exclusives are bad for artists and they’re bad for fans” but that Spotify did not have a “total policy against” exclusive deals—especially temporary exclusives. A year later, Troy Carter—then Spotify’s Global Head of Creator Services—said during a Music Biz Conference Q&A that “exclusive audio content, specifically with albums, is not within [Spotify’s] playbook.”

Curated and algorithmically-generated playlists

On Spotify, users can listen to human-curated playlists like RapCaviar, or AI-generated recommendations like Discover Weekly. Especially for genres like sleep music and lofi, the playlists are bigger brands than most of the artists in them. This helps remove the inherent risk that the streaming sites have from depending on top major label artists like Drake.

Up-and-coming artists are typically delighted to make it onto a playlist, but they often struggle to retain their newfound listeners. The musician Ari Herstand, in his book How To Make It in the New Music Business, warns artists that they may suddenly make thousands of dollars per month if they get a song onto a playlist, only to lose that income when the song gets removed. Now the playlist is the celebrity—not the artist.

However, the streaming sites aren’t alone in their playlisting push. The Big Three labels own their own playlisting companies to help promote their own artists without relying on the streaming sites for favorable curation: Universal Music owns Digster, Warner Music owns Topsify, and Sony Music owns Filtr.

Fake artists? (Maybe not.)

In August 2016, Music Business Worldwide raised the accusation that:

  1. Spotify was producing its own music and releasing it under fake artist names.

  2. Then, Spotify places this music in its various popular playlists—earning hundreds of millions of streams in total.

  3. Because Spotify presumably owns this music, they don’t owe any money to the record labels when these songs are played.

Spotify declined to comment until they chose to vehemently deny these accusations nearly a year later. In response, Music Business Worldwide enumerated fifty artists that they believe to be fake. Here is a song from Gabriel Parker—one of the alleged fake artists.

But the accusation was seemingly debunked when Music Business Worldwidefigured out that much of the music comes from Epidemic Sound—a music production company based in Stockholm. In response, Epidemic Sound CEO Oscar Hoglund sat down for an interview with Music Ally, admitting that they were behind the “fake” artists while insisting that they uploaded the music on their own accord and not in an elaborate conspiracy with Spotify.

Music journalist Cherie Hu pointed out that Spotify may have still (unknowingly) saved money by swapping major label artists’ songs with Epidemic Sound songs in top playlists because the major labels typically receive higher royalties per song than relatively-unknown artists.

In the end, it is impossible to prove if Spotify’s actions were deliberate. Spotify doesn’t have to actually produce music in order to save money by directing playlisting and royalties away from the Big Three labels.

A MASSIVE investment into podcasting

Album exclusives largely didn’t work, and the “fake artist” controversy was likely never real. And that’s why this essay’s title is about podcasts—because they may be the true saving grace for Spotify (and the other streaming sites).

Spotify has been investing enormous amounts of cash into podcast-themed acquisitions. From February 2019 to March 2020, Spotify bought podcast networks Gimlet Media for $195 million, Anchor FM for $154 million, Parcast for $55 million, and The Ringer for a rumored $250 million.

Spotify has also been cutting deals directly with podcast producers, including with Joe Budden, Jemele Hill, Guy Raz, Amy Schumer, and Higher Ground—Barack and Michelle Obama’s production company [a]. Now yesterday, Joe Rogan announced an exclusive deal with Spotify rumored to be worth more than $100 million.

Spotify’s podcast investments are ground-breaking in two different ways:

  1. The long-term exclusive deals with podcast producers are a strategic reversal from Spotify’s opposition for album exclusives. Podcasts are clearly an exception to Troy Carter’s words that “exclusive audio content, specifically with albums, is not within [Spotify’s] playbook.”

  2. Podcast content serves the same financial purpose as the mythical “fake artists.” Spotify lays out a finite amount of money for top-tier podcasts while earning a theoretically-unbounded amount of advertising and subscription revenue. Spotify doesn’t owe podcasters royalties every time a podcast is listened to. In short: Spotify’s unit economics will no longer be tied to the record labels.

Of course, the record labels are investing in podcasts too. Warner Music [1, 2], Universal Music [1], and Sony Music [1, 2, 3, 4, 5, 6] have all announced some form of podcast initiative or investment. So has Apple. But podcasts are still a greenfield territory compared to music, but Spotify’s massive investments have possibly given them an early lead.

The Call Her Daddy fiasco: are podcast hosts irreplaceable?

But Spotify’s podcast plan comes with one major flaw—now they’re in the business of negotiating with talent. At least on the music side, Spotify can leave the dirty work of scouting, signing, and bullying talent to the record labels.

How bad could it be to negotiate with podcast talent? What could go wrong?

This week’s drama between the mega-popular sex and dating podcast Call Her Daddy and their network Barstool Sports show the kind of drama that Spotify may have bought their way into.

Depicted: The album art for for the Call Her Daddy podcast. Photo Credit: @callherdaddy on Twitter.

The Joe Rogan Experience might be worth over $100 million to Spotify, but on Apple Podcasts, it’s currently charting second to Call Her Daddy. The podcast, where the pair of twenty-something women Sofia Franklyn and Alexandra Cooper host a no-holds-barred discussion about sex from the female perspective, is wildly popular.

Depicted: The Apple Podcasts Top Charts on May 19th, 2020. Photo Credit: Anonymous Coward.

The New York Times journalist Taylor Lorenz wrote a great summary of the Call Her Daddy power struggle. In short, Franklyn’s boyfriend (nicknamed “suitman”) is a Harvard-educated HBO executive that pushed the pair to shop Call Her Daddy to other podcast networks. The Barstool Sports founder Dave Portnoy proceeds to record a Call Her Daddy episode of his own where he reveals the nasty details of the contract negotiation.

Portnoy revealed that the cohosts had taken home nearly half a million dollars each in the past year, and that Barstool was to agree to new terms of guaranteed $500,000 salaries each plus potentially millions of dollars in bonuses. Meanwhile, the cohosts had stopped recording new episodes since April 8th, which caused Barstool to lose out on $100,000 of ad revenue each week.

I think there is a small chance that this dispute is manufactured to bring more attention to both Call Her Daddy and Barstool. Portnoy is taking full advantage of the attention in either case, even selling “cancel suitman”-branded apparel. But let’s assume the conflict is genuine.

The Call Her Daddy hosts are (were?) Barstool employees with steady salaries, while artists signed to a record label are typically considered contractors under a work-for-hire arrangement paid with royalties and recoupable advances. (Joe Rogan will not become a Spotify employee as part of his deal with them.)

The struggle between Barstool and Call Her Daddy is a classic problem in the entertainment world:

  1. The financing company offers an attractive deal to early-stage, unproven talent.

  2. The talent becomes incredibly successful, and suddenly the deal they negotiated a long time ago doesn’t represent what the market could give them today.

  3. The company must retain the talent otherwise risk not being able to collect a return on their investment. Meanwhile, the talent has their own social media megaphone that they can use to blast the company to gain leverage in negotiations.

In the music business, we saw this happen between Megan The Stallion and her (now former) record label 1501 Entertainment. The deal terms were passable when she was a relatively unknown signee but wasn’t a match to her market power after “Hot Girl Summer.”

An even more dire tale is the one between the quiz game HQ Trivia and its newly-minted celebrity host Scott Rogowsky. HQ Trivia never truly recovered, shutting down before being bought and reinvigorated by a private investor.

Spotify’s podcast ventures will mitigate its weak negotiation position against the Big Three labels, but Spotify might find that managing their own talent means that they face a completely alien set of risks.

Further Reading

Investing in the Podcast Ecosystem in 2019

This is an essay and slide presentation by Li Jin, Avery Segal, and Bennett Carroccio for the venture capital firm Andreessen Horowitz.

Are Podcasts Threatening the Growth of the Music Industry?

This is from Tim Ingraham, the founder of Music Business Worldwide, but published to his column on Rolling Stone.

The Spoken Word Audio Report

This is a detailed report about podcasting from National Public Radio and Edison Research.

Why Streaming Exclusives Are Here to Stay

This April 2019 post from Dan Runcie of Trapital takes an honest look at the successes and failures of the 2016 craze around exclusives but concludes that exclusivity still has a financial and strategic lure that is attractive to artists. Runcie also points out that Spotify does exclusive deals for podcasts despite having spoken out against album exclusives.

Putting the Band Back Together: Remastering the World of Music

This is an August 2018 report from Citi covering how the music industry has changed and where it is going. However, the RIAA and several other organizations in the music business have criticized the Citi report’s accuracy.

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[a]: The press release states that the podcasts Higher Ground is producing for Spotify will be exclusive to Spotify, but Higher Ground also has a preceding film and TV deal with Netflix.


  • January 11, 2021: Minor formatting changes.