Please ensure Javascript is enabled for purposes of website accessibility

Spotify May Have Already Won Podcasting

By Adam Levy - Feb 15, 2021 at 7:25AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It's a dominant force on both sides of the market -- creative and listenership.

Podcasts exploded in 2020. People created nearly 900,000 new podcasts last year, according to Chartable, and hungry listeners couldn't get enough. Listenership in the U.S. grew 90%, and it grew even faster in other countries tracked by the podcast measurement company.

One thing that stood out in Chartable's data is how dominant Spotify (SPOT -0.63%) has become, thanks to its strategic podcasting acquisitions. And despite the ongoing consolidation in the industry, it may have built an insurmountable lead in most areas of podcasting from the creative, advertising, and listening sides of the equation.

Reception desk of an office building with Spotify logo on the wall.

Image source: Spotify.

Spotify is the easy choice for all podcast creators, big and small

Spotify owns two valuable podcast hosting companies: Anchor, acquired in early 2019, and Megaphone, acquired at the end of last year. Combined, the two host about 35% of all podcasts that made it into the Apple top 200 last year. Spotify's platforms host 3.5 times the number of top podcasts as its next closest competitor, Scripps-owned Triton.

Anchor provides an easy platform for creators to get started. In fact, the company said Anchor-created podcasts accounted for 80% of new podcasts on its platform in 2020. The total number of podcasts on Spotify increased by 1.5 million last year, suggesting 1.2 million new podcasts started on Anchor in that period. That's well above Chartable's number for total new podcasts for the year.

Anchor may still have room to grow in countries outside the United States where podcast creation is growing much faster. It currently only offers its monetization tools in the U.S.

Meanwhile, Megaphone offers more robust hosting and monetization capabilities for professional creators and media companies. It's by far the most popular hosting service for podcasts reaching the Apple top 200. Megaphone could gain market share as Spotify integrates its streaming ad insertion technology into the platform, making it even more attractive for podcasts looking to monetize large and diverse audiences with more precise ad targeting.

For a company to catch up to Spotify in hosting, it would have to make multiple acquisitions and grow those platforms faster than Spotify can grow Anchor and Megaphone.

Spotify is taking share of podcast listening

When it comes to podcast listening, there are two apps that stand head and shoulders above the rest: Spotify and Apple podcasts. But the former is gaining market share, while the latter loses it. 

Last year, 25.5% of podcast listeners used Spotify, and 37.8% used Apple. But Apple's share declined from 42.7% in 2019, while Spotify increased its share of the market from 19.9%. In fact, Spotify was one of only two podcast apps that increased its market share, according to Chartable. The iHeartRadio app improved from 2% to nearly 4%.

Two factors ought to help propel Spotify's position even higher in 2021. First is the faster growth of podcast creation and listenership outside of the United States. Apple's podcast app is only available on Apple devices, which hold a much greater market share in the U.S. than outside the country.

Second, Spotify has a growing slate of exclusive podcasts, which can get more listeners to at least try Spotify as a podcast player. The streaming company still has a long way to go to get more of its music listeners to also listen to podcasts in the app. Just 25% of its listeners tried podcasts on Spotify in the fourth quarter, up from 16% at the end of 2019.

The future of podcasting on Spotify

Spotify isn't planning any more major acquisitions in this space. "Most of our strategy going forward, while we don't exclude any further acquisitions, it is about ramping the ability of our own production capabilities that we now have through all the studios that we have acquired," CEO Daniel Ek said on Spotify's fourth-quarter earnings call. He also said there are a lot more exclusive productions in the pipeline, which the company hopes will continue to build on its audience.

The opportunity for Spotify is sizable. Podcast advertising in the U.S. is expected to climb well above $1.1 billion this year. Spotify has an opportunity to partake in that ad spend through its own productions and through monetization tools in Anchor and Megaphone. The larger opportunity is a shift from radio advertising, which still sits around $12 billion in the U.S. Spotify's ad-supported business generated less than $1 billion in 2020.

While Spotify will pour cash into developing new content for its platform, it has the opportunity to grow its advertising business and leverage fixed content costs. Moreover, it'll continue to gain market share in a fast-growing industry.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Spotify Stock Quote
$104.40 (-0.63%) $0.66
Apple Inc. Stock Quote
Apple Inc.
$140.82 (-5.64%) $-8.42
The E. W. Scripps Company Stock Quote
The E. W. Scripps Company
$15.88 (-0.38%) $0.06
iHeartMedia, Inc. Stock Quote
iHeartMedia, Inc.
$12.10 (-4.65%) $0.59

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.