Spotify’s Surprise – Stratechery by Ben Thompson

This Article is a follow-up in two ways:

Plus, a special announcement about Exponent.

Anchor Subscriptions

Spotify’s first announcement was teased during its Stream On event last month: paid podcasts via Anchor.

The first implication of this is exactly what you might expect: podcasters who use Spotify’s Anchor service for hosting their podcasts can now create subscriber-only podcasts on Spotify. At first glance this seems similar to Apple’s offering: use their subscription service to offer paid podcasts on their app. However, Anchor is different in three important ways:

On-Web versus In-App

First, subscribing to an Anchor show on Spotify is a clumsier process than it is on Apple; note these images from the announcement:

Subscribing via Anchor

Spotify can’t put a “Subscribe” button in its app due to Apple’s App Store rules, which means that Anchor podcasters have to hope a would-be subscriber finds their way to the Anchor website. Apple, meanwhile, can put a subscribe button front-and-center:

Apple's subscription screen

This is, needless to say, a rather stark example of Apple leveraging its control of the App Store to give itself an advantage in a new market; the obvious analogy is Apple Music, which has the same advantage relative to Spotify itself. Spotify filed a complaint to the EU two years ago, and the EU is expected to charge Apple with anti-competitive behavior this week.

Rates

Second, Anchor is charging less than Apple is; the announcement states:

For the next two years, this program will come at no cost to the creator, meaning that participating creators receive 100% of their subscriber revenues (excluding payment transaction fees). Starting in 2023, we plan to introduce a competitive 5% fee for access to this tool.

That “excluding payment transaction fees” is a pretty important parenthetical; here is what the take-home amount is for $5/month and $10/month podcasts on both Anchor and Apple Podcasts:

$5/month $10/month
Anchor now $4.55 $9.41
Anchor 2023+ $4.31 $8.91
Apple Year One $3.50 $7.00
Apple Year Two $4.25 $8.50

These aren’t directly comparable:

  • Anchor’s rates are the same for all subscribers; all $5 subscriptions earn $4.55 in 2021 and 2022, and then earn $4.31 in 2023, no matter if the subscriber signed up in 2021 or 2023.
  • Apple’s “Year One” and “Year Two” rates apply to subscribers, not podcasts; even if your podcast has been available for two years, for example, new subscribers pay out at the 70/30 rate for the first year they are subscribed.

That caveat is an important one, because after 2023 rates for long-time subscribers are more comparable than you might expect.

The Open Podcast Ecosystem

This was the first big surprise in the announcement; from Anchor’s blog post (emphasis mine):

The most seamless discovery, subscription, and listening experience for your audience equals increased earning potential for you. It starts with a straightforward subscription process for listeners that immediately gets access to paid episodes within your existing show feed in Spotify, meaning less friction and more supporters; your audience won’t need to contend with RSS feeds or downloading a separate third-party app to listen. They’ll still have the option of listening on the platform of their choosing through a private RSS feed, so you don’t lose out on any potential subscribers. And with paid subscription content clearly marked on your show and episode pages in Spotify, listeners can easily see how to support you directly, thus presenting a bigger potential paid audience.

Yes, most of this paragraph is about the Spotify experience, but that sentence is a huge deal to the open podcast ecosystem: all Anchor subscriptions will include per-subscriber private RSS feeds so that you can listen to the podcast you paid for in the app of your choosing — it’s not locked to Spotify. That’s exactly how the Stratechery podcast and Dithering work; I explained last year:

HTTP and SMTP, though, are not the only open protocols available to publishers: RSS is another, and it is the foundation of the podcast ecosystem. Most don’t understand that podcasts are not hosted by Apple, but rather that iTunes is a directory of RSS feeds hosted on servers all over the Internet. When you add a podcast to your podcast player, you are simply adding an RSS feed that includes information about the show, and a link for where to download new episodes.

iTunes is only a directory

This, if you squint, looks a lot like email: create something that listeners find valuable on an ongoing basis, and deliver it into a feed they already check, i.e. their existing podcast player. That is Dithering: while you have to pay to get a feed customized to you, that feed can be put in your favorite podcast app, which means Dithering fits in with the existing open ecosystem, instead of trying to supplant it.

The implications of this are fascinating: you can not only listen to an Anchor podcast in Spotify, or an independent podcast player like Overcast, you can even listen to it in Apple Podcasts; I posted this image last week:

Adding a podcast by URL

I expressed concern on Dithering about whether or not Apple would shut off the ability to add arbitrary RSS feeds in order to force creators to use their subscription offering; I hope not, as it would be shutting off Apple Podcasts from the open web even as Spotify is embracing it.

Whose Customers?

As I previously explained when writing about Spotify, I have multiple perspectives on podcasts: the first is my role as analyst, the second is my role as publisher, and the third is my role as a podcaster.

When it comes to Apple, Analyst Ben thinks that Apple’s Podcast Subscription service makes a lot of sense, and is a good example of how Apple can compete on the user experience; Podcaster Ben, meanwhile, would prefer to have my shows everywhere. Publisher Ben, though, has one big hangup when it comes to Apple’s offering:

As I noted above, I’m actually very open to allowing Apple to be my payment processor; in my experience, though, a critical part of the creator business model is having a direct connection with your customers. That is something Apple simply doesn’t allow. From the Podcasters Program Agreement:

Personal Data. In connection with any Podcaster Content hosted by Apple and made available in Apple Podcasts under this Agreement, You represent and warrant that You and Your personnel, agents, and contractors will not access or otherwise process any information that can be used to uniquely identify or contact an individual (“Personal Data”).

This makes it crystal clear that every subscriber that signs up is Apple‘s customer, not mine, and while the revenue may be nice in the short run, it is fundamentally constraining in the long run. I believe that creators will increasingly monetize across apps and experiences; Apple, though, won’t even let me email folks to let them know about what is happening beyond the podcast.

Anchor says it plans to be better in this regard, promising to add “email subscriber” functionality specifically; that’s a good start, but it’s important to note that when it comes to money the subscribers are ultimately Anchor’s, not the publishers. Publisher Ben isn’t too happy about that.

The Spotify Open Access Platform

This was the second big surprise, and full disclosure, it affects me personally, and in a very positive way. From the announcement:

Are you a creator or publisher who has subscribers elsewhere? We’re also working on technology that will let your listeners hear your content on Spotify using your existing login system. This gives creators with existing subscriber bases the option to deliver paid content to their existing paid audiences using Spotify, retaining direct control over the relationship.

I am in fact a creator or publisher who has subscribers elsewhere! That’s my entire frustration with Apple and Anchor’s offerings, and why Publisher Ben was so opposed to Spotify’s moves in podcasting, even as Analyst Ben thought they were a great idea; from a Daily Update last year:

Analyst Ben says it is a good idea for Spotify to try and be the Facebook of podcasting…Podcaster Ben certainly sees the allure: having my podcast available to Spotify’s 271 million monthly active users would be great.

Publisher Ben, though, remembers that my business model is predicated on a higher average revenue per user (thanks to subscriptions), not a higher number of users; that means making tradeoffs, and foregoing wide reach is one of them. That, by extension, means not agreeing to Spotify’s terms for Exponent, and accepting that leveraging RSS to have per-subscriber feeds makes having the Daily Update Podcast on Spotify literally impossible. More broadly, owning my own destiny as a publisher means avoiding Aggregators and connecting directly with customers.

For full disclosure, I have been briefed on the Open Access Platform, and Spotify has addressed all of my concerns; no, they won’t support arbitrary RSS feeds, but instead another open technology — OAuth. Some time soon Stratechery and Dithering subscribers will be able to link their subscriptions to their Spotify accounts, and Spotify isn’t going to charge a dime — they will be my customers from email address to credit card. Spotify Chief R&D Officer Gustav Söderström told me, “Having all of audio on Spotify means meeting independent creators on their terms, not ours.”

Needless to say, Publisher Ben is very happy about this news, and Podcaster Ben is excited to have his work available everywhere. Analyst Ben, though, is pleased as well: Spotify isn’t simply ensuring it has all of audio on its app, it is also sending a powerful signal to creators of all types that their corporate incentives are aligned with what matters to creators.

Spotify’s Facebook Play

While most of Spotify’s announcement was devoted to their new subscriptions offerings, the company also announced that the Spotify Audience Network was now available to podcasts hosted on Megaphone (which Spotify acquired last year) and Anchor (on May 1st). This is the Facebook play I was referring to: Spotify wants to accumulate the most podcast listeners and construct a self-serve ad market place that delivers personalized ads at scale.

Again, Analyst Ben thinks this is smart, but shouldn’t Publisher Ben still be a bit nervous about an Aggregator in my space? Not at all — in fact, Twitter and Facebook are great for Stratechery; if your business is based on word-of-mouth, then giving your readers a voice is nothing but upside. And, while I have never advertised Stratechery, Facebook and Twitter would be the obvious — and most accessible — choices if I did (and don’t underrate LinkedIn). I would never use a Twitter or Facebook subscription product — see the part above about owning my users — but that’s ok, because the web is an open alternative.

And, now that Spotify has fixed the openness problem, I see upside in their approach; it will actually be easier to have a mix of free and paid feeds than it is with custom private RSS feeds, which means a new customer acquisition channel, while the Spotify Audience Network might be the first podcast advertising product that is easily accessible for smaller podcasts. Facebook and Twitter would do well to reconsider their subscription plans to accommodate independent creators like Spotify has, instead of trying to capture them (and Apple too, but I’m not holding out hope).

An Exponent Announcement

I apologize if the Analyst/Publisher/Podcast Ben nomenclature was a bit over-the-top; the reality is that writing about Spotify has always been a bit more fraught than most other companies given that it affects my business, and I wanted to be open about that. I have tried, though, to practice what I preach: that is why James Allworth and I made the decision to remove the Exponent podcast we co-host from Spotify. Yes, Exponent is free, but every listener on Spotify was one I couldn’t convert to a customer as an independent creator, which meant saying no to the would-be Aggregator’s audience.

It’s important to point out that the foundation of the Spotify Audience Network is Streaming Ad Insertion on Spotify itself, which, as the name suggests, depends on Spotify’s streaming infrastructure being far more capable and flexible than downloadable MP3s served over RSS. That’s why I wasn’t necessarily mad at Spotify for not supporting private RSS feeds: they made their decision for business reasons, and I made mine.

That, though, is why advocates of the open podcast ecosystem should be pleased with Spotify’s adoption of OAuth: there are good reasons that the company will never support private RSS feeds, but when there is a will there is a way, and Spotify has shown the will to support openness and independent creators. To that end, Exponent has an announcement:

Here’s hoping other Aggregators follow Spotify’s lead.

I wrote a follow-up to this article in this Daily Update.

Post Author: BackSpin Chief Editor

BackSpin Chief Editor
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