Spotify never made sense as an investment
And the Joe Rogan mess has made things worse, not better
Music and podcast streaming service Spotify (SPOT) has come under immense scrutiny after its biggest podcast host, Joe Rogan, platformed people spreading COVID-19 misinformation. Rock star Neil Young demanded his catalogue be taken off of the service as a result. Fellow performer Nils Lofgren joined Young’s boycott, as well as popular singer India Arie.
The anti-vaccination movement is a profitable grift, and it’s not clear that Joe Rogan didn’t sail through this high profile debate in a way that positions him well for his core audience. I am with Neil Young on this one but I have heard a lot of people voice support for Rogan or at least his right to say that kind of stuff and credulously interview those people. But that is a victory (debatably) for Joe Rogan and not for Spotify.
A problem that Spotify has to deal with is that the Joe Rogan Experience has given a platform to far-right media figures and his own casual racism [if you are in denial that he said the ‘n word’ repeatedly, watch this compilation]. He may have long seen the dragged-out, ‘bull session’ style of his show to be a strength, but just as the stale conventions of comedy have been put under intense scrutiny in the last several years, perhaps now questions need to be asked about the casual, fact-free speculation (interspersed with discussions of animals eating one another) that made up much of the show a few years ago [the last time I endured listening to any amount of the audio] and probably still does.
No question though that several million listeners tune in to the Joe Rogan Experience podcast, and many pay to tune in on mobile. This represents a massive bet on one person to carry a company. Does one fandom make an entire business though? It wasn’t enough to turn a primary—Joe Biden wasn’t slowed in his drive to the presidency one bit by Rogan’s endorsement of Bernie Sanders. Does the audience want to evolve with him? Howard Stern says a lot different kind of stuff now than he may have said 25 years ago, and that’s a sign that he was able to learn and mature over time. But Joe Rogan comes from comedy rather than radio and may well see himself as a kind of provocateur comedian—the harsh truth teller, a kind of muscle-bound take on the archetypal 20th century funnyman. Is that kind of viewpoint—and comedy act—compatible with a modern corporate platform?
Yes, of course, it is a corporate platform, as Spotify is a publicly traded company and they are paying for exclusive publishing rights to Rogan’s show. They are already over a year into the deal and by all accounts it is making Joe Rogan lots of money and Spotify is glad to have those kind of listener numbers. So what’s wrong? Nothing much from a business perspective, except right now Spotify overall is still not profitable (they have most recently reported a narrow loss) and that was from before the effects of the kind of PR this story has brought.
Spotify understands the value of building an audience. Weathering the controversy over Joe Rogan might seem like a one-time thing, with promise of listeners long after this is over. What they don’t seem to understand is that this is probably going to keep happening in some form and the downside risks are just too high to be worth investing in.
Catalogue music now commands a solid majority of the attention in the musical space—so the work of classic rockers that have endured into modern times, like Neil Young and the Rolling Stones, is a big draw with the combination of standard tunes and ongoing tours. Joe Rogan has a massive audience—more than Neil Young, most likely—but the departure of Young is not without cost in terms of subscribers and image. And a subsequent exit of a few more top tier artists could actually force an existential crisis at Spotify sooner rather than later. But that’s not too likely to happen. So what is?
Spotify will largely continue to go head to head with Apple Music and a few other, smaller competitors. It draws a young, enthusiastic audience where Apple may be targeting a mature, enthusiastic audience—I don’t know that actual demographics are available. But I can say that Spotify does effective social media marketing with their annual “Wrapped” year in review and automatically generated playlists. They made some interesting acquisitions in the podcasting space aside from Rogan’s show, though the returns so far have been modest. Over time Apple Music will probably copy their strengths, offer much the same catalogue (maybe even a couple more classic rockers), and strategize with Apple’s essentially unlimited bankroll (Hire away podcasters? Hiring known stars to do podcasts is probably more in line with Apple’s style).
When Spotify listed, I wondered about the competition from Apple (AAPL) Music. It seemed like they were Spotify’s biggest threat (unlike the short-lived Rdio). But maybe that wasn’t the worst situation, plenty of duopolies are preserved by regulators to preserve the appearance of competition. Then when they signed Joe Rogan, I decided that I had to concede that he may now be their biggest threat. After having held Apple and avoided Spotify stock before this latest news cycle, I see yet more reason to continue that going forward.
Disclosure: Through personal holdings that I control and through investment LLCs in which I am a partner, I buy, hold, and sell stocks, bonds, ETFs, options, NFTs, and cryptocurrencies, not limited to but including some of those discussed in this newsletter.