Spotify’s margins have been affected by music labels’ bargaining muscle
Music streaming giant Spotify (SPOT) has had minimal bargaining power in acquiring licenses from labels Warner Music Entertainment, Sony Music Entertainment, and others. These labels have exerted significant pressure on the company’s margins. While Spotify has gradually been improving its margins and trying to circumvent the labels by directly dealing with artists, the company has to find other ways to expand margins and generate steady earnings.
The company has been doubling down on podcasts in order to reduce the impact of the labels on its margins. Earlier this year, the company announced that it acquired podcast companies Gimlet and Anchor for around $339 million as a part of its podcast push and said it wasn’t done acquiring podcast companies.
Spotify is acquiring Parcast, a true crime studio
On Tuesday, March 26, the company announced that it acquired Parcast, a small podcasting studio that has already launched 18 premium podcast series so far. Parcast also has over 20 shows in the pipeline this year. Parcast mainly focuses on genres like mystery, crime, and science fiction.
Spotify is trying to differentiate its service as it faces cutthroat competition from tech giants. Apple Music is its closest competitor, but Amazon and Google also have their respective music subscription services.
Spotify could do to podcasting what it did to music by offering curated and personalized playlists. Spotify’s CEO Daniel Ek is very bullish on podcasting. He said last month that he expects podcasts to make up 20% of the platform’s usage and that users who listen to podcasts on the company’s platform spend twice as much time on it compared to those who don’t.