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by Stephan Bauer, Euro am Sonntag
Attack is the best defense – this is obviously the motto of Daniel Ek, founder and head of the music streaming service Spotify. Ek, who as a 16-year-old applicant once flashed off at Google and, years later, was banned from going to the New York office of the search engine giant because he was constantly recruiting employees, is again messing with the big ones. Ek has just agreed a multi-year deal with the US podcast star Joe Rogan. Rogan, an ex-comedian, will bring the most-heard podcast in the US exclusively to Spotify from September – and competitors like Apple will then be out.
“The Joe Rogan Experience” is thanks to interviews like that with Elon Musk, in which the Tesla boss approved a joint live in front of the microphone, the most popular professional chat in the USA with 190 million monthly listeners. Ek pays him a whopping 100 million dollars – with good reason: The number of listeners to the podcasts skyrockets. And celebrities like Rogan have enough traction to bring a lot of new customers to Spotify.
At the end of March, the Swedes had 286 million monthly active users worldwide, which makes up a good 30 percent market share worldwide. However, a strong boost in the number of listeners cannot hurt. Spotify is still writing losses, in 2020 it is expected to be almost 180 million euros before interest and taxes with sales of up to eight billion euros.
A reason: Music is expensive. Spotify has a gross margin of a good 25 percent, meaning that almost 75 cents have been paid for license fees – most of it for rights to pieces of music. Then the web broadcaster has to add costs for marketing or music editing, which uses intelligent software to recommend suitable titles to the listeners depending on their preferences.
Reduce variable costs
The deal with Rogan, as costly as it seems, makes sense in the long run because it hardly poses variable costs. The larger the audience of the 52-year-old star chatter, the more profit for Spotify – and the higher the company’s margin. Ek’s podcast offensive is not limited to Rogan, however. He invested over 500 million euros and bought well-known studios such as Gimlet and Parcast.
The business model is approaching that of the TV streamer Netflix, which also relies on self-produced content that can be played indefinitely without additional costs. Spotify’s margin should therefore increase in the future. In addition, business proved to be robust even in Corona times: in the most recent quarter, the 130 million subscribers brought 1.7 of the scarce
1.9 billion euros in sales. The rest earned advertising revenue from the free offer – only here the crisis had a negative impact. By the end of March, the number of paying customers had also increased by more than 30 percent compared to the previous year. The podcast boom is likely to push Spotify over the break-even point in the coming year at the latest.
Thrust: Wall Street accepted the expensive exclusive deal without hesitation, the share made a new start at its all-time high.
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