Spotify trims podcast unit: Is the medium still relevant for adland players?

This week, Spotify revealed that it would be conducting another round of layoffs, just a few months after its previous wave of job cuts. This particular wave will affect the podcast division, wherein approximately 2% of Spotify’s workforce in this unit will be let go.

According to Spotify in a statement, it is expanding its partnership efforts with leading podcasters from across the globe, with a tailored approach optimised for each show and creator which marks a fundamental pivot for Spotify in order to support the creator community better. 

Consequently, in order to adapt and create optimal organisation, Spotify made the "difficult but necessary" decision to make a strategic realignment of its group and to reduce the global podcast vertical and other functions by approximately 200 people, according to Sahar Elhabashi, VP, head of podcast business.

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Despite the layoffs in its podcasting division though, Spotify affirmed that it continues to be the most-used audio podcast platform in most countries globally and that since it entered the space in 2019, has seen over 100 million podcast listeners on the platform. 

It also reported that consumption has grown by over 1,400% and that podcast content has increased from 200,000 titles to over five million shows on Spotify today. Podcast ad revenue also experienced a high double-digit growth from 2021 to 2022, according to Spotify. 

Globally, podcasting as a medium is also expanding rapidly and as the arena matures, more and more brands are also investing in the space. IAB and PwC predict that by 2024, the medium will be worth over US$4 billion in the US.

If this is the case, why is Spotify opting to downsize its podcasting division and could its renewed strategy signal a change in the industry and trends? 

The answer could lie in the fact that the podcasting industry as a whole is maturing and is becoming more consolidated, according to Eitan Goldstein, the communications manager at Propel PRM. "Something that’s important to take into consideration when looking at these layoffs is how Spotify’s podcast team is structured," said Goldstein.

The company bought both Gimlet and Parcast back in 2019 and they operated more or less like independent entities. Now, Spotify is combining these companies into one entity called Spotify Studios, said Goldstein before nothing that given that both Gimlet and Parcast were podcast networks in their own rights, there are likely to be many parallel positions within the two firms which created a lot of redundancies.

"I wouldn’t be surprised to learn that these redundant positions are the ones being eliminated as part of Spotify’s efforts to both streamline its podcast services and cut costs in light of today’s economic climate," he said. 

Meanwhile, Antony Yiu, PHD HK CEO believed those laid off are the original podcasters created by Spotify.

It appears Spotify is looking to leverage its platform to build a better relationship with major podcasters rather than creating its own Podcast content.

Is this a sign that the podcasting industry might be slowing?

However, PHD HK's Yiu said there's little sign of slowing within the podcasting industry as podcasts have been booming significantly since last year, and clients are also tapping into podcast for advertising. "More people are tuning into podcasts in Hong Kong, especially for high-net-worth individuals, given that most of the podcast content that draws the most listeners is English," he added. 

One of the reasons why podcasting as a medium largely exploded in popularity is due to its low barrier to entry. "In fact, it's become a running joke that literally anybody with an opinion and an internet connection can start a podcast, and these have, in part, helped fuel the medium’s recent massive growth," Propel's Goldstein said. 

"However, as the industry matures and consolidates, I believe that the strongest podcasts will survive. I think podcasting will continue to grow and attract more listeners, but I believe that we’re beginning to see the rate of expansion slow to a healthier, more stable rate."

As a result, there will likely be a significant cut when it comes to low level podcasts which can lead to an overall reduction in the number of podcasts.

However, I believe that this will strengthen the podcasts that remain, as their staying power will enable them to stand out."

A shift in how adland players think of podcasting

Looking at how the shift will eliminate lower-level podcasts with less substance, Goldstein posits that eventually, the medium will have the potential to be considered a part of mainstream media as the industry further matures, and that people will soon be talking about podcasts in the same breath as television, radio, and newspapers.

In fact, it would seem those in the advertising industry agree with the increasing legitimacy of podcasts as a medium for advertising. In a recent study by Propel, it was found that PR professionals pitched podcasts 21.23% more in Q1 of 2023 than they did in Q4 of 2022.

Both the average open rate and response rate for podcast PR pitches increased this past quarter as well. In fact, the open rate increased from 69.95% to 75.16%, and the response rate increased slightly from 14.61% to 15.06%, according to Propel.

It's no surprise because advertising on podcasts has proven to be a highly successful endeavor by adland players. On its blog post, Spotify said that industry-wide, advertisers saw an average conversion rate of 1.28% from their podcast campaigns, with pre-roll as the most effective placement. Consumer insight companies such as GWI also say that 12% of consumers surveyed discover new brands and products through podcast ads and sponsored content - a small jump from 10% in 2019. 

As a result, this maturation of the podcasting industry will likely help adland players to cut through the noise and better enable them to pinpoint which podcasts to pitch to get their organisations’ message across. Specifically, it will enable them to reach the right audience, not simply the largest number of people, said Goldstein.

It is crucial to also note that advances in technology should be embraced as time goes on as it empowers advertisers to leverage automation to gain scale and reach through programmatic and advancements within programmatic, such as dynamic ad insertion, said Leela Nair, MD, APAC of Ebiquity.

Efficacy of campaigns will be able to be measured down to impression level and the technology ensures that consumers do not repeatedly receive the same ads during a podcast. In the past, scaling ad spend on podcasts has proven more difficult than anticipated.

As the interest in using podcasts for advertising has increased significantly over the years, PHD HK's Yiu said that now it’s more about matching the right podcast to client’s campaign brief rather than using it through open exchange buy. 

After all, as Kevin Kan, the CEO of Break Out Consulting Asia said, we live in a content driven world and there will always be a need for podcasts as more people get busier and where time is at a premium, a fact that suggests that the podcast industry is not slowing down and that it will not in the foreseeable future. 

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