Joe Rogan hasn’t saved Spotify yet

Spotify’s foray into the podcast business last year is no longer music to investors’ ears. The song-streaming app’s failure to reap the results it hoped for illustrates the challenges of getting the music industry to buy into the social media business.

On Friday, Citi analysts downgraded Spotify’s stock from “neutral” to “sell.” The reason? The company’s latest growth metrics “do not show any material benefit from recent podcast investment,” Citi said, according to CNBC.

In 2019, the streaming platform paid nearly $800 million for podcast companies and content. Hoping to cash in on the podcast boom and boost advertiser interest and premium memberships, Spotify purchased Gimlet Media, Anchor, Parcast, and The Ringer. It also struck a $100 million exclusive licensing deal with Joe Rogan, a politically incorrect commentator who hosts one of America’s most popular podcasts and Spotify’s No.1 show. Rogan built a following by tackling subjects other talk-show hosts won’t touch: In the fall, he hosted Abigail Shrier, author of a book decrying the transgender movement’s seduction of teenage girls.

Spotify signed deals for more exclusive podcasts from Kim Kardashian, the Duke and Duchess of Sussex, and Michelle Obama. The platform boasts about 2 million podcast episodes, not all exclusives.

On social media sites like Facebook, Instagram, and YouTube, users generate the content and receive payment from advertisers, sponsors, or the platforms themselves according to the popularity of their posts. But Spotify gets its content from the music industry and has to pay a record company every single time a user streams a song. Spotify’s paid subscribers through last year’s third quarter increased to 144 million in 92 countries from 113 million in 2019’s third quarter. It wasn’t enough to put a dent in the company’s expenditures.

Spotify chose to keep its podcasts free to users in hopes advertising revenue would follow, but it needs a lot more ads to cover its costs. And asking listeners to pitch in for podcasts they have been listening to for free could send them fleeing to other platforms.

“Our fear is that if podcasting doesn’t provide a way for Spotify to shift away from music label dependence, [investors] may reassess the underlying value of the business,” the Citi analysts wrote. “And, that would be bad for Spotify’s multiple and equity value.”