Does Spotify want to be more like Netflix or like YouTube?

Spotify’s latest earnings call on Wednesday revealed a crucial bifurcation in its podcast strategy that will likely be unsustainable.

On the one hand, Spotify’s podcast catalog as a whole is larger than ever: There are now 1.5 million shows on the platform, 50% of which launched in 2020. Three-quarters of these new releases are powered by Anchor, a podcast hosting, distribution and monetization platform that Spotify owns.

On the other hand, Spotify is also making aggressive investments in original content and exclusive licensing deals with some of the world’s best-known personalities. The company spent $650 million on podcast-related acquisitions between February 2019 and February 2020, and has amped up that spending via exclusive deals with Joe Rogan, Warner Bros., Michelle Obama and Addison Rae. Countless critics and analysts have decried the inevitable downfall of the open podcast ecosystem that these deals foreshadow.

With this backdrop, I think Spotify is at an inflection point where it has to make a critical decision about its future: Does it want to be more like Netflix, or more like YouTube?

This decision is partially about business. After all, exclusive content is expensive. Moderation and oversight of an open content ecosystem is also expensive, and fraught with its own technical, legal and political challenges. I do not know of any companies that have succeeded at doing both at the same time.

But this decision is also about a deeper philosophy. Back in November, I argued that it’s unclear whether Spotify actually believes its own mission statement of “giving a million creative artists the opportunity to live off their art,” as consumer-facing subscriptions, not artists’ livelihoods, remain the company’s bread and butter and No. 1 business priority. A similar fracture is emerging if you look specifically at podcasts. After all, you arguably cannot accomplish the goal of fostering a thriving, open ecosystem of user-generated creative content if your business-development efforts prioritize only a select few stars.

Let’s go through each side of the Netflix-vs.-YouTube decision one-by-one:

The Netflix approach

Netflix is a closed platform with a high level of content moderation, by nature of how the service has a direct hand in either producing or licensing the content that appears on its platform. In addition, Netflix is not free; viewers have to pay a subscription fee ranging from $9.99 to $15.99 after a 30-day trial. As of April 2020, Netflix has over 180 million subscribers.

A lot of Netflix’s perceived value on Wall Street comes from its extensive slate of intellectual property (i.e. original films and shows) with a strong, consistent point of view. See, for instance, its Strong Black Lead initiative, or its general approach to greenlighting shows that combine local culture with universal storytelling themes. (Even its sprawling collection of trashy reality shows communicates a strong point of view in terms of its target audience.) The premium quality of a lot of Netflix’s slate of IP also makes it ripe for adaptation into other entertainment formats, such as books.

How does this relate to Spotify? People have understandably been comparing Spotify and Netflix for years: They are both market leaders in their respective playing fields by number of paying subscribers, and have both played a major role in their respective industries’ transitions to streaming. Many analysts have suggested in the past that Spotify become the “Netflix of music,” signing and releasing artists directly in order to bypass the need to give 70% to 80% of their revenue every quarter to music rights holders.

Initially, I thought the “Netflix for music” concept missed a lot of nuance about the major differences in these two companies’ respective approaches to product development, revenue models and licensing. For one, every time Spotify has tried to bypass major labels with their own artist-development With video in particular, Spotify was ready to dive headfirst into launching as many as 12 short-form, original video series about music in 2016 — only to scrap all of them just a year later.

There are still loose remnants of Spotify’s music-related video strategy in their looping Canvas feature, and in their hybrid “enhanced album” playlists released in partnership with the likes of Khruangbin, Oliver Tree, Taylor Swift and Alec Benjamin. But on the video side, the general consensus is that Spotify tried to be like Netflix — acquiring and releasing exclusive video content — and failed.

Shortly thereafter, Spotify claimed to invent a new entertainment format called Spotlight that layered photos, video and text above podcasts for a multimedia listening experience; BuzzFeed, Genius, Refinery29 and Daniel Ek’s wife Sofia were among the format’s early beta users. In hindsight, this was nothing new because it was actually just like… every video online. After a flurry of announcements about Spotlight in 2018, the public never heard about it again.

What stands out to me with all of these failed early experiments was that Spotify was trying so hard to innovate around the product and format of video and podcasts on its platform. Given that they were a market leader in algorithmic recommendations and discovery on the music side, they were trying to be just as cutting-edge on non-music content by leading with technology, rather than with programming.

In contrast, their approach to podcasts today feels super old-school: Instead of trying to lead with a technology or product play, they’re trying to lead with a talent and IP play, partnering with or buying out the best personalities to create original, exclusive content and increase the service’s brand equity. There’s also a ripe opportunity for adaptation in the podcast world — which we’re already seeing with Spotify-owned Gimlet’s new show on Quibi, and Spotify-owned The Ringer’s upcoming docuseries with HBO.

In other words, Spotify is acting more like a traditional media company than like a tech company, and a lot more like Netflix in a way that they could have never accomplished with music.

The YouTube approach

Now let’s move over to YouTube, which is in almost all ways the opposite of Netflix.

YouTube is a 100% open platform that anyone can use for free. They reach over two billion users around the world — over 11x higher than Netflix’s reach — and, for better or for worse, the former platform has relatively little content moderation beyond extreme cases (and moderation is being increasingly automated anyway).

Unlike with Netflix, YouTube’s slate of original IP has largely flopped. Most importantly for today’s discussion, as an open platform, YouTube is arguably not in the business of having a point of view. Instead, the platform leaves communicating points of view to the creators in a more decentralized way — a stance that has received ample critique in recent years, especially in the wake of political hate speech and conspiracy theories.

Spotify could easily go in the direction of becoming a more open YouTube for audio, rather than a more closed Netflix for audio. After all, as mentioned earlier, Spotify now has 1.5 million shows on their platform, and much of their momentum on Wall Street comes from the sense of scale that they’ve achieved both on the supply side (tens of millions of songs and shows) and the demand side (nearly 300 million monthly active users).

With the recent launch of videos for select podcasts on its platform (example pictured below), Spotify is inching even further into YouTube’s territory in terms of the core user experience.

But this approach inherently conflicts with Spotify’s growing resemblance to Netflix, especially along the axes of content moderation and community engagement.

Firstly, podcasters are arguably nothing without their community of listeners. Platforms like YouTube have been essential in the growth of so many podcasts not just because they are open and optimize for discovery, but also because features as simple as commenting allow hosts and listeners to connect and exchange ideas with each other beyond the confines of a given episode.

As I’ve argued in the past, Spotify has little to no community-building tools, because there’s an inherent conflict between strengthening creators’ relationships with their audiences as a more open platform and taking more aggressive ownership over that audience relationship as a more traditional media company.

Secondly, there have been many instances in the past of bad actors uploading infringing content to Spotify through a podcast distributor (e.g. Cardi B’s entire discography), which will likely become as big of a headache for Spotify as it has been for more open platforms like YouTube and SoundCloud over the past several years. A company like Netflix, with its tightly-controlled ecosystem, does not have to deal with this issue on-platform.

Last but not least, one of Spotify’s biggest podcast deals to date has been with Joe Rogan, who cut his teeth in a YouTube world and has been largely able to run free and talk about whatever he wants on his show. Often, this has led to interviews that would violate Spotify’s own content guidelines.

For instance, in one of his recent episodes, Rogan talked with Abigail Shrier about how being transgender or trans-identifying is a “social contagion” among young teens, equivalent to anorexia or cutting. I think this rhetoric goes strongly against Spotify’s messaging of diversity and inclusion in their own original podcast slate, and in their other podcast initiatives such as the Sound Up bootcamp that cater specifically to women, people of color and the LGBTQIA+ community. As Media Matters reported, both YouTube and Spotify ban hate speech or content that incites hate or violence against people based on gender identity and many other attributes.

Should Spotify be stricter about enforcing its content guidelines with Rogan now that they paid $100 million for an exclusive licensing deal with him, or should they let him continue to run free like he was able to do on YouTube — even if it would potentially alienate a large chunk of Spotify’s target audience (i.e. a diverse group of millennials and Gen-Zers) in the process?

To sum up: Spotify wants to pursue a Netflix approach of paying top dollar to acquire and greenlight exclusive, original podcast shows, building out a valuable slate of IP with a strong, differentiated perspective. But Spotify also derives a lot of its value and capital from acting like YouTube, namely achieving unmatched scale on both the supply/content side and the demand/audience side, making major sacrifices in quality control along the way.

These two approaches are both expensive and inherently conflict with each other, and Spotify has remained surprisingly ambiguous about its true stance on the role it plays in the podcast industry. In fact, this whole conversation can boil down to a simple question: Is Spotify ready to have a point of view?