Why is Sony Music investing so much in podcasts?

Like Spotify, Sony Music Entertainment no longer wants to be known just as a music company.

Over the past several months, Sony Music has been investing aggressively in content that, at least on the surface, has nothing to do with music. Those investments include at least five different partnerships and joint ventures with third-party podcast production companies — Somethin’ Else (U.K.), Broccoli Content (U.K.), The Onion (U.S.), Three Uncanny Four (U.S.) and Neon Hum (U.S.) — spanning topics including daily news commentary, investigative features, comedy/satire, politics and even family and parenting issues. There are also a few Sony-internal podcast projects underway, such as For Life: The Podcast, which is based on the eponymous legal drama on ABC and is produced in partnership with Sony Pictures Television.

Sony Music has hired several executives from outside the traditional recorded-music sector — i.e. from media, podcasting and ad-tech companies like Entercom, Pandora, Megaphone and Acast — to help usher itself into this new, diversified era.

But amidst its deluge of press releases, the company has remained weirdly quiet about one crucial question: Why???

Why is a legacy, nearly century-old musical institution suddenly deciding to be a newcomer to a content format with a rather Wild-West approach to business models, in a way that doesn’t really tie back to the institution’s existing core strengths and revenue streams?

Fortunately, I got to dig a bit deeper into these questions yesterday at the Hot Pod Summit — which took place at the Wythe Hotel in Brooklyn for around 200 handpicked audience members from across the podcast industry, spanning everyone from independent producers to tech platforms and more corporate financiers, as part of the annual On Air Fest.

Alongside Nick Quah (founder/publisher of Hot Pod), I co-moderated a panel about Sony Music’s podcast expansion that featured Christy Mirabal (VP of Marketing, Podcasting at Sony Music), Laura Mayer (Co-Founder/COO at Three Uncanny Four Productions) and Renay Richardson (CEO of Broccoli Content) as speakers.

We kicked off the panel by addressing this key question of why, from both the label’s and the producers’ perspectives. Quah in particular was quite blunt about his feelings regarding Sony Music’s podcast moves: “I don’t trust you at all. I see it, I get it — but what are your intentions?”

Mirabal cited recent findings around overall growth in audio consumption, plus increasing awareness of podcasts specifically (see the latest Infinite Dial report for details), as an opportunity for a label like Sony Music to expand and diversify its business into other kinds of audio properties beyond recordings.

But what stood out to me more was Mirabal’s emphasis on platforms, not just end-user consumption, in driving Sony Music’s decision-making. “The idea that the same players that are starting to coalesce in podcasting are also some of the biggest players on the music side definitely informed our decision to start a podcast division,” said Mirabal. “We know those players and how to work with them, and that’s a strength we can bring to the table.”

To me, this sounds like a diplomatic way of saying that Sony Music’s foray into podcasting is a direct — and in many ways competitive — response to Spotify.

Spotify now has a stake in almost every source of value in the podcast industry: content (production companies), distribution (streaming platforms) and monetization (ad technology and marketplaces). This verticalization likely gives Spotify more leverage in licensing negotiations with Sony Music and other major record labels.

But I think Sony is essentially betting that it can erode that position of power by diversifying its own content and intellectual property into the kinds of verticals that Spotify might need most, especially beyond music.

“We’ve got certain things up our sleeves that would touch different verticals for our partners, which is a slight shift” from how the label side of Sony Music traditionally engaged with streaming services, said Mirabal. In other words, future Sony Music-backed podcast projects could live, say, within the sports or comedy verticals on Spotify, instead of being delegated by default to music.

Mirabal also insisted that Spotify is “a very important partner of ours,” rather than a competitor. But as of now, Sony Music isn’t making any podcast-specific revenue directly from Spotify (yet); rather, it’s pulling in revenue from traditional ad deals off-platform, as most other podcasts in the world do today. This is a stark contrast to music, in which Sony is likely making between 10% and 15% of its recorded-music revenue from its direct licensing deal with Spotify alone (assuming directionally similar finances to those of its major-label rivals).

Hence, I don’t think it’s unfounded to assume that Sony Music and Spotify are competing directly — for listening time, for ad dollars and especially for talent.

Speaking of which: from the producers’ perspective, one important panel takeaway for me was the impact of local market context on how producers evaluate potential partners.

For instance, in the U.K., Sony Music’s podcast properties may well be competing head-to-head for listener share with the BBC and other terrestrial-radio incumbents, who would otherwise be key partners to Sony Music on the record-label side.

“Speech radio in the U.K. is dominated by the BBC. I think they reach four million people daily and they’re happy with that,” said Richardson, whose company Broccoli Content focuses on highlighting minority talent and voices. “But then that means they’re happy with not serving the 64 million other people in the country. Content for the U.K. doesn’t just have to be about Strictly Come Dancing or Love Island — there are so many other important things going on. We need more opinions and a wider variety of perspectives. That’s what I’m trying to highlight, and Sony Music has been supportive of that.”

Richardson added that BBC Studios approached her in year one of Broccoli Content’s operations to be a potential partner, but then she “realized I would outgrow them within six months, because they’re so restricted in what they can do.” She cited Broccoli Content’s news-commentary podcast, Your Broccoli Weekly — which plans, at least in some episodes, to “talk about racism in a real sense rather than pretending it doesn’t exist” — as a key example of the angles she hopes to highlight in her work.

Beyond geography-specific competition, two overall partnership benefits that both sides of the table cited during our panel were Sony Music’s gargantuan marketing and PR infrastructure, and the company’s historical expertise in artist development.

“What I’ve been really impressed by, just in working with a company that’s not a podcast company, is how [Sony’s] PR machinery works,” said Mayer, who worked at WNYC, Panoply and Midroll prior to launching Three Uncanny Four. “Certainly with the first season of BROKEN, it was promoted in such a way both in earned media and in drumming up interest in the show that I had never seen at any of the other podcast networks I had worked at previously.”

To me, Sony Music’s approach to “artist development” for podcasting seems both longer-term and more creatively freeing, yet also more fragmented, than what I’m used to seeing on the music side.

“I call myself a rough diamond, or maybe more of a rough rock,” said Richardson. “Sony is used to dusting off the mud and developing artists and helping them get to where they want to be. That’s what I see them doing with podcasting as well.” Mirabal also pointed out that there’s no “chief content officer” at Sony Music’s podcast division (unlike, say, at Gimlet), which supposedly gives producers more creative control than they might get elsewhere.

But Sony is also banking on longer-term investments in podcast-production outfits as a whole, rather than in singular series — perhaps the rough equivalent of opting for multi-album record deals over single deals.

“We’re not best set up right now to do one-off shows,” said Mirabal. “We’re looking for people who have a bigger vision, a demonstrated track of success and a slate of really high-quality programming that we can work with.”

I was also surprised at how little the producers on the panel were involved in handling their own distribution — alluding to the heavily siloed division of labor between creative and business functions that we saw in old-school recording deals. “I don’t do a whole lot of interfacing with [streaming] platforms — that’s mainly Christy and her team doing it on our behalf,” said Mayer. “I’m primarily just trying to make podcasts.”

That said, Mirabal added that her team at Sony is much more hands-on in their collaborations with producers than what might happen at traditional podcast networks. “Normally if a show is signed to a network, you might get some consulting or best practices from someone in my position, but you don’t get someone literally all but embedded on your team,” she said. “Someone on our team is interfacing with [Laura and Renay] every day, and it goes beyond marketing and monetization — we have dedicated recruiters to help build out their teams … we don’t have one finance person, we have an entire finance department that has been doing analysis of the audio space for decades. It’s a much more integrated offering for creators.”

One rift that I’m still wrapping my head around, though, is the inherent difference in value over time between recorded music and the numerous news podcasts that Sony Music is greenlighting.

For instance, to date, Three Uncanny Four has launched two “pop-up” news podcasts under the Sony Music umbrella — BROKEN: Jeffrey Epstein and Viral: Coronavirus — that were conceived of and launched with unusually quick turnaround times. BROKEN was announced just over two weeks after Epstein’s death at the Metropolitan Correctional Center in New York, while Viral was announced the same day the CDC confirmed the first coronavirus case in the U.S.

“Adam [Davidson, Co-Founder/CEO of Three Uncanny Four] and I have had a lot of ambition to do work that requires more resources — particularly investigative journalism, which isn’t cheap and sometimes isn’t profitable,” said Mayer. “A pop-up news podcast is short-term by definition, but we’re able to do that because of the long-term investment we have from Sony and the different kinds of expertise we’re able to have in-house as a result. Sony has a longer view on the market, while also allowing us to make calculated bets on the more breaking-news experiences we think should be out there now in the podcast space.”

If these newsy projects hit a mainstream chord, I think Sony Music will seriously have to reconsider the kind of entertainment value it brings to the table.

As I wrote back in 2018, news operations tend to run a perpetual race against time, taking the ephemeral value of their core product as given. In contrast, the business models of both record labels and streaming services tend to reward content that maintains or increases its value over time. According to Nielsen, back catalog (i.e. catalog older than 18 months) now accounts for 70% of all annual music consumption in the U.S.; according to a 2015 analysis from former Spotify economist Will Page, roughly 40% of new tracks on the streaming platform ended up being more profitable in year two than in year one.

This is great news for Sony Music — which, if it’s like the other major labels, makes most of its money from decades-old back catalog generating millions of dollars of passive income in the company’s sleep.

But will that same trend ever come to fruition for Sony Music’s podcasts? The only way I see that happening is through some kind of media franchising — i.e. adapting a given story or narrative across multiple different forms of media. Gimlet runs its own film and TV division; Wondery adapted its podcast WeCrashed: The Rise and Fall of WeWork into a limited series for Apple TV+; Spotify-owned The Ringer recently nabbed a music documentary series with HBO for a 2021 release.

Sony Music would be wise to pursue a similar development funnel in order to stay competitive — even if it’s a rather different approach from that of music, which doesn’t rely so much on “franchising” or advertising as it relies on traditional, consumption-driven licensing deals.

In that vein, another big takeaway from my panel is that the music and podcast divisions at Sony Music don’t seem to talk to each other that much — a silo that also characterizes the respective divisions at Spotify and Apple.

Richardson did mention that she sits next to Black Butter Records in Sony Music’s U.K. office, while Mirabal mentioned that Sony Music is looking into making more music podcasts, which would give the label an inherent advantage from a licensing perspective. And perhaps some degree of siloing might be a good thing, especially because podcasts that act merely as marketing vehicles for recorded music might not be that attractive to music or podcast fans.

Where I do see the music and podcast industries overlapping more is in conversations among independent creators about the actual quality of these corporate deals, and whether they’re even worth it given the open nature of the podcast format in itself. In fact, a time-old tension in the recording business is also now emerging as one of the most important questions in the podcast business, as the likes of Spotify and Sony Music come to the table with fat wallets: in Quah’s words: “Do you take investment money, or try to grow organically?”  🌊

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P.S. In the process of doing research for this piece, I was looking up Sony Music’s various podcasts on Spotify, and realized that it’s currently impossible for individual podcast networks or producers to have their own Spotify profile pages that consolidate their shows in a central location — just like there are no such dedicated pages for record labels.

I think this UX flaw is even worse for the podcast industry than for the music industry, as podcast networks are often a key resource for listeners looking to discover new shows. In the other direction, making it easier to cross-pollinate audiences across shows within a given network on the same platform can improve said network’s conversations with advertisers. If podcast networks/producers don’t end up getting their own profile pages, they’ll face the exact same issue that musicians are facing today, in terms of having to go off-platform to build audience loyalty more effectively and in an environment they can control.