Even though Spotify continues to see strong subscriber growth, the additional scale hasn’t resulted in dramatically improved financials. The problem is found with the high variable costs associated with music streaming. For every dollar that Spotify brings in the door, only 25 cents is left to cover the costs of running the business after accounting for music rights and other cost of goods sold.
In early 2019, Spotify began betting big on podcasts. Since the start of 2019, Spotify has spent more than $600 million buying Gimlet Media, Anchor, Parcast, and most recently, The Ringer. By getting into podcasts in a big way, Spotify is trying to evolve from a dedicated music streaming service dependent on music rights holders for achieving profitability to an audio company
One of the primary goals in developing an audio platform consisting of podcasts is to generate higher gross margins by having subscribers spend time listening to something other than music. With a captive audience of hundreds of millions of people, Spotify is in an interesting position to be more of an advertising company.