Tech giant Apple Inc AAPL announced Podcasts Subscriptions, described as a global marketplace for listeners, at its Spring Loaded event in late April.
Soon after, music streaming service Spotify Technology SA SPOT announced a similar paid subscription platform for podcasters.
An analyst at Loup Ventures analyzed what each of their podcast subscription platforms means for them.
Podcast Offering a ‘Hands-off Hobby' For Apple: As of now, podcasts are more of a "hands-off hobby" for Apple, rather than a dedicated project, Loup Ventures' Gene Munster said.
It is a way of keeping its users engaged with its first-party apps and maintain leadership in an important content category, he added.
"By staying a leader in an important category, it gives Apple optionality to more aggressively pursue expansion and monetization of the medium in the future," Munster wrote in the note.
The podcast marketplace, according to Munster, could add just over $600 million in revenue by fiscal year 2026, out of the estimated total revenues of $460 billion. Given the service has an 80% operating margin, it would account for about 0.5% of the operating income.
"A small percentage, but impressive given it takes a lot to move the needle for a multi-hundred billion-dollar revenue company," the analyst said.
The podcast marketplace, though will be small for Apple, is another offering that furthers user engagement with Apple services, increasing the stickiness of Apple's ecosystem, according to Munster.
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Big Bet For Spotify: Spotify has communicated in the past it is betting the company's future on podcasts, with a mission of becoming the world's leading audio platform, Munster said. The analyst sees logic in this vision, as podcasts offer more attractive unit economics than music.
Spotify's margins aren't really attractive, given the need to pay recurring royalties for music content to record labels and publishers having substantial leverage, the analyst said. Margins have been flatlining around 25%, he added.
"In order to achieve mid to high-30% gross margins, similar to Netflix, Spotify must add high-margin revenue, which is what makes podcasts attractive," Munster wrote.
Spotify is producing and acquiring more original content, which offers better margins than licensed music, Munster noted.
The company, the analyst said, is adopting a more aggressive podcast strategy, including investing in exclusive and original content, building an ad network and marketplace for more targeted advertising, and being creator-friendly with lower marketplace take rates.
At last check Wednesday, Apple shares were down 0.039% at $126.85, while Spotify shares were up 0.69% to $238.39.
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