On the Spotify-Joe Rogan Deal and the Coming Death of Independent Podcasting

Spotify is trying to do to the open podcast world what Google did to publishers.

Hi,

Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

Today I wrote about Joe Rogan’s exclusive deal with Spotify, which I think is very important. Here’s what else I wrote about:

  • The government just punished McKinsey.

  • Softbank collapsed. What does this mean for the tech sector?

  • Trump handed out a large contract to create a domestic industry for generic pharmaceutical chemical production.

  • Are Apple and Google blocking a major new mobile industry segment?

First some house-keeping, I was in Farhad Manjoo’s grim New York Times column, The Worst is Yet to Come. Also, Zach Carter, who is a friend, wrote a wonderful and important book called The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes. I’m going to be writing more about this book, since we’re in an era dominated by the Federal Reserve and monetary policy, and the politics trace their origin to Keynes’s philosophy about power.

And now…

Photo credit to Matthew Keefe.

The Death of Independent Podcasting: Yesterday audio streaming giant Spotify announced a deal with podcast king Joe Rogan, with the Wall Street Journal reporting that Rogan will be paid more than $100 million over several years in return for making his insanely popular show exclusive to the Spotify service. This is huge news. Investors were pleased; Spotify’s stock was up 8.42%, which is roughly $2.5 billion, or twenty five times what Rogan will be paid. (UPDATE: It was up another 7% the following day.) From the perspective of someone who appreciates independent voices and an independent press, however, I’m concerned.

Back in February, after Spotify bought the podcast production company of Bill Simmons with its bevy of popular content, I wrote up how Spotify is trying to monopolize the podcasting market.

To explain Spotify’s strategy, I analogized the current podcast market to the web in the mid-2000s. As the web used to be, today podcasting is an open market, with advertising, podcasting, and distribution mostly separated from one another. Distribution happens through an open standard called RSS, and there’s very little behavioral ad targeting. I’m asked on fun weird podcasts all the time; podcasting feels like the web prior to the roll-up of power by Google and Facebook, with a lot of new voices, some very successful and most marginal, but quite authentic.

So what is Spotify trying to do?

First, Spotify is gaining power over podcast distribution by forcing customers to use its app to listen to must-have content, by either buying production directly or striking exclusive deals, as it did with Rogan. This is a tying or bundling strategy. Once Spotify has a gatekeeping power over distribution, it can eliminate the open standard rival RSS, and control which podcasts get access to listeners. The final stage is monetization through data collection and ad targeting. Once Spotify has gatekeeping power over distribution and a large ad targeting business, it will also be able to control who can monetize podcasts, because advertisers will increasingly just want to hit specific audience members, as opposed to advertise on specific shows.

As I wrote in February.

No advertiser will care if you’re a listener of Joe Rogan or Bill Simmons, only that you are a 34 year old male with a certain income reachable in thirty forty different audio slots, which can then all go in an auction. Or even if they do care, competitive ad networks who offer the service you want will probably die. Then, just as the New York Times content becomes far less important online because Google can just find you that New York Times reader through another publisher outlet or Google’s own properties, the actual podcast becomes commodified, because all that matters is the listener data combined with the ad slots, not the show against which those ad slots are sold. This is another complicated way of saying the people who do the work of making and distributing a show don’t get the benefit from the work they do.

Spotify got this power through acquisitions. I noted that “from 2014 to 2020, Spotify bought 15 companies, companies that build everything from data analytics to music and audio production tools to audio ad tools to licensing platforms, and podcasting networks. These companies included the Echo Nest (2014), Seed Scientific (2015), CrowdAlbum (2016), Sonalytic (2017), MightyTV (2017), Mediachain (2017), Niland (2017), SoundTrap (2017), Loudr (2018), Gimlet (2019), Anchor (2019), SoundBetter (2019), Parkast (2019), and now The Ringer (2020).”

This contract with Joe Rogan isn’t a purchase, but it’s an exclusive deal or a bundle. In antitrust parlance, I can see this kind of arrangement being treated as either an exclusive dealing practice or a tying/bundling practice. Antitrust is a bizarre legal area, with a lot of it structured through court-made law instead statute, and many of the practices under its purview blurring into one another. Such is the case here.

The case law on bundling/tying is pretty strong; enforcers have the ability to block those with market power from tying products together for anti-competitive purposes. The trick for tying is that those doing the tying can argue that two products put together are simply being integrated into something new. If you take a mouse, a keyboard, a monitor, and a computer, and combine them all into a new product called a laptop, that’s integration, not an anti-competitive practice.

Exclusive dealing case law is much weaker. While exclusive dealing arrangements can be illegal, in practice courts tend to be quite permissive. The rationale for allowing such restraints is that they have what are called pro-competitive benefits. Spotify might, for instance, be boosting Rogan’s reach to new listeners, and Rogan could be improving Spotify’s service by doing Spotify-specific snippets. So anything lost by rival distributors who can’t broadcast Rogan or by consumers who wish to use a different app other than Spotify is counterbalanced by that benefit.

What’s interesting, with either tying or exclusive dealing, is that Rogan has made it clear that there are likely to be few consumer benefits. He promised his listeners that “it will be the exact same show. I am not going to be an employee of Spotify. We’re going to be working with the same crew doing the exact same show.” The only difference is consumers won’t be able to get the Rogan show through other channels. It’s purely a restraint of trade. In other words, there’s literally no justification for this deal as anything but a payoff to Rogan from an aspiring monopolist who seeks to force Rogan listeners to use the Spotify app. It’s a leverage of Rogan’s legal monopoly over his own copyrighted material to create a distribution monopoly, which was one of the legal issues at stake in the 1948 Paramount decrees case that ended the monopolistic Hollywood studio system.

Now, I can imagine the argument that targeted advertising brings some sort of benefit I’m leaving out, that Rogan’s ad inventory will bring scale for podcast monetization. But the downside to consumers is quite obvious, while no one has been able to show that targeted advertising is a net positive.

Spotify isn’t the only bad actor here. The corporation is under heavy pressure from Amazon, Apple, and Google, all of whom have interests in the streaming music and podcast business, and all of whom can cross-subsidize with other streams of revenue. They also have gatekeeping control over Spotify through app stores. Here’s Spotify protesting to one of Congress’s Antitrust Subcommittees how Apple uses its bottleneck power.

Apple operates a platform that, for over a billion people around the world, is the gateway to the internet. Apple is both the owner of the iOS platform and the App Store—and a competitor to services like Spotify. In theory, this is fine. But in Apple’s case, they continue to give themselves an unfair advantage at every turn.

If you put Spotify where Apple is, and and change a few words so that this describes streaming instead of apps, this sentence describes Spotify’s strategy. They want to become the gateway to streaming, so they can tax the ecosystem. (It’s admittedly a bit more complex since Spotify is indirectly taxing via ad targeting and has to pay for music rights whereas Apple is directly taxing via an app store fee, but the power dynamics are similar.)

Regardless, right now, unlike nearly everywhere else in the media space, podcasting is a good open space with a lot of competition and authentic voices. Regulators and policymakers can step in to protect it. They can still undo the merger of Spotify and The Ringer, and they can certainly initiate an investigation of Spotify’s exclusive strategy as a possible set of attempts to monopolize an industry. Hopefully members of Congress will start asking questions.

No Thank You to McKinsey: The General Services Administration just removed McKinsey from its pricing list. Back in December, I asked why McKinsey bills out the government at $3 million a year for a recent college graduate contractor. Frankly I wonder why we still let McKinsey exist at all, but I ask the same existential question about many things in life. At any rate, some people in government agree. According to the Federal News Network, “The source said GSA officials were concerned that McKinsey’s prices were higher, sometimes substantially so, than similar services provided by other schedule companies… The source said it ultimately looks like GSA said “no thank you” and pulled the plug on McKinsey.”

This doesn’t mean McKinsey can’t sell to government, it just makes it much harder and means that they will have to get a special sales process from each agency they sell to. As a contact told me, “basically GSA said ‘you can't be on the highway anymore, you have to use rural roads.’”

So sad. Powerpoint software packages across the world today are flying at half mast.

Venture Capital and Softbank Collapse: Softbank, which has served the key end point for venture capital, is basically gone, having basically declared its $100 billion Vision fund a failure. This is going to have massive impacts on American technology start-ups, who will have a lot less capital to play with. It will also hit venture capitalists, who will lose a massive channel to draw in capital and upgrade the valuations for their portfolio companies. Softbank’s model is what I call counterfeit capitalism, so this is a positive development. But the tech industry is going to see a lot of unemployment soon. What are your thoughts on how this will change the tech ecosystem?

Trump Creates a Market in Active Pharmaceutical Chemicals: There was significant news yesterday, in the administration handing out a $354 million contract to a new company called Phlow to make the precursor chemicals to pharmaceuticals.

This move is a recognization that tariffs have simply not returned chemical manufacturing to the U.S. The chemical business a complex set of industries reliant on a host of technical and regulatory choices, not just price. For instance, more than 1,000 or the 1,800 petitions for tariff relief from tariffs on Chinese imports in August of 2018 were for chemicals, because that capacity was extremely hard to move back. As Matthew Moedritzer of the Society of Chemical Manufacturers and Affiliates noted in lobbying against these tariffs, “We realize the administration hopes that [tariffs] will encourage domestic producers to diversify, enter new segments and become more competitive. The reality for chemical production, though, is that regulatory and market factors, often dictate otherwise.”

The administration created not just the financing but also the market, in that Phlow is going to sell its product to the government for stockpiling. In March, I wrote about the five key ingredients for domestic manufacturer, or CLIMB: Capital, Labor, Inputs, Markets, and Brainpower. We’ll see how this experiment goes. It’s not obvious that Phlow will do a good job producing, and the markets, aside from the government purchasing, are not being restructured in any meaningful way, so there may not be market discipline on this corporation in delivering active pharmaceutical ingredients for generics. There are reasons to doubt the leadership of the company, which has more political experience than experience with pharmaceutical chemical production. And CivicaRx, which aspires to be a large drug buying monopoly, is involved. To me it looks like a useful start, but not a fully formed one.

Contact Tracing and Control of the Proximity Feature: Yesterday John Gruber at Daring Fireball criticized my view that Google and Apple are exercising sovereign power in structuring a contact tracing app for the Coronavirus. This argument led to an interesting discussion with an entrepreneur who told me about a revolutionary technology those two giants are blocking. I’d like your views on his story, particularly those of you who work in mobile technology. It has to do with how the system Apple and Google have set up to do contact tracing is actually a pale shadow of what should be a vibrant mobile ecosystem.

My understanding of the system Apple and Google have set up, which you can read about in their FAQ, is that they will automatically turn every phone in the world into contact tracing device that will keep a list of everyone you’ve been near. The way this works is by turning your phone into a beacon, constantly blinking out a signal that says ‘I’m phone xyz and I’m here.’ Every phone will also be listening for such beacons. If you get sick with Covid, you can tell your phone, and doing so will alert anyone who has come into contact with you. It’s an anonymized process and there’s very little data being stored centrally, because Apple and Google have specific views on what kinds of data governments should be able to access.

There are a bunch of fights over this system. Public health authorities say they have had less input into the architecture than they need, and Google and Apple have imperiously declared apps produced by public health agencies “must meet specific criteria around privacy, security, and data control.” Eventually Apple and Google will just put the functionality into the operating system itself, rendering apps less relevant.

More fundamentally, from what I hear, this anonymized contact tracing idea is basically stupid and won’t actually do anything useful. That’s partially because technologists obsessed with parochial fights over privacy don’t tend to do a good job organizing public health infrastructure, and also because we’ve never done contact tracing using mobile phones before.

At any rate, I ended up having a conversation with an entrepreneur named Mark Daigle yesterday who patented a Beacon-style system in 2010 that is similar in important respects to what Google and Apple are doing. At the time, while he saw the value in public health applications, his idea was much broader. Basically he wanted to set up a privacy-secure process not for location services, but for proximity services. Not ‘where are you?’ but ‘who are you near?’ That would have enabled a whole host of very cool new services, not just public health contact tracing, but anything related to being near other people or places, like social networking, payments, a different retail experience, or entertainment features like having your phone vibrant if you’re a fan watching a basketball game at an arena and someone dunks the ball.

And it could have been done without exposing people to sleazy privacy invasive sales of data. Daigle’s methodology was to build apps and hardware based on wifi scanning, because Bluetooth Low Energy wasn’t yet ready. But shortly after Daigle patented his method, Apple blocked apps doing wifi scanning. When Bluetooth Low Energy came on the scene, Apple and Google blocked third party apps from scanning using Bluetooth, unless an app is opened and in use. Google and Apple have not let such scanning run in the background until they decided, unilaterally, to do so during this pandemic, and only on terms they set.

But in a sense, what these giants are doing is just one special use case of what could be an entirely separate field of applications. A constant stream of data coming to and from a phone broadcasting proximity information is a like a browser, a middleware layer relating the phone to other objects. To have such a proximity browser would have required regulation, because enabling apps to be able to do background Bluetooth scanning proximity would open a pandora’s box of privacy violations. But if this middleware did actually manage the system well, and there were public utility rules managing what essentially is a data utility, proximity features could open up a totally new set of use cases for phones.

Here’s my question. Does this story make sense? I’m not a technologist so I’m sure there are parts of this I’m missing, but I found what Daigle told me compelling. Let me know directly or in the comments by clicking on the top headline of this issue and scrolling to the bottom.

Thanks for reading. If you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to a book to hunker down with while sheltering in place, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.

cheers,

Matt Stoller

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