Adrian Watkins

Supercast on how they feel Spotify tricked him into giving up billions.

Oil companies are famous for approaching hapless farmers and buying drilling rights for their properties for next to nothing.

The farmers don’t realize they are sitting on tens of millions of dollars of oil, so they accept a $50,000 one-time payment. It feels like a huge win… Until they realize that they just lost out on tens of millions of dollars of oil riches. That’s Joe Rogan right now.

In September, I wrote a post about how Howard Stern is getting ripped off by Sirius. I made the case that Howard Stern is making $90 million a year when he could be making 2-3x by cutting out the middle-man and doing a subscription podcast.

Daniel Ek, the CEO of Spotify, who just closed an exclusive deal with Rogan to move his show (audio and video) to the Spotify platform.

If the numbers are to be believed, it’s a steal of a deal for Spotify: for $100-$200mm they secured the largest podcast audience in the world.  I’m not exaggerating. Spotify’s market cap jumped by $3 billion in the 24h after the news of this deal broke. The market saw what Rogan missed: Spotify took his oil.

To the untrained eye, this looks pretty good for Rogan. His listeners can still access the podcast for free—as long as they use Spotify. Spotify premium subscribers get the podcast without ads, but free users will have to listen to ads (presumably sold by Spotify).

In my last post I estimated Rogan was making around $64MM/year. In contrast, the Spotify deal gets him 2-4x what he was making before, and as a bonus he doesn’t have to worry about the business side.

Not bad, right? WRONG.

Here’s why this is a bad deal for Rogan:

1. He lost control over his audience.
The magic of podcasting is that it’s free, open, and decentralized. Like email, when you have an audience (subscribers), you can reach them directly at any time, without any middle-man or algorithm (Facebook, Google, etc) getting in the way.

You own the relationship, and this is profoundly valuable. You can’t be screwed over by an aggregator getting in your way. When you’re a podcaster, subscribers are your currency. They are what make your podcast valuable.

By doing this deal, Rogan gives up control over his subscriber relationship. Any new audience he builds from here on out, he loses. His existing podcast feed will likely die as most people eventually unsubscribe due to inactivity.

If he goes back to being independent and ditches Spotify in 3 years, he has lost all of his new subscribers during that time, and some of his original subscribers as well. It’s like Disney licensing their Disney+ content to Netflix. It might net a big one-time payout, but it completely erodes the business value that would otherwise accrue to them.

And make no mistake: Joe Rogan is a business. As I said in my last post, were he to build the level of advertising and subscription revenue I think he is capable of, his corporation would easily be valued at over $1,000,000,000…

2. Spotify gets Rogan’s recurring revenue
Like the farmer, Rogan didn’t realize he was sitting on oil. He didn’t value it. To him, the only way to make money from his farm was by harvesting vegetables (advertising). It’s back-breaking labor in the sun (doing ad sales is a pain in the ass).

What he didn’t realize was that just under his feet, was a pool of oil so vast that it would immediately catapult him to billionaire status with minimal effort and build tens or maybe hundreds of millions of dollars of recurring revenue.

Let’s make something clear: Joe Rogan is the new Howard Stern. His audience is 10-12x larger than Howard Stern’s, and Sirius makes an estimated $290 million in revenue from selling subscriptions to Stern.

When Sirius did the deal with Stern, they took an all or nothing approach: You can only listen to Stern if you subscribe to Sirius.

Full stop. Zero access.

This wouldn’t make sense for Rogan. It’s too extreme and it would piss off his fans. Instead, a hybrid approach would make the most sense:

Rogan could have kept selling ads in addition to offering an ad-free stream as well as bonus episodes/extended content/video stream for paying subscribers only.

At just a 5% conversion rate, this is worth over $33mm [1] in annual recurring revenue. That might not sound like a ton compared to a deal valued at $100mm+/year, but when you add it to his advertising revenue, it gets him close to $100mm, fully independent of Spotify. Most importantly Rogan would have been building value and recurring revenue in his own business.

As I pointed out in my last post, if Rogan had added subscription, he would have owned a company that looked like the world’s best SaaS business. Crazy recurring revenue, with low churn and insanely high margins, growing at 25-50% per year as podcasting’s audience grows over time.

This revenue is INSANELY valuable and should be built by him, not Spotify. Not everyone has their head in the sand… While deals like this get a lot of press, successful podcasters who understand the value in owning their relationship with their audience are making moves in the space.

Case in point: earlier this month Ben Thompson (Stratechery) and John Gruber (Daring Fireball) launched Dithering, a subscription-only podcast. Ben Thompson underscores the value of staying independent:

“Owning my own destiny as a publisher means avoiding Aggregators and connecting directly with customers.”

Rogan’s friend Sam Harris, who has sworn off advertising and focused on subscription since he started in 2014, just made a much more aggressive push into subscription. In 2019, he started cutting off most episodes halfway through and only letting paying subscribers hear full episodes.

In 2017, Observer reported that Harris was getting about 1 million downloads per episode, so let’s estimate that his 2017 audience was around 1 million listeners. If we do some rough napkin math and assume that his show grew along with global podcast listeners (which grew 54% since 2017), that would mean that he currently has about 1.54 million monthly listeners.

Applying a 5% conversion rate with a price of $5/month to this works out to about $4.6 million in annual recurring revenue. Applying a 20% conversion rate—which I would expect him to get given his more aggressive push to subscription—works out to $18.4 million in annual recurring revenue.

With an estimated 12 million monthly listeners, Rogan’s recurring revenue potential is at least 8-12x what Sam Harris has been able to achieve.

3. He is Massively Shrinking his Audience and Impact
Restricting his listeners to people who use Spotify will dramatically lower his addressable audience, and I have no doubt that Spotify will eventually gate his content to paid Spotify subscribers in some way (extra episodes, video, ad-free, etc).

Make no mistake: Spotify’s endgame is to add Spotify subscribers. That’s their north star.

For context, Howard Stern—who just before his Sirius deal was one of the most widely listened to radio personalities in the world—now has an audience of less than 1 million per episode. When I tell most people my age (early 30’s) that I love Howard Stern, I get a blank stare.

Nobody knows who he is. Stern has lost his impact on culture in exchange for a big upfront payment.

Let’s be real: Stern and Rogan are already super rich. The difference between $50mm/year of profit and $100mm means zero to their day-to-day lifestyle. What I imagine does matter to them is the size of their audience and their impact, and both made choices that will limit that forever.

I hope that the reported numbers are low, because I don’t think even $100mm/year provides Rogan with enough upside to accommodate the trade offs:

• Losing his relationship with his subscribers
• Building someone else’s business/recurring revenue instead of his own
• A smaller audience and less impact
• He’s going to be just fine either way. I’m not shedding any tears for Joe, but as a business person I can’t help but shake my head at the lost potential.

The world’s largest podcasters are sitting on oil. There’s a reason Spotify is writing these seemingly insane checks: they’ve done the geological surveys. They are trying to cut deals with as many hapless farmers as they can before they all catch on. Spotify will spend hundreds of millions to reap billions.

Most people will look at Rogan and think he’s a genius living the dream. I think he’s a farmer who just got taken by Daniel Ek.

This articles first appeared here.