A Page From Netflix's Playbook
Good Morning. The difference between this week and last week? It’s officially summer…which at this point doesn’t mean much. But hey, we’ll take it.
In today’s edition:
Spotify’s Podcasting Strategy
Why Education ≠ Entrepreneurial Success
Ways to Reduce Quarantine Stress
🎙️A Page From Netflix’s Playbook
In Friday’s newsletter, I shared a tweet from Jeffrey Morris Jr. that praised Spotify for adopting the “Netflix Playbook” as they have ramped up their podcast-related spending over the last year. To recap, in the last twelve months Spotify has spent well over half a million dollars to lay the necessary groundwork to position themselves as the leader in the incredibly lucrative podcast space. These purchases have included the acquisitions of Gimlet (podcasting network), Anchor (podcast creation platform), the rights to a slew of exclusive content such as The Joe Rogan Experience, Bill Simmon’s the Ringer, and future Kim Kardashian and DC Comics podcasts.
But why is Spotify so bullish on podcasting?
As of April 2020, there are over one million unique podcasts with 30 million episodes available. However, only half the US population has ever listened to a podcast. That’s a large untapped market and a promising sign for potential growth. With podcasting still a relatively new industry, here are a few of the ways that Spotify is aiming to gain an advantage:
Ad Revenue - Podcasting ad revenue is expected to bring in nearly $570 milllion growing 110% from 2019. By acquiring the exclusive rights to top-tier podcasts like the Joe Rogan Experience and the Ringer, Spotify is starting to build out their own content library that they can use to attract new customers. The Joe Rogan Experience alone brings in over 190 million downloads per month and surely not all of these downloaders are Spotify customers. Acquiring the rights to this existing content will result in more sign-ups, more listeners, and more ad revenue. It’s a no-brainer.
Discovery - Music discovery has shown to be Spotify’s bread and butter. With a team dedicated solely towards discovery and popular playlists like Discover Weekly and Fresh Finds, Spotify is aiming to do the same with podcasting. The same way Netflix seems to know what you want to watch before you do, Spotify will use machine learning to identify and recommend new podcasts based on what you have previously enjoyed. This is a big value prop as Apple has proven to be notoriously bad at recommendation in the past.
Creation - With the acquisition of Anchor, Spotify hopes to become the go-to platform for those who want to launch a podcast themselves. There is a lot of value in user-generated content as can be seen from the success of Youtube, Twitch, and TikTok. By investing in both sides of the spectrum (user-generated and licensed) Spotify can increase revenue and gain valuable insights on up-and-coming creators. Additionally, those who excel on the platform could potentially earn a licensing deal directly from Spotify. By providing users with the means to easily start a podcast (Anchor) and extensively track how the content is performing (Spotify’s existing artist analytic tools), Spotify is positioning themselves as a one-stop-shop for podcast creation, curation, and distribution.
🧠Signal Value vs. Ability
Part of the beauty of entrepreneurship is that everyone’s story is different. For years, I’ve been interested in the life stories of successful entrepreneurs and have worked to uncover the answers to these two questions:
Why do individuals become entrepreneurs? Why do some succeed?
A few weeks ago, I came across an academic paper on Twitter written by an NYU Stern student and professor titled Information Frictions and Entrepreneurship. The paper proposes two theories regarding the above questions and contains empirical analysis of two samples: one of over 12,000 individuals born between 1957 and 1964, and resident in the U.S. in 1979. This survey provided a record of their education and work histories to the present. The other sample study follows the lives of every U.K. resident born during one particular week in 1958.
What they found was that people who lack traditional educational credentials signal low ability to employers. Many recruiters and employers have been trained to judge ability based on credibility. This can be very troublesome as some of the world’s most capable people do not have access to higher forms of education or top-tier degrees. Salaries are often based on the perceived value that one would bring to the firm. It is because of this flawed system that those who know that their actual ability is far greater than their signal value (what employers perceive them as) decide to go on to be entrepreneurs. The authors use “Akerlof’s (1970) market for lemons to labor” to break this idea down further:
Our asymmetric information theory of entrepreneurial choice applies “Akerlof’s (1970) market for lemons to labor”. Workers are both the more informed sellers and the traded good, while employers are the less informed buyers. Employers offer wages based on observable signals, but to the extent that better informed workers believe their ability exceeds the labor market estimate of it, they prefer entrepreneurship, where they will be residual claimant of their talents.
The theory suggests that holding all other variables constant, entrepreneurs have higher ability scores, lower levels of educational attainment, and a higher earning potential. Essentially, those who feel that they are undervalued by the stereotypes of the traditional labor market, decide to forge their own path and craft their own future. This would explain the large amount of immigrant entrepreneurs, a group that is often highly undervalued in the current labor market.
We often hear stories of great entrepreneurs who struggled with learning disabilities, performed poorly in school, or dropped out altogether. Nowadays, grades are more of an indication of effort than ability and in many cases those who do not perform as well in school are actually more capable than straight A students. In school, you spend more time planning to be successful (studying) than actually doing. Whereas in entrepreneurship, you are constantly experimenting and learning from these actions. These lessons are what make you more capable and successful. This idea is similar to that of the Marshmallow Challenge, where MBAs failed miserably in building a freestanding tower given 20 sticks of spaghetti, one yard of tape, one yard of string, and one marshmallow, with the marshmallow on top.
Who was the most capable in achieving this task?
Kindergartners.
The Three C’s: A Quarantine Stress Reliever
With quarantine lingering on and the probability of a second wave starting to seem more realistic, it can be hard to see the light at the end of the tunnel. Falling into a self-coined “quarantine funk” at some points is inevitable. In lieu of this, I’ve decided to re-share a small segment of my book that discusses a framework for dealing with stressful situations:
In 1979, psychologist Suzanne Kobasa from the University of Chicago, conducted research about stress hardiness in business executives—a very important aspect of resiliency. Stress hardiness is the positive response to stressful situations and the ability to minimize their negative effects. From her research, Kobasa produced a framework of three attitudes that increase hardiness, famously known as the three C’s:
Challenge — Resilient people view adversity as a challenge rather than as a paralyzing, life-defining event. They look at their failures and mistakes as pivotal learning lessons and catalysts for creativity and growth. They embrace these tough times and acknowledge them as challenges to tackle, rather than as a negative reflection on their abilities or self-worth.
Commitment — Commitment is about seeking and fulfilling a purpose. Resilient people find a balance between their dedication to work, relationships, friends, values, and religious ideologies.
Personal Control — Resilient people spend their time and energy focusing on situations and events within their control. Concentrating your efforts on what you are able to change leads to empowerment and confidence as opposed to the helplessness and doubt that stressing over external events can cause.
This framework can be applicable to any type of adversity, personal or professional. But recently I have found it helpful for getting through quarantine life. If you enjoyed this, I would highly recommend checking out my book which dives deeper into the psychology of resilience, learned optimism, and post-traumatic growth.