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Scaling and buying in bulk typically lowers prices when it comes to products. Online services are different in that they have to hire a lot of expensive engineers to continuously support an entire platform.

And that’s just the start.

Netflix, for example, is producing in-house content to relieve its reliance on paying third-party production studios for content. Had they not, when Disney (and everyone else) chose to create their own services, the company would really be struggling.

YouTube is depending on homegrown creators voluntarily uploading to what’s ultimately a social platform. Netflix is competing with A-list material, and Adam Sandler and the Obamas don’t come cheap.

The company will spend $17 billion on content this fiscal year. That money has to come from somewhere.

Netflix Reveals $17 Billion in Content Spending in Fiscal 2021Netflix revealed that it will spend over $17 billion on content this year, according to its first-quarter earnings report. “As we’ve noted previously, the production delays from Covid-1…https://variety.com/2021/tv/news/netflix-2021-content-spend-17-billion-1234955953/amp/

On top of this, consumers demand higher resolution videos for their 4K TVs. The higher the resolution (and the more people simultaneously streaming), the more bandwidth Netflix has to pay AWS (Amazon, which hosts servers for Netflix and many others) for.

Not only that, but the company has to pay for marketing and operations. It also employs data scientists working on discoverability, which gets very complex.

Spotify is in a similar situation. The company is leaning heavily into in-house podcast production to compete with Apple, Google, SiriusXM, and even Samsung, which recently launched its own podcast platform.

The company spent over $1 billion in the past two years buying up podcasts like everything Gimlet Media (Reply All, Armchair Expert, etc), Joe Rogan, and Call Her Daddy.

This destroyed the company’s financials, and it’s the worst performing stock I own this year (besides a bad investment in Lordstown Motors that’s a whole other story.

Did Spotify Waste $1 Billion on Podcasts?Spotify ( NYSE:SPOT ) has made some big investments in podcasting over the last few years. It acquired podcast networks like Gimlet Media, Parcast, and The Ringer, podcast technology companies like Anchor and Megaphone, and exclusive production rights for big celebrity names, including Joe Rogan, Michelle Obama, and Kim Kardashian. Overall, Spotify spent close to $1 billion on podcasting-related acquisitions and production over the last two years, and some investors are starting to worry whether the company is getting its money’s worth. Citi analyst Jason Bazinet downgraded the stock last week due to concerns that those investments aren’t bringing in new premium subscribers or converting free listeners into paying customers. Spotify CEO Daniel Ek. Image source: Spotify. A recent change in reporting Citi points out that there hasn’t been a meaningful upward inflection in app downloads or premium subscriptions since Spotify started spending heavily on podcasting. The number of premium subscribers increased 27% year over year in the third quarter, but that was a slowdown from the 31% increase in the same period of 2019 and its 40% growth in 2018. That said, the company is measuring its gains against a much larger subscriber base now. Still, in citing the biggest factors driving its premium subscriber growth, Spotify pointed to its family plan and its Duo membership, a two-person subscription plan it started offering last year. Perhaps one of the biggest indications the podcast investments aren’t driving more people to sign up for premium subscriptions is the reporting change that it made at the start of last year. The company started attributing all of its podcast-related expenses to its ad-supported segment. “We continue to believe that our investments in podcasts will benefit the platform as a whole, and see an overall benefit to both usage, engagement, and retention across both Ad-Supported and Premium,” management wrote in its first-quarter letter to shareholders last year. That’s slightly different from suggestions in the fourth quarter of 2019 that the investments in podcasts would increase conversions from free to paid listeners. That is to say, Bazinet and his researchers may be correct in their assessment that podcasts haven’t meaningfully moved the needle for Spotify’s premium subscriber gross additions. Does that make its billion-dollar investment a waste? Deriving value from podcasting Even if podcasts aren’t meaningfully impacting premium subscriber numbers, that doesn’t mean they’re not having a meaningful impact on Spotify’s business and financials. Podcasts offer the company an opportunity to use its fixed costs to generate more revenue from advertising. That’s much different from the music business, which pays a percentage of revenue to music labels and publishers. In other words, when Spotify makes money directly from podcast listening, it keeps all of it. Therefore, the company has an interest in diversifying listening on its plathttps://www.fool.com/amp/investing/2021/01/21/did-spotify-waste-1-billion-on-podcasts/

It even hired a new podcasting head.

Spotify adds former Paramount+ executive in new podcast role Spotify confirmed Thursday that Julie McNamara, former executive vice president and head of programming at Paramount+, will become Spotify’s head of U.S. studios and video operations.https://www.latimes.com/entertainment-arts/business/story/2021-09-02/spotify-paramount-executive-in-new-podcast-role?_amp=true

This is because social audio platforms like Clubhouse and Twitter Spaces made it clear the gap between radio and podcasting could be bridged.

In response, Spotify bought $50 million Betty Labs to convert its Locker Room app into Spotify Greenroom. This provides a full path for anyone to create a podcast from Greenroom recording to Anchor distribution, and Spotify ownership if proven successful.

Spotify Buys Live-Audio App Locker Room to Take on ClubhouseSpotify will roll its own rival to the buzzy Clubhouse live-audio chat app — saying it will launch a range of new live and interactive programming in the next few months. Spotify announced th…https://www.google.com/amp/s/variety.com/2021/digital/news/spotify-buys-live-audio-app-locker-room-to-take-on-clubhouse-1234940687/amp/

The plan is to harvest homegrown content like it does through The Ringer, which is already implementing the platform into its sports podcasts.

It’s the audio version of Netflix, because all of this is being done for two reasons – to relieve itself of licensing payments to third-party productions and to compete with other audio platforms.

It’s spending a lot up front to make the necessary changes, and that leads to price increases, more ads, and more subscription options.

You can now spend even more money to subscribe to both YouTube/Spotify premium, and you can also subscribe to individual creators on the platforms.

Not to mention it’s upgrading to HD audio to compete with Tidal.

Even if you pull back a little further, the internet and mobile services providing access to these services have pricing considerations.

Both AT&T and Verizon are still spending heavily upgrading cities around the country to 5G. Over $2.7 trillion was spent on the 5G upgrade as of 2020.

Why a 5G rollout requires $2.7T investment by 20205G, smart cities, and other top tech trends for 2019 The rollout of 5G technology is expected to hit $2.7 trillion by the end of 2020, according to a Greensill report released on Monday. Infrastructure upgrades, necessary to accommodate 5G, are estimated to need $1 trillion of investment. A significant amount of 5G spending will also go toward Internet of Things (IoT) integration, the report found. Some $585 billion will be spent on 5G implementation on IoT hardware, and $469 billion will be spent on IoT services. SEE: 5G technology: A business leader’s guide (Tech Pro Research) This type of funding poses challenges for many companies, the report found, since traditional banks alone can’t provide the total necessary funding. Companies may want to look to other capital solutions to supplement the needed spending. “Spending on 5G rollout is just the thin end of the wedge. This project is actually about funding the growth of the Internet of Things and industrial connection to that,” said Tony Wonfor, Greensill managing director and telecoms finance specialist, in a press release . “In the automotive industry, for instance, 5G will be important for tracking components through the supply chain and in to the manufacturing process, then right through to an end product that has connectivity beyond anything we have seen so far.” This significant amount of spending on 5G will ultimately be worth the price. 5G is the future of connectivity, providing lower latency and greater bandwidth to devices. And in an IoT-centric world, this connectivity would affect a multitude of industries such as manufacturing, healthcare, and retail. To learn more about how 5G will develop and evolve this year, check out this TechRepublic article . The big takeaways for tech leaders: Enterprise spending on 5G technology is predicted to hit $2.7 trillion by 2020. — Greensill, 2019 5G spending will mainly be geared toward infrastructure upgrades and Internet of Things (IoT) integration. — Greensill, 2019 Also see Image: iStockphoto/mansuang suttakarnhttps://www.techrepublic.com/google-amp/article/why-a-5g-rollout-requires-2-7t-investment-by-2020/

And that’s not even counting the upgrades performed by Cable and DSL providers.

These associated costs are ultimately passed on to the consumer for the companies to remain in business.

So while you “need” to spend all your time online watching videos, listening to music, and asking questions, a lot of work actually needs to be done in the background to make it happen.

Those people need to eat, and that money to put food on their plate needs to come from somewhere.