Spotify is a streaming music company that wants to become a podcast company, too.
Not only has Spotify acquired Gimlet Media, a podcast producer and network, for around $230 million — a deal Recode told you about last week — but it has also bought Anchor, a startup that makes it easier for people to record and distribute their own podcasts.
The company says it isn’t done — it says it has other podcast acquisitions in mind and that it expects to spend up to $500 million on deals this year. Reminder: With these deals, Spotify is now fully in the content creation business, a move it has yet to make with music.
In an blog post up this morning, Spotify CEO Daniel Ek says he didn’t plan on getting into podcasting when he founded the company 11 years ago, but he’s in it now. He says Spotify is now the world’s second-biggest podcast platform (behind Apple), and that podcast listening will eventually make up 20 percent of Spotify’s usage.
Here’s his explanation of the rationale behind the moves into podcasting: “We are building a platform that provides a meaningful opportunity for creators, excites and engages our users, and builds an even more robust business model for Spotify in an industry we believe will become significantly larger when you add Internet-level monetization to it.”
And here’s Spotify’s explanation to investors, which is slightly more brass tacks: “Growing podcast listening on Spotify is an important strategy for driving top-of-funnel growth, increased user engagement, lower churn, faster revenue growth, and higher margins. We intend to lean into this strategy in 2019, both to acquire exclusive content and to increase investment in the production of content in-house. The more successful we are, the more we’ll lean into the strategy to accelerate our growth, in which case we would update guidance accordingly.”
In plain English, that means: Spotify thinks podcasting can help it find new users, keep the ones it has, generate more money, and increase its profit margins, because it’s cheaper to make or license podcasts than songs from big labels and hit artists. Look for more podcasts to run exclusively on Spotify.
That won’t happen overnight, Spotify CFO Barry McCarthy said in an interview this morning, prior to the company’s earnings’ call. While Spotify has paid for a handful of high-profile podcasting exclusives from the likes of Amy Schumer and Gimlet, it assumes most of the podcasts it distributes will be non-exclusive for now, he said.
Eventually, McCarthy said, Spotify would like to have the ability to generate high-profile podcasts of its own which it would keep for itself. But even then, “I think the majority of the podcasts will not be exclusive to the platform.”
In other words: If video is an exclusive business — you need HBO to watch Game of Thrones and Netflix to watch Stranger Things and music is (almost entirely) a commodity business — and you can listen to Post Malone on Spotify, Apple Music, or Google Play, then Spotify imagines that podcasting will be somewhere in between.
Context: Spotify’s newfound appreciation for podcasts comes after it has made halting and ultimately unsuccessful attempts to push into video. At one point, Spotify considered moving into streaming TV and eventually made a less ambitious move into streaming clips, which you likely don’t remember.
Video posed two big problems for Spotify: Paying for the top-tier shows and networks is very expensive, and most people rightfully don’t think of Spotify has an app they want to look at — it’s one they listen to. But don’t rule out a video move in the future; particularly one that leverages Spotify’s large customer base, which currently includes 96 million paying customers and a total of 207 million users.
By Peter Kafka - Recode.com