Rumours that Spotify was about to shell out $200m-plus on podcast production company Gimlet Media were correct: the acquisition was announced today. But Spotify is also buying a second company, Anchor, which makes an app that people can use to create their own podcasts.
The value of the acquisitions has not yet been announced (Spotify may be pressed on that in its earnings call this afternoon, following the announcement of its Q4 financials.)
Update: CFO Barry McCarthy said the acquisitions are cash-based, but declined to reveal the values. “We’re not commenting on that today, because we have other transactions in the works, and I don’t want transactions that are closing to maybe bleed over into transactions that we’re negotiating,” he said.
CEO Daniel Ek did publish a blog post outlining the grand strategy behind these acquisitions: Spotify’s push in to podcasting.
“Consumers spend roughly the same amount of time on video as they do on audio. Video is about a trillion dollar market. And the music and radio industry is worth around a hundred billion dollars. I always come back to the same question: Are our eyes really worth 10 times more than our ears?” wrote Ek.
“I firmly believe this is not the case. For example, people still spend over two hours a day listening to radio — and we want to bring that radio listening to Spotify, where we can deepen engagement and create value in new ways. With the world focused on trying to reduce screen time, it opens up a massive audio opportunity.”
Ek said podcasting is the “start” of this opportunity (note that word: the company clearly has ambitions around other forms of audio too) and suggested that there is “incredible growth potential” for podcasts on Spotify, and the industry more generally.
“In just shy of two years, we have become the second-biggest podcasting platform. And, more importantly, users love having podcasts as a part of their Spotify experience. Our podcast users spend almost twice the time on the platform, and spend even more time listening to music. We have also seen that by having unique programming, people who previously thought Spotify was not right for them will give it a try,” he wrote.
“Based on radio industry data, we believe it is a safe assumption that, over time, more than 20% of all Spotify listening will be non-music content. This means the potential to grow much faster with more original programming — and to differentiate Spotify by playing to what makes us unique — all with the goal of becoming the world’s number one audio platform.”
Ek also talked a bit about how Spotify plans to develop the business model around podcasts: something that’s of keen interest, since at the moment the company doesn’t pay out royalties for podcast listening, as it does for music.
“Just as we’ve done with music, our work in podcasting will focus intensively on the curation and customisation that users have come to expect from Spotify. We will offer better discovery, data, and monetisation to creators,” said Ek. Again, pay attention to the word ‘monetisation’ – the likeliest route may be for Spotify to launch technology that inserts ads into podcasts on its platform and shares the revenues with the shows’ creators.
Ek was also bullish about the “fierce competition” for podcast listening, with Pandora, Apple, Google, Deezer and other music-streaming services (or parent companies) all involved in the market.
“Nobody else has both audio advertising and subscription revenue model at scale globally. Nobody else in music has the engineering capabilities and the expertise in audio that we have at Spotify,” he wrote.
“And with the addition of Gimlet and Anchor, Spotify will now become the leading global podcast publisher with more shows than any other company. These levers of growth have the potential to double the size of our industry. And no other global company is as focused on this one thing — audio — as Spotify.”
Bold words, but a glimpse at why Spotify is making podcasts such a strategic priority. That’s raising tensions with some labels, who worry about podcast growth having an impact on music consumption (and thus royalties). The prediction that podcasts could be up to 20% of Spotify’s listening may inflame those, although Ek was keen to stress that “this doesn’t make music any less important at Spotify”.
He was keen to paint the bigger picture: “Ultimately, if we are successful, we will begin competing more broadly for time against all forms of entertainment and informational services, and not just music streaming services.”
Later in Spotify’s earnings call, Ek clarified that none of Gimlet Media’s existing content will be made exclusive to Spotify now: the deal is more about future shows created in-house.