Spotify has acquired Gimlet and Anchor, two podcast production companies collectively valued at around $350 million, per the Wall Street Journal. CEO Daniel Ek said this move was an attempt to expand the music platform to “all of audio” by producing original content that people are willing to pay a monthly subscription to experience.
This would essentially apply the profitable Netflix-model to the podcast market, a business model others have tried with mixed results.
Spotify currently charges $10 a month for a premium service that’s ad-free and allows for offline listening, about the same as Netflix. Unlike Netflix, however, Spotify has struggled to make money from its popular service, most of those $10 a month go to royalty fees and operating costs. Despite being the largest music streaming platform with 96 million subscribers, it’s expected to lose money in 2019.
Podcasts have been part of Spotify for the past two years, slowly becoming more available on the platform. This benefits Spotify immensely as podcasts aren’t typically wrapped in the same red tape as music. The content presented is either completely original to the podcaster or properly licensed before the platform even knows about it.
According to Daniel Ek, Spotify is now the second-biggest podcasting platform and podcast listeners spend twice as much time on the service than music listeners.
“The format is really evolving and while podcasting is still a relatively small business today, I see incredible growth potential for the space and for Spotify in particular.”.
This wouldn’t be Spotify’s first foray into original content but it’s certainly their most ambitious, the acquisitions of Gimlet and Anchor are set to close within the first quarter but after that, they plan to buy even more podcast production companies. Overall, Spotify expects to spend somewhere between $400 million to $500 million obtaining original content creators for its platform.
The podcast industry as a whole is slowly growing in revenue as surprise hits like Serial and Welcome To Nightvale continue to grow the industry. About 73 million people, most of them millennials, listen to at least one podcast on a monthly basis.
So many people listen to podcasts that politicians have used them as avenues for mainstream attention. Notable examples include the then-sitting President Barack Obama on Marc Maron’s WTF Podcast and current Democratic presidential candidate Tulsi Gabbard first teasing her candidacy on the Joe Rogan Experience.
So the podcast market clearly exists, and it’s growing exponentially. The question becomes, is this what Spotify truly needs to turn a profit in 2019?