Spotify today posted its first ever quarterly operating profit, as the music-streaming giant also boasted that its paid subscriber count had jumped 11 percent to 96 million people.
But arguably the bigger story was a duo of acquisitions the company announced to coincide with its Q4 figures. Spotify revealed that it had snapped up New York-based podcasting companies Gimlet Media and Anchor, the former specializing in creating content, the latter in distributing and monetizing content.
While Spotify was already making some waves in the podcasting realm, with these acquisitions it’s effectively showing its teeth as it goes up against the likes of Apple and Google.
Today’s news represents the beginning of a shift for Spotify, with cofounder and CEO Daniel Ek noting that podcasting will soon serve as a major facet of its offering. “Based on radio industry data, we believe it is a safe assumption that, over time, more than 20 percent of all Spotify listening will be non-music content,” he said.
Betaworks Ventures was one of the early venture capital (VC) firms to pinpoint podcasting as a major media vehicle, having invested in both of Spotify’s new acquisitions — Gimlet in 2014, and Anchor a year later. In a blog post last year, Betaworks Ventures partner Matt Hartman explained why he saw podcasting as a big deal way back then — some of those factors included improving battery life in smartphones and growing connectivity, particularly in automobiles.
“We saw early data around podcasts having a bit of a resurgence before Serial (a popular investigative journalism podcast) launched,” Hartman said. “That data, combined with the increasing battery life of iPhones and an increasing amount of connected cars on the road, led us to think there was an opportunity for internet-powered audio. This, combined with the quick growth of smart speakers, solidified our conviction that people would consume more and more audio content.”
In a statement provided to VentureBeat today, Hartman said that the Gimlet and Anchor acquisitions are the biggest to hit podcasting yet, and marks what he refers to as the “third wave” of podcast’s evolution.
“It started with people creating podcasts in their garages [first wave], and Gimlet and Anchor led the way in the second wave, creating excellent content, user experiences, and infrastructure for listeners and creators,” he said. “Today marks a turning point to a third wave of podcasting where discovery and new monetization models will go mainstream.”
Signs have long indicated that podcasting has the potential to catch up with — or usurp — traditional radio broadcasting, as various media platforms have increasingly bought into content creation studios and networks.
Back in 2015, U.S. media company Scripps revealed it was buying Midroll Media, a Los Angeles-based digital media startup that operated an ad network and original podcasting studio. As an aside, Midroll the following year acquired popular audio hosting platform Stitcher, which recently replaced Midroll as Scripps’ podcasting brand.
Then last September, media giant iHeartMedia acquired podcast content company Stuff Media in a deal thought to be worth $55 million.
It’s no secret that Spotify is keen to embrace the Netflix model by locking in more original content — having to negotiate royalties and strike deals with record labels isn’t healthy for its bottom line. Today’s news indicates that podcasting is gearing up for prime time, with one of the biggest music-streaming platforms coughing up a reported $200 million to buy Gimlet alone.
“For the industry, it’s another sign that we’re just getting started,” added Owen Grover, CEO of podcasting platform Pocket Casts, which was acquired itself by NPR and a bunch of other public radio stations last year. “Last summer, there were questions about if we’ve reached peak podcast? The answer to that is a resounding ‘no.’ This is a serious exit for Gimlet and shows that you can have a major exit strategy for these content powerhouses.”
Moreover, having three sizable content platforms [Scripps, iHeartMedia, and Spotify] buying into content creation is the biggest sign yet that things might be getting started for real.
“Once is an incidence, twice is a coincidence, and three times is a trend,” Grover added.
In Gimlet, Spotify garners more talent and technology to bolster its original content ambitions, while Anchor gives it additional hosting and monetization channels. Together, they could prove bigger than the sum of their parts when embedded in the Spotify ecosystem.
“With this double acquisition, Spotify now has a full-stack podcasting solution, encompassing every piece of the value chain,” Grover said. “The acquisition speaks to their ambitions to unseat radio and own not only music but all on-demand audio, and could — if executed properly — give them greater leverage in negotiating with rights holders.”
According to Spotify, Gimlet and Anchor are just the beginning of its podcast acquisition spree. In its Q4 shareholder letter, the company revealed that it was ready to spend up to $500 million for similar M&A activity throughout 2019. It said:
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.
Make no mistake, Spotify is getting into podcasting in a big way.