Why Spotify is betting big on podcasting

Podcasting revenues hit $314 million in 2017, according to a third-party survey released last summer. It’s a large number for what’s been historically regarded as a niche and difficult to monetize medium, but still pales in comparison to the additional $400-$500 million Spotify says it’s willing to spend on the space this year alone.

Two major acquisitions announced early today already comprise a massive commitment to the category. The purchase of Gimlet was reported to have made up nearly half that figure, at $230 million. While no number has been revealed for the purchase of Anchor, Spotify no doubt paid a pretty penny for the buzzy creation/distribution platform, which has raised $14.4 million to date.

What, then, makes Spotify so confident that it will be able to get a return on such a massive investment? To hear the company talk about it, the service fell a bit ass backwards into the whole podcasting phenomenon. For one of the world’s largest audio platforms, Spotify was actually remarkably late to the game. Podcasting dates back at least until 2000, gaining popular momentum around 2004. A year later, Apple began supporting the technology with iTunes 4.9.

Spotify buys Gimlet and Anchor in podcast push, earmarks $500M for more deals

After a lengthy beta period, Spotify only opened its podcast submission program to all-comers last October. As Spotify struggles to stay ahead of Apple Music’s looming growth, however, the company is now apparently suddenly all-in on podcasting.

In an interview with TechCrunch, Spotify’s Chief R&D Officer Gustav Söderström admits that the company wasn’t doing a particularly good job serving up podcasting content. “The user experience was really poor,” he says. “There was no 15-second skip. In spite of that, we saw a lot of users listening to podcasts. It was kind of unexpected and we didn’t really understand why. It turned out people really wanted to have podcasts in Spotify with their music. If you look at radio, it’s not that surprising.”

What Spotify discovered was what many no doubt already suspected: Many users don’t necessarily need or want additional applications for all of their different audio types. Even more to the point, Spotify has excelled in one key place many other podcasting platforms have failed: discovery. It’s been a key piece in the company’s growth as the leading music streaming service and could serve to help resolve one of podcasting’s biggest pain points for most users.

Matt Hartman, partner at Betaworks — an early investor in both Gimlet and Anchor — says the massive acquisitions could help signal the beginning of a new wave of podcasting growth.

Anchor says it’s ‘powering’ 40 percent of new podcasts

“This feels like a turning point to a third wave,” Hartman says. “Discovery is a big part of the structural issues that have been in podcasting in the past and with audio in general. And Spotify has a specific solution to that on the music side. Between discovery and monetization, I think that’s where it starts to go from niche to mainstream.”

The same firm that put podcasting revenue at $314 million for 2017 forecasts that the number will hit $659 million next year, marking a 110 percent increase. That’s a healthy bump, but still a ways away from returning Spotify’s investment in a category that’s currently split amongst countless different players — including, notably, Apple, whose iPod gave the medium its name.

Eventually, Spotify will monetize podcasts the same way it has music — through subscriptions and ad revenue. In the short term, Spotify will allow both Gimlet and Anchor to operate as they have. Gimlet in particular has demonstrated an ability to make money hand over fist. In addition to raising $28.5 million, the company has devoted a chunk of operations to created sponsored content — using its vast resources to create custom podcasts for brands looking to pay a pretty penny.

When I spoke to Gimlet’s founders following its last major round, they were happy to discuss what’s become a kind of intellectual property machine, having already licensed shows like Alex, Inc. and Homecoming to ABC and Amazon. But building companies and quality content take time. Acquiring them, on the other hand, just takes money — albeit a hell of a lot of it in this case. Spotify was late to the draw but is still hoping to ramp up quickly. So it bought one of the premier players in premium podcasting.

“The question is how much you want to invest, and only history decides if this is right or not,” says Söderström. “We think this is the right time to invest. We could have continued on our own, but we think this is a great acceleration of the strategy we already had […] This was a great chance for us to accelerate the amount of talent we have at Spotify.”

Spotify has long offered some exclusive content from Gimlet and other podcasting studios. It says it will continue to do so here, while making the majority of shows available on all platforms. Ditto for shows created through Anchor, which offers an easy method for pushing out to different services — the company recently claimed it was powering around 40 percent of new podcasts.

Even if these acquisitions do eventually make fiscal sense for Spotify, what does this “third wave” of podcasting ultimately mean for creators? The great promise of podcasting has always been a sort of democratization of content. Anyone with a computer and a microphone can create a podcast. But if the early days of the world wide web have taught us anything, it’s that all things trend toward the corporate in a capitalist society.

Anchor, a plucky startup out of New York, has offered a welcome respite, bringing novice podcasters the tools to build easy podcasts out of the box. Spotify tells me that the company will keep Anchor’s branding and products around as consumer-facing offerings to help on-board users (it wouldn’t offer the same promise for Gimlet’s brand). More recently, Anchor has also worked to make ad sales more accessible for budding podcasters).

How all of that trickles down to content creators, however, remains to be seen. Music streaming like Spotify and Apple Music have been notoriously stingy when it comes to actually paying out musicians. And premium content, the kind Spotify was after in its Gimlet purchase, takes time and money, both things that are harder and harder to come by in this digital age.

Hartman disputes the music comparison, noting that podcasting is a nascent field without the same kind of precedent for monetization. “Podcasting wasn’t this massive industry that got disrupted,” he says. “It’s an industry that is figuring out its way and growing. Creators go into podcasting trying to find a new way to connect to audiences.”

Read more: https://techcrunch.com

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