Business / #ForbesBusiness



February 7, 2019,   11:24 AM

It's Official: Spotify Buys Gimlet Media, Plans To Spend Up To $500 Million This Year on Acquisitions

Dawn Chmielewski

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Streaming music giant Spotify is looking for new ways to bend your ear.

The Swedish company said Wednesday it has reached an agreement to acquire Gimlet Media, home to such acclaimed podcasts as the internet culture hit Reply All and the entrepreneurial-focused StartUp, and Anchor, a maker of tools to create podcasts. Terms were not disclosed.

The two deals are the leading edge of Spotify's plans to spend as much as $500 million this year on acquisitions with the potential to increase listening time, grow revenue and margins and reduce subscriber turnover, known in industry parlance as “churn.”

Chief Executive Officer Daniel Ek wrote a blog post explaining the company's embrace of narrative storytelling more than a decade after its birth as a music service. Podcasts represent the next big opportunity in audio, he said.

“There are endless ways to tell stories that serve to entertain, to educate, to challenge, to inspire, or to bring us together and break down cultural barriers,” Ek wrote in a blog post. “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.”

Ek said Spotify’s users like podcasts, and those who listen spending more time on the service than pure music aficionados.

“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,” Ek wrote. “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.”

The investment in podcasts strengthens Spotify’s competitive position. It gives the service’s 96 million premium subscribers a reason to stick with Spotify instead of going to a rival like Apple to listen to a favorite podcast, said Russ Crupnick, managing partner of MusicWatch, a marketing research firm focused primarily on the music sector.

“The worst thing you want to have happen is to have your premium customers spending so much time on someone else’s platform listening to podcasts they say why don’t I do that for music, too?” Crupnick said.

Podcasts also are a fast-growing source of ad revenue. The Interactive Advertising Bureau forecasts U.S. podcast advertising revenue could grow to $659 million by 2020.

Unlike music, the costs associated with a podcast — even the $1 million Spotify reportedly paid for the rights to Amy Schumer's podcast — are fixed, regardless of how many people listen, notes Mark Mulligan MIDiA Research. That has the potential to help Spotify improve its margins.

 


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