Spotify Technology SA's planned acquisition of podcast producer Gimlet Media Inc. and podcast technology firm Anchor FM Inc. will enable Spotify to diversify its content portfolio and also gain share in a market that is growing rapidly, analysts said.
Spotify recently announced its plans to buy Gimlet Media and Anchor for undisclosed sums. Gimlet Media was founded in 2014 and has a podcast content development arm that focuses on producing narrative podcasts. While Spotify did not announce terms of the deal, reports indicate that Spotify could pay more than $200 million for Gimlet Media. Anchor, meanwhile, was established in 2015 and provides podcast creation and distribution tools, including ones for smartphone apps.
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Spotify entered the podcasting market about two years ago and now has more than 185,000 podcast titles available on its platform. Executives said podcasting today remains only a small part of Spotify's overall business, but the company does plan to spend between $400 million to $500 million on podcasting acquisitions in 2019.
Speaking on a recent earnings call, Spotify CEO Daniel Ek said the company's podcast users are "almost twice as engaged" as nonpodcast listeners and spend more time listening to music as a result. Ek also contrasted the business of music streaming — where he said true exclusivity is not possible due to the availability of songs on various platforms — to the potential upside of delivering exclusive podcasts.
"The dynamics [are] very, very different. What we're doing here ... is really building the market," Ek said on the call.
Peter Leitzinger, an analyst with Kagan, a media research group within S&P Global Market Intelligence, said Spotify's move toward exclusivity in podcasting is a step in the right direction as it will bolster Spotify's user base and increase subscriptions on the platform.
"There's a simplicity factor going on there ... where if somebody can get all their audio through one service, then it makes [the platform] easier to use," Leitzinger said in an interview.
Spotify ended the December 2018 quarter with 207 million active users, 96 million of whom paid for monthly subscriptions.
According to Leitzinger, Spotify's increased investment in podcasts makes sense given the recent rapid growth in the podcasting industry. The analyst estimated that the number of people engaging in podcasts has more than doubled over the past five years and should continue to grow at a fast clip.
A recent study conducted by the Interactive Advertising Bureau and PwC showed the U.S. podcast industry as a whole generated $314 million in advertising revenue during 2017, up 86% from $169 million in 2016. The survey predicted that by 2020, podcast advertising revenue will climb by more than 110% to $659 million.
Raymond James analyst Justin Patterson said in a recent research note that it could take Spotify some time to monetize its various content investments, and he lowered his gross profit estimates for 2019 and 2020. Longer term, however, the analyst believes podcasts will "ultimately help distance Spotify from competitors."
Rob Kniaz, founding partner of venture capital firm Hoxton Ventures, said that these two properties in particular complement each other well, as Spotify will be able to combine Anchor's niche podcast offerings and Gimlet Media's wide array of content.
"With Anchor, it creates the on-ramp for not only existing folks to have the right tools but also for people who haven't podcasted before," Kniaz said in an interview. "And with Gimlet, I think on the content and advertising side, they've started to build out that network and it plugs right in on the back of Spotify."
In a Feb. 6 blog post discussing the deals, Ek said radio industry data has suggested that over time more than 20% of all Spotify listening will be nonmusic content.
"With the addition of Gimlet and Anchor, Spotify will now become the leading global podcast publisher with more shows than any other company," Ek wrote. "These levers of growth have the potential to double the size of our industry."
In order to be "at the center of the global audio economy," the CEO said Spotify must "invest now to capture the opportunity ahead."