The music-streaming giant Spotify, moving aggressively to expand beyond its core service, said Wednesday that it had agreed to buy two companies that will bolster its podcast roster and help to reduce its reliance on big record labels.
The acquisitions include Gimlet Media, the studio behind the popular podcasts Crimetown, Reply All and StartUp, and Anchor, which makes tools for recording and distributing podcasts.
Financial terms of the transactions were not disclosed.
The deal is likely to cause a major shift in the podcasting world. Suddenly, an industry that has been historically low-budget, often fueled by crowdfunding or merchandise and drawing minimal ad revenue, is about to be flooded with money and resources. Already the second-largest podcast platform, Spotify has said it plans to spend as much as $500 million on podcast-related deals in 2019. The company plans to use the same tool kit it did with streaming -- an emphasis on personalized content and data collection -- to turn podcasting into a much bigger, much more lucrative enterprise.
Podcasts have achieved success in a fairly short life span: About 78 million people in the United States are "regular podcast listeners," or people who listen to at least one podcast a month, according to a study from PricewaterhouseCoopers. Spotify users who listen to podcasts spend twice as long on the platform, and they listen to more music, too, Spotify Chief Executive Officer Daniel Ek wrote in a blog post.
Despite its widespread popularity, podcasting in the United States has remained a small industry. Almost all podcasts are available for free, and metrics for audience and engagement are fairly limited, which means most podcasters don't make money until they have a significant audience. Podcasts also don't generate much ad revenue. In 2017, advertisers in the United States spent about $314 million on podcast ads, according to the Interactive Advertising Bureau.
In addition to helping Spotify diversify its offerings, the company hopes the deals will help it keep users on its platform longer. The company, which is based in Stockholm and went public last year, is already the market leader in streaming music, with a commanding lead over its nearest rival, Apple.
Spotify said Wednesday that it now has 96 million monthly paid subscribers, nearly double the number recently reported by Apple Music, and 207 million active monthly users. The company said it lost about $89 million last year, compared with a $1.35 billion loss in 2017.
Spotify, launched in 2008, lets users stream their chosen audio for free with ads or ad-free with a subscription.
Despite its dominance among music listeners, Ek sees other kinds of audio content as critical to the company's future success. In the corporate blog post announcing the acquisitions, he predicted that about 20 percent of all Spotify listening would involve something other than music.
"Ultimately, if we are successful, we will begin competing more broadly for time against all forms of entertainment and informational services, and not just music streaming services," Ek wrote.
In recent years, podcasts, which once accounted for a small slice of Spotify's offerings, have become a big focus for the company. Ek wrote that Spotify is now the second-largest platform for podcasts, trailing only Apple.
Podcasts are good business for Spotify in other ways, as well. The company said that offering more of them could help increase its profit margins, in part by reducing its dependence on licenses it must regularly negotiate with record labels.
With its podcast acquisitions, Spotify has the potential to provide exclusive nonmusic content in a way that is similar to Netflix providing exclusive shows on its platform, analysts said.
"This is just a huge move," said BTIG Research media analyst Rich Greenfield. "Exclusives in the music world just do not work. Podcasting exclusives absolutely can work, especially in a scaled platform."
"If the Spotify listener converts from 100 percent music to even 90 percent music, 10 percent podcasts, that's a 10 percent decrease in checks cut to other entities on behalf of that listener," Tom Webster, a senior vice president at Edison Research, wrote in a blog post. Webster said he thought Spotify's podcasting acquisitions also could push more labels to become more open to letting podcasts use licensed music.
Spotify executives said it would employ its most recent acquisitions to draw more content to its platform. Already, more than 185,000 podcast titles are on Spotify, and in the fourth quarter, 14 of those were exclusives.
Gimlet was started in 2014 by the public radio veterans Alex Blumberg and Matthew Lieber. Homecoming, the company's first fictional podcast, has been adapted into an Amazon show starring Julia Roberts.
"Spotify is poised to become the largest audio platform in the world and we are excited for Gimlet's award-winning podcasts to connect with new audiences around the world," Blumberg and Lieber said in a statement in the news release announcing the deal.
Anchor, which was started in 2015, creates products that simplify the process of recording and earning money from podcasts. Its addition broadens Spotify's ability to cater to podcast creators.
Both deals are expected to close by March 30.
Information for this article was contributed by Michael J. de la Merced of The New York Times, by Taylor Telford of The Washington Post and by Wendy Lee of the Los Angeles Times.
Business on 02/07/2019