Spotify is Looking for Podcasting Businesses

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The news broke recently that Spotify purchased both Gimlet Media and Anchor. The goal is to create a podcast empire. Gimlet produces high-quality narrative podcasts and Anchor helps with podcast distribution and monetization.

Gimlet managed to raise $28.5 million in venture capital from investors who inclde WPP, Stripes Group, LionTree Partners, Betaworks, Graham HOldings, Cross Culture Ventures and LowerCase Capital. As of about 2 years ago, Gimlet was valued at close to $70 million.

With regard to Anchor, it had reaised about $14.4 million in venture capital funding from traders that included GV, Eniac Ventures, Accesl, Betaworks, and Homebrew. Betaworks is excited as it is an investor in both Anchor and Gimlet.

Spotify is rumored to have purchased Gimlet for more than $200 million, this according to Recode. This would make it the biggest acquisition Spotify has ever had.

Purchasing Gimlet and Anchor were easy decisions for Spotify.

Why was this such an easy decision? In two words–influence and engagement.

Gimlet puts out podcasts like StartUp, Homecoming and Reply All. These are reported to have more than 12 million downloads each month. They have listeners in 190 countries worldwide.

In the case of Anchor, they have helped with the production of almost 15 billion hours of content on Spotify just during the fourth quarter of 2018. Link that up with the 96 million Spotify Premium subscribers and dollar signs are everywhere.

Spotify's own research shows that people who consume podcasts on Spotify also consume music. By increasing their catalog and making the user experience better, it enhanced the overall time people spend on the platform.

Spotify is betting that when users come to listen to their favorite Gimlet podcast they will also spend extra time engaging with Spotify's other content. Spotify is going to focus on curation and personalization like it did with the music side of the platform.

Spotify has lofty goals. They want to be a podcasting giant that eventually takes on Apple. Daniel Ek, CEO of Spotify, wrote in a blog post that he believes more than 20% of all Spotify listening will be nonmusic content. Spotify will spend more than $500 million to purchase additional companies specializing in podcasting in 2019.

There will not necessarily be a new business model for Spotify. However, the key point Ek made is they plan to concentrate on podcast creators. He wrote in his article that Spotify plans to offer better search, analytics and help with monetization. This is important as the US podcasting market is still in its infancy stages.

US podcasters still use basic techniques for monetization. Chinese podcasters use more advanced methods like coupons and limited memberships. Spotify (which is definitely Tencent-backed) has worked hard to find ways to get into the Chinese market for many years now. Will Spotify use China's playbook on podcasting to make the podcasting business something creators can benefit from financially? That seems to be the plan!

There have been many articles stating that venture capitalists don't like podcasting startups, but this is going to change drastically. We will see podcasting heat up in 2019. Podcasting is an extremely hot market right now.

The effect this will have on the podcasting market is still unclear, but it seems to me that this is just what the doctor ordered. When a huge media oriented company like Spotify invests so heavily in podcasting, it sends a loud message to the industry as a whole.

One very exciting aspect is that at CES, Spotify announced they are going after exclusive shows. Spotify truly believes that podcasting is the future of radio.

Many podcasters have clamored to get their shows listed on Spotify due to the large listener base. For many, this proved to be a difficult thing. I have personally been in touch with the Spotify team about Yogi's Podcast Network shows and getting them on Spotify. They are so busy with their new podcasting platform that they are still in beta test mode.

This leads to all sorts of speculation about their monetization approach going forward.

Anchor was one of the leaders in the podcast monetization space. They introduced Anchor Sponsorships and claim to have doubled the number of podcasts that contained advertising as a result.

Anchor says that Anchor Sponsorships gets podcasters paid by matching them with sponsors and helping them easily create custom advertisements for their shows. It’s a new world for podcast advertising, and anyone can be part of it.

The podcasting industry is seeing money pour in, mostly through advertising. The ad spend on podcasts in the US has steadily increased year over year and is expected to reach nearly $700M by 2020. Unfortunately, most of this money is going to the top 1% of podcasts due to the highly fragmented market. Currently it takes about 50,000 downloads per episode before a podcaster gets meaningful attention from sponsors. Even once that happens, brokering a deal turns out to be quite difficult.

Due to the massively untapped market, Anchor created their sponsorship program. They see it as a great solution to a nagging problem.

Anchor's program revolutionizes the advertising process for podcasts. It puts it all into a one single platform. It connects podcasters with brands and then helps them create custom ads. They also help collect payments. This is the first advertising platform for podcasts that is open to shows of any size.

As a podcaster, I am excited to see more companies do this same thing. The potential I see is outstanding!