Print Edition - 2019-02-11 | escalate
Spotify. It’s Not Just for Music Anymore.
Feb 11, 2019-
When Spotify began more than 10 years ago, it had a simple goal: to establish itself as a force in the music business by making millions of songs instantly available to listeners worldwide. But with its announcement on Wednesday that it had acquired two podcast companies, the streaming service sent a strong signal that it has broader ambitions.No longer does it aim to be a go-to destination for just music fans. It now sees itself as a provider of online audio, period.
The company’s chief executive, Daniel Ek, emphasized the shift in direction in a blog post on Wednesday. “I’m proud of what we’ve accomplished, but what I didn’t know when we launched to consumers in 2008 was that audio—not just music—would be the future of Spotify,” he wrote.
In announcing its fourth-quarter earnings, the Stockholm company said it had acquired 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.
With the acquisitions, Spotify becomes the latest player to invest in a medium once considered a low-stakes sandbox in the larger media environment. Now that podcasts have become part of the listening routine for millions of people, major companies have recognized them as an important—but still relatively cheap—source of content.
In September, the radio giant iHeartMedia bought Stuff Media, another influential producer, and recently Hollywood has begun buying up rights to popular podcasts. Homecoming, an Amazon series starring Julia Roberts, is based on a fictional podcast from Gimlet.
“I don’t think Spotify woke up one day and realized that audio storytelling has some incredible emotional place in the life of their brand,” said Owen Grover, the chief executive of Pocket Casts, a podcast app. “Strategically, if they can get their users to listen to podcasts in place of music, it improves their margins.”
Gimlet’s shows will expand Spotify’s podcasting slate, which includes thousands of shows widely available on other platforms, as well as high-profile exclusive productions from the comedian Amy Schumer, the journalist Jemele Hill, the rapper Joe Budden and others.
“We are still at the dawn of the second golden age of audio, and we know Spotify is a perfect partner and platform to take Gimlet—and podcasting at large—to a new level,” Alex Blumberg and Matthew Lieber, the public radio veterans who founded Gimlet in 2014, said in a statement.
Podcasts also offer a financial advantage, helping Spotify improve profit margin and reduce its dependence on the major record companies, whose licensing deals are by far its largest expense.
While podcasts are hardly a new invention—they became part of Apple’s iTunes in 2005—their popularity has surged in recent years. By some estimates, more than 600,000 podcasts are available through Apple, a number that does not include shows that are exclusive to other providers, like Spotify.
But while it may seem as if every other person on earth is either a podcast listener or a podcast host, the money thrown off by the boomlet has been relatively modest. According to a study by the Interactive Advertising Bureau and PwC, the podcast industry as a whole generated $314 million in 2017, though that survey also predicts that by 2020 the number will more than double, to $659 million.
Spotify, which went public in April, announced on Wednesday that it ended 2018 with 207 million active users around the world, 96 million of whom paid for monthly subscriptions. Its revenue for the year was 5.3 billion euros, about $6 billion, an increase of 29 percent from 2017.
And while in 2018 the company lost €78 million, about $89 million, it had a net income of €442 million, or about $502 million, in its fourth quarter. Spotify’s gross profit margin also grew in that quarter, to 26.7 percent, from 25.3 percent in the previous three months.
Despite Spotify’s dominance among music listeners (its chief rival, Apple Music, has 50 million paying subscribers), Mr Ek, the company’s chief executive, predicted that “over time,” 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,” Mr. Ek wrote in his blog post.
For the music industry, which has become increasingly reliant on streaming revenue—yet has regularly tussled with Spotify over money—that may be seen as a signal that Spotify sees podcasts as a cheaper way to satisfy its customers. Barry McCarthy, Spotify’s chief financial officer, has frequently pointed to podcasts as a way to increase the company’s margins. “Even though music rights holders think Spotify is underpaying for their music, Spotify has struggled thus far to make the economics work,” Mark Mulligan, a digital media analyst at Midia Research, said. “But Spotify cannot wait to play the long game, so it sees podcasts as a nearer-term way of populating its service with higher-margin content.”
For some observers, the Spotify deal also suggests an end to the Wild West era of podcasting, in which Apple played the role of disinterested host to numerous shows from all kinds of independent producers.
“This is the end of the open era,” said Nick Quah, the writer of HotPod, a popular newsletter about podcasts. “Apple never picked winners and losers. A guy or a lady in the grandma’s basement had the same position as ‘This American Life,’ and they battled it out for listeners.”
“In the new balance of power,” he added, “winners and losers might not be made in the same way.”
—© 2019 The New York Times
Published: 11-02-2019 11:52