Spotify plans to spend $400 million to $500 million on acquisitions in 2019. With these acquisitions, Spotify cannot only become the premier producer of podcasts but also the leading platform for podcast creators. Spotify, which is the world's second largest podcasting platform, is buying Gimlet Media, an independent podcast producer, and Anchor, a podcast publisher, for undisclosed amounts. Terms were not disclosed, but industry sources have estimated the GIMLET deal at about $230 million.
Although streaming is becoming an increasingly popular way to listen to music, Spotify and other services such as Pandora have struggled to make money because of the royalties and other fees that they have to pay recording labels, songwriters and performers. Gimlet will bring to Spotify its best-in-class podcast studio with dedicated IP development, production and advertising capabilities.
"We have the opportunity to make original content the way Netflix does and to utilize the catalog content we have in the platform to help bring people to the podcast space", said Dawn Ostroff, Spotify's chief content officer in an interview.
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. But the deals for Gimlet, a producer of podcasts, and Anchor, a services company, signal the medium has progressed from a hobby to a key focus for Spotify. During its last round of funding in 2017, Gimlet was valued at about $70 million.
The acquisitions are about "expanding our mission from just being about music to being about all of audio and being the world's leading audio platform", CEO Daniel Ek said in an interview on CNBC on Wednesday.
In its earnings letter to shareholders, Spotify said podcasts were part of its strategy for faster revenue growth.
It's easy to see why Spotify views podcasting as a huge area of growth.
Podcasts produced by Gimlet Media cover everything from history to internet culture, with some outlets reporting that it was bought by Spotify for over $200 million. Gimlet is known for producing the podcast "Homecoming", a fictional thriller, which was made into an Amazon series starring Julia Roberts.
In its own acquisition announcement, the podcast production and hosting platform, Anchor, stated that its platform is now powering of all new podcasts. Podcasters have complained that even Apple largely ignores podcasts when compared to its other services. The deals are targeted to be completed in the first quarter.