Behind Spotify's Huge Bet on Podcast Market's Growth

Fans of the podcast StartUp might want to get ready for a new episode all about acquisitions. 

The company behind that podcast, Gimlet Media, sold to Spotify on Wednesday morning in deal said to be worth over $200 million. It's part of a larger push into audio content for the music streaming giant that also saw it acquire distributor Anchor and pledge to spend as much as $500 million on acquisitions this year. 

The deal, considered the largest in the podcasting industry to date, signals Spotify's ambition in the space as it races to compete with leading podcast distributor Apple. "Our goal is to become the world's number one global audio platform," content chief Dawn Ostroff told The Hollywood Reporter in an interview following the announcement of the acquisitions. She points to the difference between the size of the video industry (digital video ad spend was $13.2 billion in 2017, per eMarketer) and the size of the audio market ($314 million in podcasting revenue in 2017, per IAB) as a sign that there is significant growth potential in the space. "People have a finite amount of time and, yet, they're really dividing their time equally between video and audio." 

Spotify, which has 200 million users and 96 million subscribers, currently boasts that it is the second-biggest podcasting platform behind Apple. In a blog post on Wednesday, CEO Daniel Ek said he believes that eventually more than 20 percent of all Spotify listening will be non-music content. That's where Gimlet comes in. The producer of such shows as Reply All, Homecoming and Heavyweight will give Spotify control over not just podcast distribution but also podcast production. 

Gimlet and Spotify have been partners for several years, first on Spotify original podcast Moguland later to exclusively distribute the second season of the show Crimetown. Gimlet co-founder and president Matt Lieber told THR that Spotify has been the company's fastest-growing distribution partner, a valuable metric when the two began talks about a deeper partnership in the last few months. "This moment is really the beginning of this flourishing of this second golden age of audio where we combine the quality content Gimlet is making with Spotify's global scale, personalization and data that is going to help us drive discovery and more listening," he said. 

The sale of Gimlet, which has raised around $28 million in venture funding over the last five years, serves as validation for an industry that, in many respects, is still growing into its full potential. Lieber said he and co-founder Alex Blumberg were struck by Ek's pitch that "the ear is undervalued." He added, "The reason we feel like it's time [to sell] is in order to evolve podcasting to its full potential, we need better discovery, better data, better monetization and global scale. Those are all things that Spotify has."

Both companies have said that the deal, which is expected to close by the end of the first quarter, will not impact business at Gimlet, which will continue to operate independently. The existing slate of podcasts will remain widely distributed, though it's likely that future shows will be made exclusively for Spotify. "You'll continue to see us experiment," Lieber noted. 

Ostroff called the deal the "second stage" in Spotify's audio ambitions, following the build up of its own platform for audio programming over the last two years with licensed programming as well as originals like Amy Schumer's 3 Girls, 1 Keith. "Where we go from here is going to be a constant learning process," she said, acknowledging that Spotify is looking at other acquisitions in the space. "Businesses that are this nascent and young continue to change and shift." 

This article was originally published by The Hollywood Reporter.