Hey podheads, what a week it was! Developments this past week will indelibly alter the podscape for better or for worse. For the first time in the history of podcast, headlines with millions in it were thrown around like nobody’s business. Here’s issue #25.
Right when I was trying to wrap my head around the Spotify + Gimlet deal, the company surprised everyone by announcing that it was acquiring Anchor as well. There is so much here to unpack.
Let’s rewind a little and look at the big picture. Spotify has a cost (marginal cost) problem. As more users flock to the platform and listen to more and more music, it has to pay more and more in royalties to the big labels, which is a problem. put in perspective, if 100 new users signup on Facebook, the company would incur little to no cost, in fact, it would extract value out of their attention.
The stranglehold of the big labels is another problem for Spotify. The top 3 labels account for 87% of the music streamed on the platform and as such, they exercise enormous power.
So, Spotify want’s to diversify its revenues and hence the bet on podcasts. Last week the company surprised everyone with multiple announcements even as people were trying to understand what the Gimlet deal meant for
- The company is acquiring both Gimlet and Anchor. The size of the deals hasn’t yet bet been disclosed. Although, it was reported that the company was paying anywhere between $200 – $230 million for Gimlet.
- Along with the acquisition announcements, the company also reported its Q4 results and the earnings release contained some important statements and numbers.
- In the earnings report, Spotify said that it wants to spend $400-$500 million on acquisitions in 2019.
- Along with these announcements, it also turned profitable for the first time since its inception, although this was in large part due to certain tax-situations/advantages. But worry not, the company expects to be back to its money-losing ways in 2019.
Here’s the relevant excerpt from the earnings release on acquisitions:
Growth through Acquisition
Today we announced that we have entered into definitive agreements to acquire two of the leading players in the emerging podcast marketplace. We want to acquire
more,and have lineof-sight on totalspend of $400-$500M on multiple acquisitions in 2019. Growing podcast listening on Spotify is an important strategy for driving top of funnel growth, increased user engagement, lower churn, faster revenue growth, and higher margins. We intend to lean into this strategy in 2019, both to acquire exclusive content and to increase investment in the production of content in-house. The more successful we are, the more we’ll lean into the strategy to accelerate our growth, in which case we would update guidance accordingly.
The company’s user base continues to grow and it has a user base over 212 million users in 78 countries.
Announcing the acquisitions in a blog post, Daniel Ek, CEO of Spotify wrote:
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. This means the potential to grow much faster with more original programming — and to differentiate Spotify by playing to what makes us unique — all with the goal of becoming the world’s number one audio platform.
A couple of things here. As more and more users listen to non-music content, Spotify would save more because it would pay the music labels less. Interesting that it wants to become the world’s “number one audio platform”.
So with the acquisitions, Spotify, on one hand, will be one of the biggest aggregators of podcasts while also simultaneously investing in content through Gimlet, not to mention the flow of content from Anchor. And the good thing about podcast content is that is a fixed rather than a marginal cost. Here’s what the CEO had to say about podcast exclusives in the earnings con call:
Exclusivity is definitely an important part of our strategy. Just to be very clear though, the goal is not with Gimlet nor with Anchor to make any of their existing content exclusive. But to focus on the content that we’re developing at Spotify and make more exclusive deals going forward.
By becoming a dominant player in the podcasting ecosystem, Spotify can effectively become the default advertiser of choice. You’ll have to remember that Spotify made $198 million in ad revenue in Q4 alone. That makes it $600-$700 million a year, bigger the $300 million that the entire podcast industry made. It will be interesting to see what becomes of the Anchor’s recently launched monetization program in the days to come.
Having said all this it still leaves a lot of questions on a lot of different business aspects including how will Apple respond. We’ll continue to unpack these questions in the upcoming issues.
There were some great pieces analyzing the acquisitions. Here are the best ones:
Spotify’s Podcast Aggregation Play – Ben Thompson
Spotify, Music, and Podcasting: The Meteor is Coming – Tom Webster
3 Lessons for Podcasters From Someone Who Lived Through YouTube’s Buyout – Amanda McLoughlin
Substack, the service which allows writers to start their own paid newsletter announced the launch of Substack audio. With this feature writers on the platform can run their own paid podcasts just like a newsletter. The company has 35,000 paying subscribers on its platform.
This opens up a new monetization avenue to podcasters who have very limited options,
Here’s another excerpt from the same article on what the CEO, Chris Best had to say about Patreon:
“We definitely think the world is big enough for both of those things,” Best replied. While he expressed admiration for the Patreon model, he argued, “There’s also room for another kind of thing, where you say, ‘Hey, I’m doing this professionally, it’s my job, I do a good job with it and you should pay for it.’”
Speaking of Patreon, Jack Conte, the CEO of the company said that the current business model might not be sustainable. Patreon allows creators to get paid directly from supporters. the company is set to cross $1 billion in contributions to artists and creators on its platform this year.
Here’s an excerpt from the CNBC article:
Patreon CEO Jack Conte said in an interview with CNBC that the platform will soon be facing the challenge of maintaining a profitable model as the company continues its growth.
“The reality is Patreon needs to build new businesses and new services and new revenue lines in order to build a sustainable business,” Conte said.
Plenty of podcasters depend on Patreon for financial sustenance. This news will certainly come as a bit of jolt to creators. This means that changes are on the horizon. It remains to be seen if Patreon will start taking a bigger cut from the cheques of creators.
Let’s talk in millions
Podcasting platform Himalaya Media has raised $100 million in a round led by Ximalaya FM – China’s largest audio platform. General Atlantic and SIG also participated in the round.
Variety notes that the company maybe be closely linked to Ximalaya FM:
Setting up Himalaya as an independent entity may have been a strategic decision in light of the current tension between the U.S. and China, as well as the constraints a spoken word platform operates under in that country. The setup also helps to ensure that Himalaya isn’t associated with some of
Ximalaya’smore peculiar efforts: Last year, the Chinese company launched a dedicated version of its smart speaker for members of the Chinese communist party.
Ximalaya with over 470 million users accounts for 73% of the domestic Chinese market, according to the company’s about page.
Anyway, Himalaya plans to launch a slew of originals. The company seems to be following in the path of
I highly recommend you read this piece by Connie Chan for more context on the Chinese market.
BBC Sounds reaches 1.3m listeners – James Purnell
Every Vote Matters by by Suno India released its first 2 epsiodes.
Journalism should be free – Mari Cohen and Christian Belanger