Spotify’s purchase of Gimlet could change podcasting’s future

February 7, 2019
Category: Business & Work

Spotify’s announcement that it would purchase the podcast network Gimlet Media on Wednesday reverberated through an industry that has clung to its DIY roots even as its popularity has exploded.

Gimlet’s sale to Spotify is a story of platform becoming publisher. Of tech buying media. Of the taming of an industry that still often feels like the Wild West.

For the uninitiated, Spotify is a 10-year-old Swedish music (and podcast) streaming platform that launched in the United States to great fanfare in 2011. Spotify virtually upended a music industry that had been dominated by Apple’s iTunes, in which consumers purchase individual music tracks or albums and download them to their devices; and Pandora, which creates customized “stations” of music based on specific songs or genres.

For anyone willing to pay $9.99 a month, Spotify unlocked nearly all of the songs in the world to be played at will or mixed into playlists. It’s a model that Apple Music and Pandora Premium have since cloned.

By most accounts, Spotify is a smash hit. The service announced Wednesday that 96 million of its 215 million or so monthly active users had become premium subscribers and that it had finally reached profitability after years of seeing red. But artists still criticize Spotify for the minuscule royalties it pays to rights holders — from $0.006 to $0.0084 per play, which is further split among the artist, record label, producers, songwriters and others involved in the process.

Spotify added podcasts to its audio library just two years ago and has grown to become the second largest podcasting platform, behind only iTunes. Daniel Ek, Spotify’s founder and CEO, said in a press release that the company expects, over time, “more than 20 percent of all Spotify listening will be non-music content.”

Gimlet Media is a four-and-a-half-year-old darling of the podcasting industry. Founded by alumni of This American Life and WNYC, Gimlet told the story of its own founding in “StartUp,” the network’s first show. Many of Gimlet’s podcasts have spent time at the top of iTunes’ top podcast charts, especially “Reply All,” which covers how the ever-evolving zeitgeist of the internet and is arguably Gimlet’s flagship program.

Recode and The Wall Street Journal first reported on Friday that Spotify was in talks to purchase Gimlet for more than $200 million. Spotify announced the purchase on Wednesday and Recode confirmed that the number was close to $230 million.

That’s the largest podcast acquisition by far, according to Nicholas Quah of Hot Pod, a site and newsletter that tracks the podcasting industry. Quah said the only deals that are even “comparable markers” are E.W. Scripps’ purchase of Midroll Media for $50 million in summer 2015 (Scripps also owns the popular podcast app Stitcher, which was folded into Midroll from 2016 until last fall, when those roles were inverted) and iHeartMedia’s purchase of Stuff Media for $55 million in September.

These are big moves in an industry where, ostensibly, someone with a great idea and a Best Buy microphone can launch a show that reaches millions.

Here are three big thoughts about what Spotify’s acquisition of Gimlet could mean for the rest of the podcasting industry.

  1. The industry is growing but getting smaller at the same time.

A look back at the A.V. Club’s best podcasts of 2012 — probably the closest thing out there to a ratings chart from that year — doesn’t exactly reveal a hyper-grassroots industry with the little guy on top. But those shows, in the year before “Serial” reshaped the industry, look a whole lot different from the top podcasts today.

Shows like “Walking the Room” (independent and recorded in a closet), “Doug Loves Movies” (independent and recorded in front of a live audience at the Upright Citizens Brigade Theatre), and “The Best Show on WFMU” (from an independent community radio station) didn’t have backing from big companies, but were vessels for comedians with some name recognition to grow their popularity.

Top podcasts from that time often looked similar: independent producers (often comedy- or pop culture-based) or small companies that hosted a handful of podcasts on small budgets.

Just seven years later, it’s barely recognizable as the same industry. Top podcasts include “The Daily” (The New York Times), “This American Life” (This American Life/Serial), “Stuff You Should Know” (iHeartRadio) and “Up First” (NPR). The 10 largest podcast networks combined publish more than 500 shows and account for every single one of the top 20 most popular podcasts from December 2018, according to Podtrac, a podcast measurement and advertising service.

The past few years have proven that there’s money in the industry. Now, big players are consolidating power to fight for that money. This will only continue as major podcast investors — Gimlet earned $28.5 million alone — push for results.

  1. Consolidation could bring some benefits for podcasters and fans

Anyone with a pair of earbuds and a cheap laptop with Audacity can make a podcast. The real challenge is growing it from there.

Let’s say you launch a show tomorrow. Your first step is to get as many people as possible to listen to it. You can’t natively post audio to Facebook, Twitter or Instagram. Search engines don’t crawl through your audio for keywords that surface your podcast for eager listeners. Your best bet is word of mouth and advertising campaigns that can’t actually give people a taste of your product.

Growth is slow, and hosting costs for audio files add up as you grasp for listeners. Advertisers won’t bite unless you have a sizable audience, so you pay those costs out of pocket.

Big networks can provide the seed money to nurture a podcast through those crucial early months and years. They can provide cross-promotion through their other shows. They can sell packages to advertisers that include both established podcasts and fresh shows in search of audiences.

And, in Spotify’s case, it means podcasters could get more information about how their shows perform. The analytics landscape for the industry is currently about as barebones as it gets on the internet. Apple launched a beta analytics program for publishers in 2017 and some hosting platforms provide their own, but podcast metrics remain more of a bludgeon than a scalpel. A combined publisher and platform could bake in tools that collect more information and Ek, Spotify’s founder and CEO, promised as much in his announcement of the acquisition.

For audiences, a more consolidated podcast industry likely means a better experience.

Podcasts are generally only easily accessible on standalone apps and websites. And they’re difficult to find unless someone is actively seeking them out. Even from there, downloading and accessing them remains a nightmare (the Apple Podcasts app is a maze of frustrations and doesn’t even have a rating on the App Store presumably because it was so bad). A prominent home on a platform that’s already in 200 million pockets could considerably grow podcasts’ overall visibility and popularity.

That’ll be important as podcasting continues its growth. In late 2017, Nielsen found that only 17 million U.S. households out of a possible 126 million had at least one “avid” podcast fan. Unlike television, which is in about 120 million homes and has been saturated for years, podcasting has a lot of room to expand.

  1. The podcast industry is wading into the platforms and publishers debate

Over the years, technology companies like Facebook and Twitter have been careful to label themselves as platforms, rather than publishers, to retain legal protections and limit their culpability for what users choose to share on them.

Until recently, Spotify seemed to be taking a “platform” approach — hosting music and offering some light curation in the form of playlists, but largely leaving the content to others.

The first sign that Spotify might take more of a “publisher” approach came in May, when the streaming service removed R. Kelly, who was facing growing accusations of sexual misconduct, from all of its curated playlists and recommendation algorithms. Spotify reversed this decision weeks later and has since added a feature that allows users to “mute” artists themselves, a “platform” approach to a “publisher” problem.

But Spotify owning and publishing its own podcasts raises a slew of questions. Will the company monitor or even censor what its podcast hosts say or do? Will it demand coverage of certain topics or demand Gimlet create shows about topics that further Spotify’s interest? Or will it take a hands-off approach with what as been an independent media company? It’s uncharted territory.

A few more questions linger as the ink dries.

Will Spotify pay its in-house podcasters at a higher premium than it does artists?

Will Spotify double down on podcasting and seek out shows beyond Gimlet’s? Ek alluded to further acquisitions in the press release announcing the sale. And its simultaneous acquisition of Anchor, an all-in-one podcast production tool, seems to point to the idea that Spotify is keen to invite new, even unestablished, shows to the platform.

Will Spotify use the information it collects about its users to pitch relevant podcasts? If it does, will it pitch its own podcasts over others that are just hosted on the platform?

Could Spotify becoming a podcast publisher change podcasts themselves? Traditionally, licensing music for podcasts has been exceedingly complex. Could Spotify’s industry connections change that?

Will Apple and others follow suit in publishing their own podcasts? After all, Apple has already waded into the publishing world by creating its own original video content.

It took five days for Spotify to confirm that it was buying Gimlet after the news broke. It’ll likely take a lot more before the industry has answers to any of these questions.

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