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Pivot to podcast

6 February 2019 By Jennifer Saba

Spotify is hitching its wagon to a mule. The Swedish music service is buying two podcast companies and warned it will crank up spending in the name of growth. Yet sales are slowing and the market for audiocasts, despite some high-profile success stories like This American Life’s “Serial,” is small and speculative.

Chief Executive Daniel Ek is snapping up podcast content producer Gimlet Media, the company said on Wednesday, as well as Anchor, a firm that offers publishing services in the space. Spotify didn’t disclose the terms of the agreement but Ek plans to splash out up to $500 million this year on similar audio formats because he foresees that in the future, 20 percent of all Spotify listening will be non-music content.

Podcasts are definitely having a renaissance. Gimlet was behind “Homecoming,” the series that served as the inspiration behind Amazon’s show starring Julia Roberts. More than 70 million Americans are podcast listeners, according to Statista. But the market opportunity is unproven and relatively puny. A recent report from the Internet Advertising Bureau and PwC reckons U.S. podcasting advertising revenue is expected to hit almost $660 million by 2020. Analysts already think Spotify will make $8.3 billion in revenue that year, according to Refinitiv.

Perhaps Spotify wants to be the Netflix for ears. Its chief financial officer, Barry McCarthy, once held that role at the video-streaming firm. It’s not impossible that customers would pay to hear podcasts or subscribe to Spotify for exclusive audio content, in much the same way that Netflix benefits from proprietary hit series like “Stranger Things” – but it is somewhat unlikely.

In the meantime, Spotify’s revenue growth is slowing. In 2018, the top line increased 29 percent to about 5.3 billion euros compared to a year-over-year increase of 39 percent in 2017. The average revenue per user is declining too because of lower-priced subscriptions. It tooted its horn about its first ever operating profit in the quarter of some 94 million euros. But that will evaporate as it warned of operating losses for the remainder of the year. Cue sad trumpet sound.


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