Why Spotify’s on a Shopping Spree for Podcasting Startups
This just in — Spotify has acquired both Gimlet Media and Anchor in hopes of creating a podcast behemoth. Gimlet focuses on producing high-quality narrative podcasts while Anchor helps with distribution and monetization.
Gimlet had raised approximately $ 28.5 million in venture funding from investors including WPP, Stripes Group, LionTree Partners, Graham Holdings, Betaworks, Cross Culture Ventures, and Lowercase Capital. Two years ago, the startup was reportedly valued at roughly $ 70 million.
Anchor had raised approximately $ 14.4 million in venture funding from investors including GV, Accel, Eniac Ventures, Betaworks, Homebrew, and The Chernin Group. (Betaworks must be popping champagne right about now as they were investors in both.)
Though financial terms have not been disclosed, Spotify is said to have acquired Gimlet for upwards of $ 200 million, according to Recode. This would make it the biggest acquisition in Spotify’s history.
These deals are a no-brainer for Spotify.
Why a no-brainer? Because of influence & engagement. Gimlet podcasts, which include Homecoming, StartUp, and Reply All, are reportedly downloaded more than 12 million times per month by listeners from nearly 190 countries worldwide. Anchor is said to have helped in the production of 15 billion hours of content listening on Spotify during the fourth quarter. Pair that with the 96 million Spotify Premium subscribers, and you can see the flashing dollar signs.
“People who consume podcasts on Spotify are consuming more of Spotify — including music,” head of Spotify Studios Courtney Holt said at CES in January. “So we found that in increasing our catalog and spending more time to make the user experience better, it wasn’t taking away from music, it was enhancing the overall time spent on the platform.”
The bottom line: When users come to Spotify to listen to their favorite Gimlet podcast, they will inevitably spend more time engaging with the Spotify platform. Additionally, Spotify will focus on curation and hyper-personalization with its podcast arm, just like how it’s done with its music offering.
(Related: Fortune’s Ultimate Guide to the Best Business Podcasts)
What does Spotify want to be? According to Spotify CEO Daniel Ek, the company has ambitions to become a podcasting giant that will rival Apple. In a blog post this morning, Ek writes that he believes more than 20% of all Spotify listening will be non-music content. To achieve that, the music giant plans to spend up to $ 500 million to acquire more podcasting companies in 2019.
Will it create a new business model? TBD. But what struck me is that Ek made it a point to focus on podcast creators. He writes, “We will offer better discovery, data, and monetization to creators.” Like I said in my Term Sheet column on Monday, the U.S. podcasting market is still in its infancy because content creators are using basic monetization techniques, while Chinese podcasters is experimenting with gamification, coupons, and limited-time memberships. Spotify (which is Tencent-backed) has actively looked into ways to enter the Chinese market for a number of years. I’m curious to see if Spotify takes a page out of China’s podcasting playbook to make the business more financially enticing for the creators.
You might have seen headlines that claim VCs don’t love podcasting startups, but this will change. With Spotify’s pledge to go on a podcast shopping spree in 2019, I’m willing to bet we’ll see the sector heat up in the coming year. Forget blockchain, good old podcasts are hot (again).
This article originally ran in Term Sheet, Fortune’s newsletter about deals and dealmakers. Sign up here.
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