Thoughts on Spotify’s Acquisition of Gimlet Media and Anchor

Spotify is reported to have purchased the podcast companies Gimlet Media and Anchor. Having only just reported an operating profit for the first time, the deals demonstrate not only how Spotify is still firmly locked in growth mode and its market share in music streaming platforms but also how much Spotify value the podcast space. It also marks a turning point in Spotify’s acquisition strategy as Gimlet would be the first content creation company the Swedish streaming platform has acquired, with the company having previously favoured either infrastructure plays such as Niland and Mediachain.

Why so bullish on podcasts?

Why is this the case? It is a matter of the economics of music streaming versus podcast and wider trends in the digital advertising ecosystem.The margins on podcast content are higher, since payouts to rights holders are decreased if more listening time is spent with podcast content, appeasing an investment community eager to see the company lower its costs. This move would also be significant because as MIDiA has discussed in the past, we are potentially about to witness a revolution in advertising via the Echo, which as primarily an audio device, is most embellished by music and podcasts. By changing the way user’s purchase - saying order toothpaste instead of order Colgate might seem innocuous, but effectively undoes decades of R&D investment in brand, packaging and shelf-position, Amazon has effectively declared war on brand for the 90%-plus of purchases that most consumers do not think about.

These are often not the sexiest industries, but they are staggeringly profitable. For context, the entire recorded music industry in 2018 was worth around $17 Billion. For context, in the previous year, Procter and Gamble alone delivered revenues of $65.3 billion. Its competitors in the FMCG space Unilever and Nestlé also had revenues of $65.5 billion and $68.9 billion respectively and we haven’t even accounted for the independent sector. While such companies have in recent years cut their digital expenditure in reaction to what they perceive as poor reporting via social media platforms, this is a bump in the road given they still need to reach consumers and would be receptive to any solutions to break the Facebook-Google digital advertising duopoly. Enter Spotify and podcasts!

Voice changes everything

Voice control ordering means these companies are about to undergo a disruption. Everything into which they have invested decades of marketing to build brand equity is about to be removed by the zero UI factor of voice. From packaging, shelf space to visual advertising cues, these companies have spent billions to incentivise consumers to buy into a brand that aligns with their personal values. In the frictionless purchase cycle the Echo engenders, Amazon in one clean swoop has rendered much of this investment superfluous. With TV viewership declining, voice, along with social and ad-supported online video (YouTube), will become one of the few opportunities to reach consumers, thus instigating a dramatic uptake in the advertising leverage of podcasts and music shows via voice-controlled devices. Such content forms are a lean-back experience in which the user often does not skip advertising. With Amazon likely to push its own private-label brands through the device, expect this sector to invest heavily in diversifying its advertising and for audio domains to be a chief beneficiary.

Pay close attention over the next year as to how much Gimlet Media content is pushed on the Spotify platform, either through auto-play after other content listening or favoured in in app-promotion and real-world (billboard, transportation) marketing efforts. If successful, Spotify have an opportunity to disrupt not only the US radio advertising ecosystem but also something far grander: answering the advertising industry’s prayers for a much-vaunted third player in digital advertising and breaking up the Google-Facebook duopoly.