Spotify is in negotiations to acquire Gimlet Media, one of the leading podcast production companies. If this agreement is reached, it will mean a major shift in the trajectory of podcasting as an industry. The importance of the transaction goes well beyond that of the disproportionate valuation of $ 200 million under discussion. Nowadays, the world of podcasting is full of quality content, largely from the diaspora of public radio refugees who intended to commercialize the type of audio content they produce for the NPR audience. Alex Blumberg was one of those refugees. He founded Gimlet in 2014 with Matt Lieber, a former producer of WNYC Public Radio in New York. Gimlet has cleverly documented its own progress in a podcast called ‘Start Up’, which now offers articles on a wide variety of new businesses.
Podcasting Revolutionizing Media
Podcasting has also become a true traditional media channel in terms of audience – the latest study by Edison Research Infinite Dial brings the monthly audience to 73 million listeners, which is almost comparable to streaming music or streaming video. Yet, unlike traditional media companies (though like digital-based companies), there has not been much consensus on how all of these podcasts will bring in money.
Revenue sources exist, but they are generally difficult to evolve. So far, the main source of revenue has been advertising – especially native advertising, where podcast advertisers read the copy and often try to link it to the show or to themselves. According to the latest figures released by the Bureau of Interactive Advertising, advertising revenues from podcasting amounted to $ 314 million in 2017, nearly double the 2016 figure, but much less than radio broadcasts (15.9%). In other words, podcasting generates only a fraction of the advertising revenue per listener compared to the radio broadcast and about 1/5th of the amount per listener compared to streaming music based on advertising.
Other sources of podcast revenue include crowdfunding and branded paid podcasts for mainstream businesses or other media brands. Gimlet makes and produces branded podcasts for companies such as Adobe, Lyft, Microsoft, and Reebok. More interestingly, Gimlet sold film and television rights for two of its shows. Consumer earnings on podcasts are virtually nil – the only significant attempt to generate subscription revenue is that of Stitcher Premium, Stitcher, which owns Midroll, the largest producer of podcasts with more than 200 broadcasts. Otherwise, the only revenue of the podcasting industry is money flowing upside down – producers pay podcast platforms such as Blubrry, Libsyn, and Spreaker for hosting, directories and other services.
Spotify already plays a role in podcasting: it’s a popular app for podcasting, and just about every popular podcast is available. But it clutters the podcasts with all the other features of Spotify – streaming music on demand, playlists, radio stations, information about musical artists, etc. – so that the experience of serious podcast fans is lower than that of the pure podcast applications such as Apple Podcasts, Stitcher and Pocket Casts.
So, the question remains why Spotify spends $ 200 million for a single podcast studio – especially a studio producing only a tiny fraction of popular podcasts. $ 200 million may be a lot of money, but the strategic reason for the agreement is clear – to help Spotify break the deadlock. Spotify tried to develop its own podcast content but did not go very far. Gimlet would give Spotify a lot more opportunities from proven hitmakers. This would allow Spotify to offer a critical mass of original audio content that would distinguish it from the huge number of podcast applications that offer all or most popular podcasts for free. It would also allow – only among podcast houses – to give Spotify the ability to create large commercial video content. Yet, Spotify simply cannot become a major player in the podcast content industry because its business is so fragmented.