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Spotify’s grand plan for podcasts is taking shape

Exclusive shows, better discovery, and lots of ad money

In the month since Spotify announced plans to spend up to $500 million on podcasting, it’s homed in on exclusive content plans, hinted at ongoing work to improve discovery, and broadly started to construct a picture of how it views the future of podcasts.

Spotify has been on a media blitz to hype up its plans. Most everyone involved in the deals, including Spotify CEO Daniel Ek and Gimlet Media’s Alex Blumberg and Matt Lieber have appeared on calls, at conferences, and, of course, on podcasts to discuss what’s coming next.

The big questions have been about what Spotify is going to do next with its first two acquisitions. Spotify spent more than $300 million to acquire Gimlet Media, the maker of Reply All and other popular shows, and Anchor, the company behind an app that allows anyone to easily create their own podcasts. Both will continue to operate, but they’ll do so with the added goal of making Spotify the go-to destination for podcasts.

This much is clear: Spotify knows podcasts can generate ad revenue — podcasts are estimated to bring in $659 million in revenue by 2020 — and it’s willing to invest in exclusive content to make sure that people listen on its platform. Still, the team has a lot of work to do to bring podcasts to the masses and make Spotify the default listening app. Here’s where the company is starting.

Fixing discovery and making “user experience” a priority

Spotify thinks helping people find their new favorite podcast could be the key to its success.

One of the podcasting business’s biggest hurdles is discovery. Helping a listener find a new show that they’re guaranteed to like is difficult, and no company has made a recommendation algorithm as successful for podcasts as Netflix has made for movies and TV.

Spotify has been successful in this realm when it comes to music, with playlists like Discover Weekly, and it intends to create the same kind of feature for podcasts. “The music that we feed to you through our discovery engine through our machine learning is pretty darn good,” said Courtney Holt, Spotify’s head of studio and video, at the Hot Pod Summit at On Air Fest in Brooklyn, New York. “Well, guess what? That team is now working on podcasts.”

Ek emphasized a similar idea on the company’s most recent earnings call about the two acquisitions, referring more broadly to improving the “user experience” around podcasts on Spotify. That likely means doing a better job of helping people find them and being the best player where users can listen to them.

“We believe that there’s still an enormous amount of potential in improving the user experience,” Ek said on a call with investors. “And as we do that, we have a great opportunity of growing our share in podcast.”

Gimlet Media as the Marvel to Spotify’s Disney

Creating new podcasts and making Spotify the only place to find them is going to play a big part in Spotify’s podcast strategy. That fact has been confirmed over and over again.

“You’ll see us double down on investment spending in podcast content, and increasingly you’ll see more of that become exclusive on the platform,” Spotify CFO Barry McCarthy said at a Morgan Stanley conference.

Spotify will experiment with exclusivity and release windows on its original shows, Blumberg, one of Gimlet’s co-founders, said in an interview with the Recode Media podcast. He also committed to keeping existing shows available across platforms.

“This is a new world, and we’re trying to figure out how it works,” Blumberg said. “And so it’ll be a mix of exclusive things that we make exclusively for Spotify, like we’re doing right now with Mogul, or things that are windowed or things that are a mix of the two. I think there’s gonna be a lot of experimentation.”

With shows made for and at least somewhat locked into Spotify, people have wondered how Gimlet’s reputation as a maker of incredible shows will change.

During the Hot Pod Summit, an invite-only day of podcasting talk, host and journalist Nick Quah asked whether Gimlet’s startup story was over now that it had a big corporate parent. In response, Holt compared Gimlet to Pixar and Marvel, saying that even after they were purchased by Disney, they continued operating as discrete and successful studios.

“I think there’s things that Gimlet’s going to do that maintains the independence of what they’ve always done, and my hope is that there will be many more chapters of Gimlet over the next X number of years,” he said.

Some of Spotify’s big podcast hires have the backgrounds to make that happen.

Holt, prior to running Spotify’s studios and video department, started his own multichannel network company for YouTubers that Disney eventually acquired. Clearly, he’s familiar with the Disney model and the broader MCN model of operating multiple brands under a single corporate entity.

Meanwhile, McCarthy served as Netflix’s CFO prior to Spotify. During his chat at the Morgan Stanley conference, McCarthy mapped out how Netflix’s video model can be applied to podcasts at Spotify. That means building “super good, predictive algorithms, like we developed at Netflix” so Spotify knows what people like, he said, then using those algorithms to figure out what kind of shows to make next. McCarthy calls this scenario “my nirvana.”

McCarthy said that Spotify won’t be an “arbiter of taste,” like HBO, but instead, it will make its name optimizing content creation and greenlighting shows that are sure to succeed. “Over time, we have lots of exclusive content because we get super successful at predicting how much to spend and what to invest in because we’re able to extract insights and data we’ve accumulated about our users’ taste.”

Spotify isn’t the only company hoping that its exclusive podcasts will compel listeners to pay for access. Stitcher offers Stitcher Premium, and newcomer Luminary, which raised $100 million to launch a subscription-based podcast service, just announced its star-studded show lineup. Spotify has steep competition.

Getting creators on board

The wild card purchase that no one anticipated was Spotify acquiring Anchor, a company that aims to make podcast creation easy. Anchor’s app lets users record audio by holding their phone up to their face, distribute their show across multiple players, and simply check a box to gain access to sponsors.

Up until now, Spotify hasn’t seemed to care about making audio creation easy. The company doesn’t make the tools; rather, it gives musicians and podcasters a place to publish their work.

Anchor CEO Michael Mignano tells The Verge’s Vergecast podcast that his company’s creation tools are what made it attractive to Spotify.

“Daniel [Ek, CEO of Spotify] said something to me, which I think is awesome and which really resonated with us, which was that he and Gustav [Söderström, chief R&D officer at Spotify] and the wider Spotify organization wanted to give Anchor superpowers,” he said. “What that meant was really around giving us the support and the infrastructure to be able to make better tools, to be able to offer better data, and, in general, make podcasting better.”

Spotify’s CFO admits the company doesn’t know which will be more fruitful: user-generated shows, or Spotify-made originals. So it’s investing in both. “We’re going to place a bet on both ends of the spectrum,” McCarthy said.

It’s easy to imagine Spotify tracking up-and-coming creators and bringing them into Spotify’s exclusive podcast world, although the company hasn’t said anything about that aspect of the business. Right now, it seems that Spotify doesn’t know whether up-and-comers can have more pull than established names, like Amy Schumer, who already has a Spotify show.

Holt pointed out that Spotify offers the same analytics tools to up-and-coming musicians as it does for established artists, thereby making it a creator-friendly platform, and Mignano indicated that that could extend to podcasts, too.

Analytics has been a notorious blind spot for podcasters, although that’s starting to change with Apple launching its own analytics platform, NPR pushing its Remote Audio Data ad-tracking solution, and Spotify providing its own demographics analytics. Anchor creators could benefit from Spotify’s robust listener data, which might help them make show-topic decisions or more generally influence how they create.

Data, privacy, and ads

Podcast industry watchers are concerned about exactly how Spotify’s ad practices are going to shape up. Spotify hasn’t given much information on how it’ll treat listeners’ privacy, if it’ll ultimately help or hinder creators’ ability to monetize their work, or whether it’s more interested in being an ad network, a listening service, or a creation platform.

Spotify already builds ads into its listening platform for non-paying users, and certain Spotify shows, like the Dissect show with Sonos, have exclusive partnerships that its ad team negotiates on an individual basis. Holt, the head of studios, said the current focus of the sales team is selling ads on the shows that Spotify develops in-house or licenses. Ads that non-Spotify shows embed can stay on the platform.

Ad technology will likely become the most interesting part of Spotify’s podcast endeavors, given that it’s invested so much money in the industry and wants a return on it. Ultimately, the company thinks if it has good content, and thereby good engagement, it’ll be able to monetize, regardless of whether people pay to subscribe.

“If we see a lot of engagement, we’ll have a lot of success monetizing ad revenue from the engagement with the paying users and the free users,” McCarthy said.

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