Spotify said this week it would acquire New York podcasting companies Gimlet Media and Anchor FM Inc., establishing itself as a major player in podcasting, a once-nascent category that has emerged as a booming industry.
The Swedish music company did not disclose the financial terms of the deal but said it planned to spend $400 million to $500 million on podcast-related acquisitions this year, a total that includes the Anchor and Gimlet purchases as well as other deals Spotify is pursuing.
Spotify says podcast listeners spend twice as much time on the platform and that the medium has helped bring in new users. CEO Daniel Ek said he believed that eventually more than 20 percent of all time spent on Spotify would be on non-music content.
“While podcasting is still a relatively small business today, I see incredible growth potential in this space,” Ek said on a call with investors Wednesday morning.
The deal was announced at the same time the streaming-music platform released its fourth-quarter earnings.
The company posted net income of $502.9 million, compared with a loss of $678.1 million a year ago. The company also recorded its first-ever quarterly operating profit at $107 million.
Revenue was up 30 percent to nearly $1.7 billion for the quarter.
The push into podcasting comes as Spotify seeks to increase the amount of content in its platform, as rivals in the streaming-music space are closing in on its lead.
Spotify, launched in 2008, lets users stream their chosen audio for free with ads or ad-free with a subscription. In the fourth quarter, Spotify had 207 million monthly active users and 96 million premium subscribers. But competitors including Apple Music, which launched in 2015, have steadily grown, with more than 50 million paid subscribers.
With its podcast acquisitions, Spotify has the potential to provide exclusive non-music content in a way that is similar to Netflix providing exclusive shows on its platform, analysts said.
“This is just a huge move,” said BTIG Research media analyst Rich Greenfield. “Exclusives in the music world just do not work. Podcasting exclusives absolutely can work, especially in a scaled platform.”
Analysts said that Spotify investing in podcasting would bring more legitimacy to an audio medium that was growing but had become increasingly more difficult to navigate for users. Many people today find podcasts through Apple’s Podcast app, but Spotify has the potential to emerge as a major podcast player especially within the Android operating system, which is used by vastly more mobile-device users worldwide.
“We have the opportunity to make original content the way Netflix does and to utilize the catalog content we have in the platform to help bring people to the podcast space,” said Dawn Ostroff, Spotify’s chief content officer in an interview.
In its earnings letter to shareholders, Spotify said podcasts were part of its strategy for faster revenue growth. The acquisitions may also help reduce the money that Spotify pays to labels by cutting it music-streaming fees, some analysts said.
“If the Spotify listener converts from 100 percent music to even 90 percent music, 10 percent podcasts, that’s a 10 percent decrease in checks cut to other entities on behalf of that listener,” wrote Tom Webster, a senior vice president at Edison Research in a blog post. Webster said he thought Spotify’s acquisition into podcasting also could push more labels to become more open to letting podcasts use licensed music.
Spotify executives said it would employ its most recent acquisitions to bring more content to its platform. Already, more than 185,000 podcast titles are on Spotify, and in the fourth quarter, 14 of those were exclusives.
Gimlet, based in New York, has produced several popular podcasts, including “Homecoming,” a drama about a rehabilitation program for former military members that was made into an Amazon show starring Julia Roberts. Gimlet spokesman Kevin Turner said the company’s 120 employees would be joining Spotify.
“We are still at the dawn of the second golden age of audio, and we know Spotify is a perfect partner and platform to take Gimlet — and podcasting at large — to a new level,” said Gimlet founders Alex Blumberg and Matt Lieber in a statement.
Spotify and Gimlet declined to comment on the acquisition price. But a person familiar with the negotiations surrounding the deal told the L.A. Times earlier this week that the price discussed ranged from $150 million to $250 million. Gimlet had raised $27.7 million in funding, according to research firm CB Insights.
The deal is Spotify’s largest to date since its 2014 acquisition of Massachusetts music data firm the Echo Nest for $100 million, a CB Insights report shows.
Anchor, also based in New York, is a platform that provides tools for podcasters to monetize and distribute their programs.
The deals are expected to close in the first quarter.