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Spotify’s podcast acquisitions will bring a lot of money into a tiny industry

Music-streaming service Spotify is buying podcast companies Gimlet Media and Anchor. (Patrick Semansky/AP)

Podcasting in the United States is about to become Big Business.

Spotify, the world’s biggest music-streaming company, announced Wednesday it is buying two acclaimed podcasting companies, Gimlet Media and Anchor, as it tries to expand its empire of ears. The terms of the deal have not been disclosed, but Spotify is rumored to have paid upward of $200 million for Gimlet alone, according to Recode, which first reported the news.

The deal is likely to cause a major shift in the podcasting world. Suddenly, an industry that has been historically low-budget, often fueled by crowdfunding or merchandise and bringing in minimal ad revenue, is about to be flooded with an unparalleled amount of money and resources. Already the second-largest podcast platform, Spotify has said it plans to spend as much as $500 million on podcast-related deals in 2019. The company plans to use the same tool kit it did with streaming — an emphasis on personalized content and data collection — to turn podcasting into a much bigger, much more lucrative enterprise.

“We are building a platform that provides a meaningful opportunity for creators, excites and engages our users, and builds an even more robust business model for Spotify in an industry we believe will become significantly larger when you add Internet-level monetization to it,” Spotify chief executive Daniel Ek wrote in a blog post announcing the deal.

It’s easy to see why Spotify views podcasting as a huge area of growth. Podcasts have achieved explosive success in a fairly short life span: About 78 million people in the United States are “regular podcast listeners,” or people who listen to at least one podcast a month, according to a study from PwC. Spotify users who listen to podcasts spend twice as long on the platform, and they listen to more music, too, Ek wrote in his blog post. Spotify has hosted podcasts on its platform since 2015 and has already produced original podcasts, working with celebrities such as comedian Amy Schumer. Over time, Ek said he predicts about 20 percent of all programming on Spotify will be “non-music content.”

With Gimlet and Anchor, Spotify is bringing some of the biggest players in podcasts under its banner. Co-founded in 2014 by a former producer for “This American Life,” Alex Blumberg, and a former consultant from the Boston Consulting Group, Matthew Lieber, Gimlet specializes in narrative podcasts and is known for series such as “Reply All” and “Crimetown.” It has also seen huge success with podcasts partnering with other media organizations such as New York magazine’s “The Cut on Tuesdays.” During its last round of funding in 2017, Gimlet was valued at about $70 million.

“Spotify is poised to become the largest audio platform in the world and we are excited for Gimlet’s award-winning podcasts to connect with new audiences around the world,” Blumberg and Lieber said in a statement. “The medium of audio is uniquely great at creating human connection and understanding. We are thrilled that Gimlet is joining Spotify to do that at a global scale, on the platform and beyond.”

Founded in 2015, Anchor is an app that leads the industry in podcast production and distribution. The app “powers 1 in 3 of all new podcasts created in the world,” according to its website.

“We are incredibly excited to introduce Anchor’s industry-best podcasting tools to Spotify’s massive user base as we continue our journey, now with even greater resources,” said Michael Mignano, chief executive of Anchor. “We look forward to continuing to empower creators all over the world to build an audience, generate revenue, and most importantly, have their voices heard.”

Spotify’s acquisition of Gimlet is the largest the podcast industry has ever seen, and by a handsome margin. The closest deal was iHeartMedia’s acquisition of Stuff Media for $55 million in September.

Despite its widespread popularity, podcasting in the United States has remained a small industry. Almost all podcasts are available free, and metrics for audience and engagement are fairly limited, which means most podcasters don’t make money until they have acquired a significant audience. Podcasts also don’t generate much ad revenue. In 2017, advertisers in the United States spent about $314 million on podcast ads, according to the Interactive Advertising Bureau.

That’s a huge gain — 86 percent — from 2016, according to IAB figures. But it is still about 1.4 percent of the $15.9 billion spent on broadcast radio ads, according to PwC. This is partly because the D.I.Y.-nature of podcasts doesn’t lend itself to the kinds of broad, automated ad buys that work online or on TV, according to reporting from Recode. Instead, most ads are read by podcast hosts themselves and often involve promotions for specific items. This isn’t the case in other countries. In China, where many podcasts are subscription-based, the podcast industry is worth about $7.3 billion, according to a research institute run by China’s National Radio and Television Administration. Chinese podcasters with small audiences can still make a great deal of money; an economics professor with an audience of 250,000 listeners made $8 million in a year.

With 200 million monthly active users, Spotify would use its extensive reach, as well as the full force of its engineering and advertising resources, to bring listeners more podcasts in a highly personalized experience, Ek said.

“Our work in podcasting will focus intensively on the curation and customization that users have come to expect from Spotify. We will offer better discovery, data, and monetization to creators,” Ek wrote. “These acquisitions will meaningfully accelerate our path to becoming the world’s leading audio platform, give users around the world access to the best podcast content.”