Analysis: Spotify targeting major podcast move with potential Gimlet Media acquisition

Over the weekend, Recode and Wall Street Journal reported that Spotify was in discussions to buy Gimlet Media for $200 million. A bit later, Nick Quah, in his Hot Pod newsletter cited his sources a figure of $230 million. If finalized, a deal of this size would be the largest to take place in the podcast industry, easily dwarfing the $55 million iHeartMedia acquisition of Stuff Media last year and $50 million price paid for Midroll Media in 2015 by EW Scripps.

Launched in 2014, Gimlet Media is a producer of podcast content with popular shows including Homecoming, Reply All and Without Fail. Since its founding, the company has raised $28.5 million in venture capital, being valued at $70 million in 2017 after its last funding round.

Analysis

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For Spotify, the acquisition would allow the firm the to leverage their existing listen base and distribution with Gimlet’s original content. The combination should allow them to better monetize podcast listens on their app for both themselves and podcast creators.

Monetization challenges

One of the barriers of the podcast industry is monetization. Podcast players like Apple's Podcast app, Stitcher and Spotify reach the end users. Therefore they have the ability to sell ads that are targeted to their users. However, the ads are similar to pre-rolls on videos and not related to the podcast itself.

On the other hand, podcast producers can place ads within their content. They can also leverage their personal brands with hosts reading the ad and making it part of their show. Surveys have shown this form of advertising resonates well with listeners. The downside is that the ad read is one size fits all and might not be relevant for a large group of listeners.

Another option is for podcasts with large followings to partner with a player and create a premium version of their show. The problem of this method is that a podcast locks it's content to a specific player and loses potential audiences.

Deal opens up alternatives for Spotify

By looking to acquire Gimlet, Spotify will gain the opportunity to control both the content production and end users. Potentially, they can create multiple versions of reads by hosts, with Spotify listeners hearing the one targeted to them. This solves the above mentioned problems that content creators and players have with monetization when going solo.

Also, by owning it's own content, Spotify can create premium versions of podcasts. They can also create ‘Spotify only’ podcasts that will force listeners to move to using their app to access the shows. This would be similar to the original content approach Netflix has been aggressively pushing which has caused their service to become a must have product.

First of future moves

Ultimately, if the deal goes through, Gimlet Media will become Spotify’s testing ground for creating original content and monetization. If proven to work, Spotify will be expected to continue to acquire more podcast production firms as well as create a network for third parties to partner with them to monetize their content.

What are your thoughts on this deal. Let us know in the comments below