What’s Spotify’s strategy with their podcast buying splurge? Think upsells

Another week, another podcast company is acquired by Spotify. After simply supporting podcast RSS feeds and being another podcast player like iTunes or Overcast, Spotify is going ‘all in’ on the industry.

In the first quarter alone, Spotify spent a believed $400 million on three acquisitions. After being rumored to be in talks to buy Gimlet Media, the company announced that they had in fact also acquired Anchor. The twin deals were followed up by last week’s acquisition of Parcast, for potentially $100.

Buying Content

At the heart of Spotify’s deals is acquiring its own content. Gimlet Media and Parcast both produce their own shows and are involved with funding and creating premium content for listeners. While not a production company, Anchor’s free podcasting studio and hosting app allows them to leverage their massive user base to connect with popular shows. Therefore, Anchor is a breeding ground for Spotify to find talent that they can potentially add under the roof of the production teams they acquired with Gimlet and Parcast.

Netflix of podcasts

The belief is that Spotify is aiming to become the ‘Netflix of podcasts’. They already are the Netflix of Music via their streaming audio app and massive (add #) subscriber base. However, unlike Netflix that both streams their own and third party content, Spotify’s music selection is limited to providing content from others. As such, much of what you hear on Spotify, consumers can access elsewhere.

With podcasts, Spotify is aiming to fix this problem. By producing their own content that is only available on Spotify, it keeps listeners on their app. As the library of unique content grows, it provides Spotify the chance to create a ‘walled garden’ for their podcasts, and thus a subscription model to access the shows. The larger the paid subscriber base, it will also help Spotify attract other shows to create exclusive content for their app.

Upsells

Spotify isn’t the only player eyeing to be the Netflix of podcasts. Media startup Luminary, recently raised $100 million and is launching a podcast network for subscribers. Costing $7.99 a month, the network has signed up over 40 podcasts including Conan O’Brien and Lena Dunham.

Similarly, Stitcher offers a premium version of their podcast app. At $4.99 per month, Stitcher Premium provides ad-free listening as well as access to exclusive podcasts such as Wolverine, a podcast collaboration they’ve created with Marvel.

Despite the competition, what differentiates Spotify is it’s existing paid subscriber base. The company ended 2018 with 96 million paying subscribers. As such, Spotify already has a major group of customers that have handed them their credit cards and ripe for upsells of a new product.

If even 3 million (3.125%) of these users subscribe for a new podcast service at $5 a month, that calculates to $180 million a year. That figure ignores subscriber growth and any of their other 100 million or so non-paying users purchasing the podcast product.

Using the conservative $180 million a year revenue figure, it compares well to the $400 million Spotify has spent so far to become an overnight giant in the industry.