Spotify has agreed to buy two podcasting start-ups and aims to spend up to $500 million (€439 million) to grow its presence in podcasting, as the company looks to compete with radio and diversify from the costly business of music streaming.
The Swedish company said it would buy Gimlet and Anchor, two leading podcast start-ups. The company did not disclose the price of the deals, but said it wanted to acquire more, and expected to spend between $400 million and $500 million on “multiple” podcast acquisitions in 2019.
Barry McCarthy, chief financial officer, said in an interview that the company was "clearly leaning into growth at the expense of margin".
The former CFO of Netflix likened the Spotify's podcast push to Netflix's initial move into streaming video.
“Initially, just like our first investments at Netflix in streaming content, it’s incremental cost. We are investing in a better user experience with no pricing increase to drive a cycle of growth,” Mr McCarthy said
Daniel Ek, chief executive and founder, said in a blog post: "While podcasting is still a relatively small business today, I see incredible growth potential for the space and for Spotify in particular."
Eventually more than a fifth of listening on Spotify would be non-music content, Mr Ek predicted.
Spotify is the leader in paid music streaming by a wide margin, but has to pay the majority of its revenues out in royalties to the music industry groups that own the song catalogue. Podcasts are one area where Spotify could escape this punishing cost structure.
Results
The twin acquisitions came as Spotify reported fourth-quarter results that were at the upper end of forecasts. Spotify added nine million subscribers in the final three months of the year, ending 2018 with 96 million paying customers - just above consensus forecasts for 95 million.
Revenues in the quarter climbed 30 per cent from a year ago to €1.5 billion, meeting Wall Street projections.
Spotify also posted its first-ever quarterly operating profit of €94 million, although the company warned that this was largely due to the fall in its stock price, which reduced costs such as taxes on stock options. Stripping out this impact, the company would have posted an operating profit of about €25 million, Mr McCarthy said. – Copyright The Financial Times Limited 2019
