The Need for Original Content: Spotify Bets on Podcasting

There are few things as overwhelming as the sheer amount of choice we have in the digital age when it comes to entertainment. One could argue that there is no excuse for being bored. It is clear when perusing the seemingly unlimited library of music, movies, and videos available to us on an equally unlimited number of platforms that the amount of content created will continue to grow. In fact, content creation has grown to an outlandish scale as 400 hours of video are uploaded every minute on YouTube alone. Yet, streaming platforms still invest in more original content as they strive to retain viewers and listeners. Aiming to diversify its content offering and expand its user base, Spotify recently made the acquisition of podcast firms Gimlet and Anchor for more than $200 million, showing the company’s resolve to make podcasting a staple on its platform.  

Spotify’s investment demonstrates the belief the company has in the potential growth of the podcasting industry. With the intent to spend up to $500 million on podcast acquisitions this year, Spotify is diversifying its revenue stream and pushing users to spend more time on the platform. Based on radio industry data, Spotify cofounder and CEO Daniel Ek believes that “over time more than 20 percent of all Spotify listening will be non-music content,” showing the company’s goal of reaching new audiences while building upon the core competencies it has acquired in the music business. Spotify is aggressively positioning itself within the podcasting industry with the knowledge that competition between streaming services relies heavily on both the scale and scope of content provided.  

In addition, Spotify is leaning into the Netflix model of content creation which has fueled the company’s growth. A comparison between the two companies brings out the common need for differentiation from competition while alleviating the burden of having to negotiate with record labels and major film studios receiving royalties as the right holders of the content available on Spotify and Netflix. Netflix has developed the capacity to produce and deliver original shows which have garnered critical and public acclaim while acquiring series and making them unavailable on other platforms. In a competitive environment with fierce rivalry against companies such as Amazon and Apple, Netflix and Spotify are trying to establish a lead in the quantity and quality of their exclusive content. Knowing that competitors are venturing into the territory of content creation where the lines are being blurred between video, movie, music, and even gaming platforms with the rise of Twitch, a video game streaming platform which Amazon acquired in 2014 for $970 million.  

With competition coming from all sides, the prospect of curating and providing high-profile podcasts exclusive to Spotify would be a significant step in securing the company’s position as a leader in the creation of on-demand audio content. Spotify’s investment stands to strengthen the foundation of its core business as it suffers from labels’ licensing fees increasing the cost of music distribution. Utilizing a growth through acquisition strategy, Spotify will be able to simultaneously grow the podcast market and grab a large piece of the pie. 

Through Gimlet and Anchor, Spotify has acquired technological expertise as well as hosting and monetization channels which will bolster Spotify’s platform if it is well implemented into a profitable business model. It is important to note that the world’s leading music streaming platform only recently reported its first quarterly operating profit in 13 years. Monetization within the podcasting industry is still somewhat of a nascent concept whose application has yet to reach its full potential. Spotify now has a complete set of tools to fully develop its podcasting offering and create more value for itself, subscribers, and content-creators who will gain from the massive exposure Spotify will undoubtedly provide them.  

Streaming services compete for the public’s attention. To keep our eyes hooked to our screens and our ears glued to our headphones, they utilize all the data available to personalize viewing and listening experiences. In doing so, Spotify and Netflix make their users feel as if they are subscribing to an experience so tailored to their tastes that leaving the platforms seems more tedious than remaining loyal subscribers. The sunk cost of the time invested in curating your watchlist and your playlists seems too great in comparison to the opportunity cost of forgoing the content available on other platforms. Hence, Spotify’s acquisition of Gimlet and Anchor is proof of the need for the constant expansion of streaming service’s content library. Beyond the business side of the equation, it will be interesting to observe how original content will evolve as more interactive forms of entertainment will be developed to increase engagement with audiences. Though it is exciting to think of new forms of content being created and made available on streaming platforms, watching The Office for the millionth time will remain the main purpose of my Netflix subscription.  

Note: All values mentioned are in US dollar, unless stated otherwise.