Spotify, signalling broad ambitions, acquires podcasting firm Anchor
The acquisition plans come as the company reports its first operating profit for the fourth quarter
The world’s biggest musicstreaming company wants to become the world’s most important audiostreaming company.
Spotify Technology SA is buying a pair of podcasting companies, accelerating its investment in nonmusic content as it seeks to broaden its appeal and snap up share of listening time from radio.
The music-streaming company, which is already the secondlargest podcasting platform, said it would buy podcast publisher Anchor in a move to increase its presence in other forms of audio. It also said it is buying podcast producer Gimlet Media, a deal The Wall Street Journal previously reported was in the works.
The acquisition plans come as the company reports its first-ever operating profit for the fourth quarter, a result Chief Executive Daniel Ek says validates the company’s strategy.
“We can put that to bed and say the model works,” he said in an interview. “We said we can and did become profitable and now we’re going back to investing.”
Terms of the deals weren’t disclosed, but Spotify’s guidance indicates it expects to be spending heavily. The company said it wants to acquire more and plans to spend as much as $500 million on multiple deals in 2019.
Gimlet Media, which was cofounded by former “This American Life” producer Alex Blumberg and former Boston Consulting Group consultant Matthew Lieber in 2014, is the producer of popular podcasts like “Reply All,” “StartUp” and “The Nod.” The Wall Street Journal has a content partnership with Gimlet Media.
Anchor, founded in 2015, makes an app intended to simplify the process of creating, distributing and making money from podcasts. It claims to be home to 40% of the world’s new podcasts.
Spotify believes it can do for podcasting what it did for music, by bringing better curation, customization and recommendation, while developing tools and collecting data for podcasters.
Mr. Ek says he thinks in 10 years Spotify will still be considered a music company, but when speaking about audio ambitions draws parallels to radio.
“What people do is listen predominantly to music,” he said. “But talk enhances the experience.”
While podcasts could be more profitable for Spotify than music, Mr. Ek says the expansion into the medium is primarily about broadening the service’s appeal and taking some of the two hours a day people spend listening to radio globally—and making money from it.
Mr. Ek estimates video commands about a $1 trillion (U.S.) market, compared with around a $100 billion combined music and radio industry.
“The question I always ask myself is, are your eyes really worth 10 times as much as your ears? And I don’t think that’s the case,” he says. “If we add more monetization opportunities the industry will grow and that’s the opportunity.”
Already, Spotify has seen that podcasting commands an engaged audience: People who listen to podcasts spend twice as much time using the service, and tend to stream more music. That, in turn, makes them less likely to cancel their subscriptions.
Investing in podcasting, Mr. Ek says, will draw more of those users who may not have considered joining Spotify before.
Spotify currently only sells ads for its original, exclusive podcasts, but sees an opportunity to begin serving up ads across all podcasts.
The company now has 207
million monthly active users, just above its previous forecast of up to 206 million. Spotify said 96 million of those users are paying subscribers, in line with its guidance.
For the three months ended Dec. 31, Spotify posted a profit of 442 million euros, or 36 euro cents a share, on 1.5 billion euro revenue. That compares with a loss of 596 million euros, or 3.87 euros a share, on revenue of 1.15 billion euros in the year-earlier period. Analysts polled by Thomson Reuters were expecting a loss of 18 euro cents a share.
The company posted an operating profit of 94 million euros.
Quarterly revenue rose 30%, in line with analyst estimates.
For the full year, Spotify said it lost 78 million euros on 5.26 billion euro revenue.
Free cash flow—a measure of the cash a company generates that many investors view as a proxy for performance—was 84 million euros in the quarter, up
from 33 million euros in the previous quarter and 74 million euros a year earlier.
Average revenue per user shrank 7% to 4.89 euros as many of Spotify’s new subscribers come in through family plans and in international markets with lower pricing power.
For the first quarter, Spotify expects total monthly active users to grow to 215 million to 220 million, and premium subscribers to increase to 97 million to 100 million. The company expects to report an operating loss of 50 million euros to 120 million euros while revenue is expected to grow to 1.35 billion euros to 1.55 billion euros.
For the year, Spotify forecast total monthly active users to hit 245 million to 265 million and premium subscribers to reach 117 million to 127 million. The company expects an operating loss of 200 million to 360 million euros on revenue of 6.35 billion to 6.8 billion euros.