It has been nearly six months since Spotify quickly ramped up its podcast capabilities with a series of acquisitions and the more than $400 million it has spent to date is showing early signs it was money well spent. The company reported Wednesday that its podcast audience has “nearly doubled” since the start of the year and grew more than 50% between first and second quarters.
“We’ve said it before, but I’ll say it again. What we are seeing right now in terms of podcasting is it’s really accretive both in terms of the overall user experience and we find that people who are listening to podcasts are also listening to more music,” CEO Daniel Ek said on a conference call with analysts. That impact on music consumption likely helped as the company revealed that in the past few months it has signed agreements with two of the four major record labels for global sound recording licenses.
In February Spotify bought the podcast production house Gimlet Media and the podcast publishing and monetization company Anchor for a combined $339 million and it then followed up in March with a reported $100 million deal to buy the production company Parcast. The deals brought a variety of new shows into the platform and Spotify said it has added more than 30,000 podcasts to the lineup so far this year. Ek thinks that podcasting still has an image as a male-listener dominated medium full of talk shows about tech topics. But he said that Spotify has seen strong engagement from its scripted shows, especially in the true crime genre. Spotify is also seeing music-focused podcast listener numbers climb “very fast,” Ek added.
Spotify doesn’t release specific revenue figures for podcast but in a letter to shareholders it said the contribution remains “relatively small” compared to its streaming music service—although they expect “fast revenue growth” from podcasts right into 2020. “We are seeing increased demand for podcast advertising,” the letter said. Ek later told analysts their plan is to build a new “tech stack” that will enable targeting, measurement, and reporting capabilities similar to what they offer advertisers on the music service. “We think we can do considerably better with digital ad insertion technology that enables us to have a much more targeted user experience so that’s what we strive for,” he explained.
But even as Spotify attracts more advertisers, Ek said podcasting’s contribution to its profit numbers has been “a bit lower” than what he expected it would be at this point. “We’re spending as aggressively as we thought we would on podcasts but it’s not finding itself to the P&L (Profit & Losses) as quickly as we thought it would,” he said.
New ad targeting technology isn’t the only thing Spotify engineers are developing. Ek told investors that they’re also working to improve the recommendation algorithms to help users discover more podcasts. “We have some raw capabilities but we’re actively developing better and better machine learning to help us specifically as it relates to podcasting. And we expect over time that it will contribute a lot more than what it currently does in terms of our ability to drive further engagement in podcasting.”
Another item that’s on the drawing board is a possible expansion into audio books. “When you look at podcasts that we have in true crime, there really isn’t that much of a different between those and some of the audiobooks that are available,” Ek said. But he thinks the unanswered question is what the “optimal format” will be for consumers, including whether an audio book should run two hours or go as long as eight hours. “There’s going to be ton of experimentation across the board,” he predicted.