The media industry kicked off 2019 with a flurry of transformational developments and headlines. While the digital publishing space remained in pain, with major layoffs across the board, the audio segment got a spark of joy as Spotify made a major push into podcasting via the acquisition of the biggest podcast production company Gimlet for an eye-popping $230M (8–10x multiple of revenue).
Pundits crawled out of every shadow imaginable to provide an opinion on the implications. Most commentators lauded the move, describing it as “pulling a Netflix”, referring to the video streamer’s aggressive entry into the original content production space. Many assumed that Gimlet’s current popular shows, e.g. “Crimetown”, will now become exclusively available on Spotify, paving the way for content exclusivity wars across the podcast landscape. Spotify quickly debunked this, but made it clear that future productions could one day be made exclusive to their platform.
While we are fans of the strategic move by Spotify to accelerate their growth in podcasting which could be highly margin accretive (much less so the valuation!), we believe the Netflix comparison is a bit too convenient. No creator we’ve ever met, whether a film director or a podcast host, has willingly desired to limit their distribution options.
However, at times, cash is king. If Netflix is willing to underwrite a chunky $4 million per episode budget, what leverage against exclusivity is there by a creator without a balance sheet? By contrast, a recently evaluated podcast network with 40 separate shows had a very manageable total annual cost base of just ~$350,000. Limiting distribution options without an obvious financial need to do so seems counterintuitive to the secular trend of content creators seeking independence.
Why are we paying attention? Ultimately, we believe Spotify will revert to a “build vs buy” strategy in podcasting after establishing a base via Gimlet and a few other tuck-ins. As we continue to evaluate potential ways to invest in podcast content to participate in the above-market (and, potentially, less cyclical) growth of advertising spend, this development could ‘shake the tree’ of opportunities with smaller counterparties.