Spotify, Gimlet, and the future of podcasting

Spotify is in advanced talks to buy Gimlet Media, according to ReCode and the WSJ. Here's why this is either a huge deal for podcasting... or just a big nothing burger.

But first, some context:

The podcast industry is tiny: last year, 73 million Americans listened to a podcast in a month. In 2017, the entire podcast industry made $315 million: $4.30 per American listener per year. By comparison, Netflix made $16 billion ($112 per subscriber); US radio advertising spend was $17.5 billion ($71 per listener).

$315 million was heralded as an inflection point, and a sign that podcasting had finally come of age. This struck me as optimistic: it's true that podcasting's reach was growing, and its advertisers were spending more. But underlying structural problems still existed without much sign of changing. Now they might.

There is no single platform for consumers to listen to podcasts. Recent data from Anchor says 52% of podcasts listeners listen using Apple's podcast app, 19% on Spotify, and the rest is a big 29%-long tail.

Apple's app isn't dominant because it's better, but because it's the incumbent, and built in with iOS on every new iPhone. Apple has never seen podcasts as a way to make money, and their own app's dominance, paired with a lack of any commercial interest, has held everyone else back. A year ago, Apple started giving podcast producers limited data on their audiences. Very little, very late.

The hosting, distribution, and playback of podcasts is fragmented. If I wanted to start my own podcast, there are services to help me host it, set up a feed, and distribute the feed to podcast apps, but I'd still need to tell a prospective listener to search for it in their own app in order to find my own podcast. (Try asking a friend to recommend a podcast, and then count how many hoops you have to go through before you're listening.) Discovery is painful, analytics are minimal, and targeted advertising is nearly impossible. (Direct response advertising has flourished, because it's the only way for an advertiser to get a true sense of ROI.)

Thousands of entrepreneurs have dreamed of building the platform that will solve these problems... but nobody has yet figured out how to bring the trio of stakeholders (listeners, producers, and advertisers) together on the same platform.

So what changes with Gimlet and Spotify coming together? Spotify has some distribution power: 20% market share of podcast listening is already a solid #2 in podcast world. But that doesn't include Spotify's actual mobile app installed base, which must be a big percentage of Spotify's 190 million MAUs. Spotify's very presence (and usage) on all those phones overcomes the biggest challenge for any new consumer app... it doesn't need to be installed. Distribution, check.

To leverage its distribution power into a business, Spotify needs to have the audience and the content. Arguably, 20% of the listening share might already be enough to persuade some podcasts to let Spotify run their ads for them. But the most popular podcasts are probably still better off selling and inserting their own... 80% of listeners (including most of the more valuable iOS audience) aren't listening with Spotify.

Unless... Spotify owns those popular podcasts themselves, which is where Gimlet comes in. And so to our two scenarios:

(1) It changes everything

Spotify buys Gimlet. Some, or all, of Gimlet's podcasts are only available on Spotify. (Gimlet is accused of selling out.) Users start to switch to Spotify to listen to their podcasts. (People have short memories.) Spotify already has an audio ad platform and uses this to run valuable targeted mid-roll ads in podcasts. As Spotify starts to gain more market dominance it attracts more exclusive content via partnerships or in-house. It starts to look like the Netflix of podcasts.

The seal is broken and the innocent era of the open-platform RSS-distributed podcast has gone the way of the blog. Amazon and YouTube want in. Through acquisitions and their own distribution power, they launch their own audio platforms featuring a mix of live and pre-recorded programming. Howard Stern signs to Amazon. MLB is available exclusively on YouListen. Sirius XM dies. Apple is rumored to be launching its own original content.

Podcasts (which presumably have a better name by now) start to take big chunks out of established talk radio, and pull the dollars with it. More money means better programs. It's a new golden age of radio. But still no sign of Apple's original content.

(2) It changes nothing

Spotify buys Gimlet. Spotify "windows" (early preview releases) some of Gimlet's most popular podcasts. Spotify sees a small increase in podcast MAUs but can't monetize them. Promoting podcasts in the Spotify app costs valuable engagement with Spotify's core business of music streaming services, which results in subscription churn. Spotify announces it is refocusing on its core music business and Alex Blumberg buys back Gimlet. The next series of StartUp is fascinating.

What will definitely happen

Someone will crack this, and Scenario #1 will play out, one day. It might be now with Spotify, or later with someone else. When it does... distribution will be key; and content will be king.