By, Sophia Krnjeta
Spotify is ringing in the new decade with another podcast company acquisition, part of their recent expansion strategy. As podcasts continue to gain ground in audio entertainment, Spotify is getting ahead of the movement with several acquisitions aimed at expanding their podcast content.
The streaming service recently acquired The Ringer, a podcast company created by Bill Summons, which caters heavily to sports fans. The acquisition costed Spotify upward of US$196 million, and is expected to bring a high volume of sports fans to the platform. This acquisition will not only grow the company’s podcast content but is also facilitating an expansion into the sports category of media entertainment.
The Ringer is one of the several podcast companies Spotify has acquired over the last year. In 2019 alone the company spent between US$400 and $500 million on podcast company acquisitions, including Gimlet Media, Anchor, and Parcast.
Although Spotify has had years of success and steady financial growth, the company has never been profitable. Its operating margin, however, has been steadily increasing, finishing 2019 at an operating loss of 1.1%, compared to a loss of 12.1% just five years ago. Revenue has been on a steady upward trend over the company’s financial history, seeing particularly strong growth in 2019 with a total of US$6,764 million, compared to US$5,259 million in 2018.
This increase in revenue can be attributed to their growing number of subscribers and paid users. In 2019, Spotify saw a 31% increase in subscriptions, finishing the year with 271 million subscribers. Paying users increased by 29% , bringing the total to 125 million by the end of the year.
How much of Spotify’s recent success can be attributed to their expansion into podcasts? One important indicator is the exponential growth of podcast hours streamed through the platform, which increased by an incredible 200% in 2019. The platform currently contains 700,000 podcasts, with more than 16% of monthly active users engaging with the podcast content. Spotify claims that their increasing focus on podcasts is driving consumer engagement and encouraging the conversion of free to paid users. This surge in paid subscriptions plays a vital role in Spotify’s plan to drive future profitability.
Podcast consumption is evidently growing within Spotify’s audience, but it is also growing in the broader market. The number of podcast listeners has been steadily increasing over the past decade, and even more so over the past year. According to a 2019 study by Edison Research, 32% of Americans listen to podcasts monthly, compared to 26% in 2018 and only 12% in 2010. Spotify is strategically getting ahead of this trend and capitalizing on the growing market.
While Spotify is currently the leader of audio streaming services, they are competing in an increasingly competitive market. Amazon is gaining ground in the market with 55 million paying users of Amazon music, and Apple has a considerable share with 60 million paying users. Even TikTok is planning to launch a music streaming service this year.
Spotify’s execution of expanding into podcast content has thus proven to be a successful strategy which aligns with current market trends. The future will show whether their strategy will be enough to maintain their position at the top of the industry.