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Spotify Turns to Podcasts to Expand Its Business

Date: March 14 2019

Story:

One of the world’s biggest music-streaming platforms has entered the race to become the largest audio-streaming service in the world.

Spotify, the music-streaming service based in Sweden, is purchasing podcast companies in a bid to expand its influence not only in the music industry, but also in the world of podcasting.

Its goal is to siphon subscribers from radio and other podcast publishers in order to consolidate podcast listeners into one platform. The company is already using its machine learning technology in an attempt to overtake competitors while it also plans to add advertisements on podcasts to generate more revenue.

Spotify bought both Gimlet Media and Anchor, two leading podcast producers, for more than $300 million at the beginning of 2019. The acquisitions have given hope to CEO Daniel Elk’s ambitions of conquering the untapped market of podcasts.

“I believe podcast will continue to evolve in endless ways to tell stories that entertain, educate, challenge, inspire and bring us together and breakdown cultural barriers,” Elk said in the company’s February 2019 earnings conference call. “We’ve only just dipped our toe into the podcasting space and already Spotify has become the second biggest podcasting platform in the world in just under two years.”

Anchor is an audio streaming and publishing platform that lets people record and listen to podcasts, but it also lets its users distribute high-quality podcasts. Often referred as “reinvented radio” by its users, people can use Anchor to create their own radio stations and podcast feeds.

Gimlet Media focuses on producing narrative podcasts such as a “This American Life”, a podcast with a monthly audience of eight million people, the tied for third along with Serial in the nation for downloads per episode.

As it grows, Spotify faces stiff competition from Apple and Pandora Radio. Apple has more than 600,000 podcasts on its iTunes Store but Spotify intends to purchase more podcasts in the future, with plans to spend more than $500 million on its podcasts inventory. Spotify has also managed to lead Apple in terms of subscribers. It counted ninety-six million subscribers in the fourth quarter, up thirty-six percent from a year ago.

Elk said in the company’s earnings conference call that the podcasting business is different from the music industry and that things will play out differently.

“I think in audio and certainly in podcast, the dynamics is very, very different [than in music], and what we’re doing here and what we’re excited about is really building the market, it’s a very, very different stage of maturity,” Elk said.

Spotify may have shaken up the music industry, but it still has a long way to go before it can change people’s habits of listening to podcasts on a regular basis.

Podcasts represent less than one percent of Spotify’s users listening time on its platform. Americans usually turn on the radio to listen to their favorite podcasts. NPR attracts an audience of eighteen million listeners on a monthly basis, while online podcast publishers like Serial and Criminal attract eighteen million followers per month.

Cascend Securities analyst Eric Ross thinks there’s still a large audience out there for Spotify to attract though he admits it will be a challenge to retain the already established popularity of podcasts. Ross predicts that Spotify’s aggressive strategy will pay off eventually, even though podcasts aren’t yet enough of a draw to make users jump from one platform to another.

“There’s no risk of Spotify losing subscribers because it doesn’t have enough podcasts,” Ross said. “On the contrary, Spotify will increase its number of subscribers in the coming years due to its ability of having a lot of content that is both music and non-music related.”

Although Spotify has traditionally relied on subscription for revenue, it may have to rely more heavily on ad sales as it banks on podcasts. In 2018, radio companies managed to generate more than fourteen billion in annual ad revenue. Spotify has already started selling ads for its original podcasts on its platform, according to internal communications manager Veronica Harth.  

“We are testing different types of advertising deals with podcasters, where we’re exploring fixed costs versus payment based on listenership,” Harth said. “We are exploring different avenues when it comes to exclusive content, either for a limited time or permanently and all that depends on the licensing costs.”

Spotify’s VP and Global Head of Advertising Sales Brian Benedik talked about the value of contextual advertising in a recent interview at the Consumer Electronics Show in Las Vegas. Benedik believes that personalizing ads to users based on factors such as mood, behavior and moments could be attractive to podcast advertisers. But to measure its efforts around podcast ads, Spotify will need to invest in technology.

“Think about what we’ve done around music,” Benedik said. “The more understanding you have around the music you stream, the more we can personalize the ad experience [and] now we can take that to podcasts.”

In addition, the personalization technology can make better podcast recommendations, allow people to access podcasts more easily and make more exclusive deals with podcast creators. Cascend Securities analyst Ross believes that Spotify can develop its technologies such as machine-learning and artificial intelligence for podcasts to catch up to Apple and Pandora.

“People are making this whole ‘Spotify entering the race unexpectedly later than Pandora and Apple’ a bigger deal than it actually is,” Ross said “But Spotify’s intent to expand in a new market that it’s unfamiliar with will pay off and it’ll only be a matter of time until they leap over some of their competitors due to its size, reputation and magnitude in the industry.”

Austin’s Economic Vibe

Date: May 21 2019

By Alastair Talbot

Over the years, many Fortune 500 companies have opened branches in Austin. The Texas capital has managed to seduce a plethora of businesses into making a home in their city. If you’re curious as to why, let Research Economist at the Dallas Federal Reserve Bank Christopher Slijk break it down for you.

When looking at the framework for a business, there are mainly two questions that come to mind.

The first is if this is a place people would want to live? With The University of Texas and St. Edwards University churning out the best and brightest, there is certainly no shortage of talent coming through the ranks.

“Migration rates into Austin have been very high for decades,” Slijk said “It’s due to a combination of factors such as the city’s culture which attracts young, well-educated students and working professionals, and a strong local economy thanks to tech and tourism.”

Senior Vice President of Austin Chamber of Commerce, Drew Scheberle agrees by saying that the Austin region has “a tremendous base of talent” with a top 6 market for bachelor degree holders and above.

The second question in attracting business: is this is a place where businesses can maximize profits?

When dealing with multinational corporations, it’s imperative for their headquarters to be easily accessible from overseas. The growth in Austin’s passenger count relative to the rest of the city has been impressive to say the least.

“We have eighty-plus direct flights and our airport passenger count is growing approximately by fourteen percent compound annual growth rate,” Scheberle said. “That’s well above the four-to-five percent national average increase.”

As the tenth biggest city in the U.S. with a surplus of eager talents coming out of top tier universities and having great accessibility internationally, it’s clear to see why many large corporations would come to Austin. However, most would be surprised to know that many of these large Fortune 500 companies are actually based in neighboring cities such as Houston and Dallas.

So what doesn’t Austin have that the two aforementioned cities can provide?

In fact, it might actually just be because of their head starts.

“Houston and Dallas have been in the economic development game for decades,” Scheberle said. “The Austin region’s first economic development program was initiated in 2004.”

So if it isn’t large corporations that is stimulating Austin’s growth, then exactly which businesses are?

Slijk weighs in and says that Austin has a business environment that fosters growth in startups and draws in companies to start or expand their operations there, in part due to the concentration of young professionals. There are those graduating from The University of Texas and those moving in from elsewhere, but also issues like lower regulatory burdens and less taxation.

“The Austin metro has fewer than a hundred companies with five hundred employees or more,” Slijk said. “We are home to small, fast growing companies and have won countless awards for company formation, entrepreneurship, talent and cities of the future.”

Although it may not have the most Fortune 500 companies, Austin’s reputation for having a hipster vibe and millennial population has certainly gone over well with the tech industry. When asked why Austin is a better fit for smaller companies instead, Slijk points to how well the angel fund market has performed historically in the city as well as the city’s support in continuing to drive employment and revenue to these companies.

“Austin’s company formation is robust,” Slijk said. “The city has an angel fund market which yields ten percent of all investments nationally and our follow on funding market needs development to ensure that companies can continue to fuel their job and revenue growth locally.”

However, competing for venture capitalist funding might not be as easy as you think. Sometimes it means fighting against larger cities who have been in the game for a long time.

“Obtaining large amounts of venture capital funding tends to be difficult when expanding past a certain size,” Slijk said. “The data on VC funding by region suggests that Austin attracts very little compared to Silicon Valley, New York City and other coastal areas, given the amount of overall activity.”

To address these pertaining issues, the Chamber of Commerce is working directly on getting more investors in, even if it means finding them overseas and providing them with tax benefits to add to Austin’s not so mysterious allure of being a revered city for startups.

“The Austin Chamber of Commerce is in its second year of its International Capital efforts to attract investment from Asia, the Middle East and Europe so that it can deepen the supply of risk capital,” Scheberle said. “Tax incentives can include city and the county tax incentive agreements within the five counties in Austin if the proposed project meets local thresholds.”

These projects can include school district tax incentive agreements if they happen to be in a target industry with a capital investment of at least eighty to one hundred, and can meet certain hiring targets and HR practices.  Other incentives can also include coordination with the State of Texas, partnership with a local government, access to the Texas Enterprise Fund, and the Moving Image Incentive Fund to just name a few.

“The Austin Chamber of Commerce serves as a conduit to a company or its site selector to make locating and growing jobs in the Austin region as easy as possible,” Scheberle said. “Our team of 13 in economic development help companies scope out the supplier market, coordinating with local and state governments on potential tax incentives, identifying talent and connecting to sources of emerging talent at area institutions of higher education.”

Although there is still work to be done, the Chamber of Commerce is certainly working hard to make sure that Austin will be able to overtake some of the market share that is currently being held in other cities.