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Why Spotify Paid $339 Million to Buy Podcast Startups

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Spotify expects podcasts to make up 20% of total usage

Music streaming giant Spotify (SPOT) announced recently that it would be acquiring podcast startups Gimlet Media and Anchor FM. In a recent Securities and Exchange Commission filing, the company disclosed that it had paid 300 million euros, or ~$340 million, to acquire the two startups.

The music streaming company’s CEO said earlier this month that he expects podcasts make up as much as 20% of the platform’s usage. He sees great potential in podcasts and has pointed out that those who listen to podcasts on Spotify spend twice as much time on the platform as those who don’t.

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Spotify isn’t done investing in podcasts

Spotify’s move could prove to be a good one for the company. While Spotify’s gross margin is gradually expanding, it remains low due to the huge bargaining power of music labels. Spotify’s foray into podcasts could help it gain some diversification away from these labels.

Spotify stock has surged nearly 10% since the acquisition announcement, which came along with its fourth-quarter earnings results. The streaming company’s paid user base grew 35.2% year-over-year to reach 96 million at the end of the quarter.

Spotify’s investments into podcasting are expected to continue, with the company expecting to invest $400 million–$500 million more this year. Spotify wants to do to podcasts what it did to music streaming by providing curated and customized playlists to its users.

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