Spotify’s CEO, Paul Vogel, appeared at the MIT Sloan CFO Summit last week, setting out Spotify’s stall: “We want to be the No. 1 global streaming audio player, and that means having everything as much as you could possibly think in audio”.
He also casually mentioned that it “has $3.5 billion in cash on its balance sheet available for expansion” and that acquisitions “lead to user growth, better engagement, more time span and a higher lifetime value. We can invest a lot in things — we want to take risks.” It’s most recent acquisition was audiobook platform Findaway, which I talked about last week.
He was pretty bullish on podcasting:
“What you’ve seen over time, particularly in the media space, is people try to use old paradigms to understand where the business and markets are going…. the opportunity is limitless, [only] limited by your imagination”.
“Podcasting was this business that for 20 years didn’t change — it was a simple RSS feed — no way to do anything different,” he then went on to talk about the things that the company’s been doing to change that.
Spotify’s been one of the more aggressive acquirers, but there’s been plenty of purchases – small and large – as the big companies look to fill gaps in their strategies.
As we know, audio’s been around a long time – but the combination of smart-phones, ubiquitous connectivity, successful large-scale distribution of music or other audio content, plus established audio ad networks and subscription platforms – has meant the battle is now less about technology and more about attention.
Consumers, at the touch of a button, can join one of many ecosystems that can be (relatively) easily monetised by these large operators. Plus it’s a growing market. As Vogel says:
“In the next five to 10 years there’ll be 3 to 4 billion smartphone enabled devices — why shouldn’t every one of those phones have a streaming audio app on it? And if they’re going to have a streaming audio app, let’s make ours the best.”
As well as consumers, Spotify’s trying to become the place for creators. Vogel again: “What we want to become is the best platform for creators to create and distribute their art. Whether that’s music, whether that’s podcasting, whether that’s anything else, if you come to Spotify and we make it easier for you, we help you monetise, and we help you get discovered, you’re going to want to work with us more.”
Spotify’s seen much success on the podcast side by locking in exclusive distribution with big name creators, as well as providing an easy on-ramp for new creators on its Anchor platform. If these activities generate holes in other providers’ catalogues, then all the better.
Few UK have companies have been targets in this audio shopping spree. One reason is undoubtedly that it’s more difficult for large US operations to devolve M&A decisions to these fine shores. Things that don’t fit in the prism of US thinking end up being a harder lift. Having to translate what sort of company you are and to explain your relevance to those unfamiliar, is an added tax on any dealmaking.
In fast-growing, cash-rich companies the options are to build or to buy. Building is perfectly achievable, and there’s money to do it, it just takes time. Companies that are growing through acquisitions want short-cuts to achieve their aims.
Often UK firms lack the scale to make much of an impact. Their size means that they don’t instantly solve a problem for a big acquirer.
Where small transactions do happen, it’s usually about acquiring talent. Acqui-hiring. With these purchases, it’s less about scale and more about filling out teams with bright people who can help an internal build go faster. There may be some special tech that can be adapted, but you’re really grabbing the people that can make your thing it happen.
Audio acquisitions can be broadly split into content or technology (particularly ad-tech). The tech’s important as it often acts as the plumbing to deliver greater goals. Being able to deploy something that works, at an acquirers scale, definitely ticks the box of short-cutting internal development.
On the content-side, acquirers have been after scale and impact. Spotify’s grab of Gimlet and Parcast, and later the Ringer and Joe Rogan has given it advertising impact heft. Something it can then better monetise by aligning (the acquired) Megaphone and Spotify’s in-house team. Amazon have run a similar play with Wondery, exclusives like SmartLess and its (acquired) distribution and sales outfit, Art 19.
The UK lacks similar content networks of scale, with many indie-publishers either having a single big show, some scale but it all built around celebrities (where the IP has little value), or having material that does alright in the UK, but doesn’t really travel. These operations don’t really solve a problem for the big streamers, where they can do a single distribution deal with one big show that has an immediate (and global) impact on an ad operation.
Sony Music’s acquisition of audio production company Somethin’ Else did definitely short-cut their desire to be a big podcast player. As well as some solid-sized shows they also inherited 50-odd audio producers. Building out businesses that require lots of production can be hard, so the Somethin’ Else acquisition definitely provided a strategy fix and hopefully a faster route to scale.
In the tech-sphere, there’s few companies that have experimented around audio. Entale, which started off as visual podcasting app, and now leans into AI for discovery has recently been acquired by DMGT. Now predominantly a newspaper company, they’ve had little success in podcasting, so you can see why bringing Entale’s expertise in their business could be good. Outside of them, and perhaps ad personalisation company A Million Ads, the UK seems to have lacked much disruptive podcast tech.
Where the UK has had a big impact, is in the sales and distribution arena, with UK teams helping drive the success of Swedish Acast (market cap c£500m) and now US-based, though significantly UK-owned Audioboom (market cap c£150m).
Both started by developing strong tech to deliver the ability to commercialise podcasts and then built sales operations alongside partner management to grow inventory.
The tech-side has been somewhat commoditised and now the key skill is growing inventory and monetising that to a high level. Audioboom has taken more of an interest in growing a slate of originals, to reduce reliance on third-party monetisation and has outsourced more of its revenue operation, whilst Acast has concentrated on repping and selling – growing is international footprint in-house.
Whilst both are stock-market listed companies and have a route to happily exist out of the hands of big tech, there will always be some interest from shareholders in getting them married off. Their public nature does though make it expensive for them to be grabbed.
Also for both of them, the big question remains what problem does acquiring them solve? Core potential acquirers Amazon, Spotify, iHeart, SiriusXM have ad-tech, repping and sales operations already – do they need the extra scale? More likely they could solve a problem for a newer or a so-far less hungry big company. Both Google and Apple are laggards in this space (and both have had issues with media sales operations in the past) so this could fix a hole in a broader podcast strategy (if they think this is a hole that needs filling).
For other UK companies, finding smaller local partners may perhaps be a more likely option. Solving a smaller company’s problem is easier than a bigger one.
Building out a business to be acquired is different to building out a business for stand-alone success (even if operators pretend there is no difference). For those that will only realise their value through a sale and have jumped onto the hot hot hot world of podcasting, the key is to understanding what problems you fix for what kind of companies. Alongside that, it’s scale, ownership of successful IP and a unique (and potentially dominant) position in the market that’s core.
Plus, fundamentally, is buying you easier and more fruitful than building something from scratch?
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