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FORTUNE.COM // NOVEMBER 2019
In February, Spotify announced that it had acquired New
York–based Gimlet Media, known for its podcast series Reply
All and Crimetown, for $230 million; the following month the
company shelled out $56 million for Parcast, known for true-
crime shows like Unsolved Murders. The moves capitalized on the
fact that Spotify has become the second-largest player in podcast-
ing (behind a certain competitor in Cupertino, Calif.). They also
underscored Spotify’s need to break free from the constraints of its
music contracts to see improved growth.
“The shift to podcasting—we understand what’s going on there,”
says a second music industry executive, who requested anonymity,
citing his employer’s business relationship with Spotify.
Despite its booming popularity, however, podcasting is still a
much smaller business than music. In addition, the music execu-
tive adds, podcast economics aren’t the same as those for music.
The royalty pool is different, and the audience itself is different.
“Being really great at podcasting does not solve all the issues
with respect to [Spotify’s] position in the music business,” the
executive says. “It’s an interesting opportunity; I understand why
they’re going after it. But it’s not a game-changer. The jury’s out.”
Dawn Ostroff, Spotify’s chief content officer, begs to differ.
The longtime television industry executive (she was for years
president of the CW and UPN networks) calls me from Spotify’s
new U.S. headquarters at 4 World Trade Center to explain why
podcasts hold promise for the company. At 564,000 square feet
across more than a dozen floors, Spotify’s playful NYC digs are
more of a vertical campus than an office, and the perks within—
including free meals and an ocean of standing desks—signal the
company’s rapid ascent.
Ostroff says the landscape for podcasts mirrors the one that
Spotify encountered in music in the 2000s. They’re also an
attractive opportunity for Spotify to gain additional leverage
over the next generation of consumers: Generation Z, which is
listening with increasing enthusiasm. In 2017, 27% of the cohort
listened to a podcast at least once per month, Ostroff says; this
year, 40% tuned in.
“Podcasts have been around for years, but they’re still nascent
in other ways—the business has been incredibly fragmented,”
she says. “It’s an opportunity for Spotify to build and unify the
industry at a time when we’re seeing listenership explode.”
It’s also a chance for Spotify to own the content in its catalog,
rather than license it. Podcasts haven’t been the company’s only
attempt at this. Last year, Spotify experimented with a service
that would allow independent artists to upload their work
directly to its platform, à la streaming peer SoundCloud, and cut
out the middlemen—that is, record labels. Predictably, the initia-
tive was met with some complaints from the music industry. In
July, Spotify shuttered the program, saying it wanted to focus on
serving artists and labels. “I still think [direct uploads] might
be part of their long-term perspective,” says the second industry
executive. “But it wasn’t moving the needle.”
All of this is important because Spotify lacks a key tool to fend
off Apple and Amazon: hardware. According to its own count,
Apple has more than 1.4 billion active iPhones, iPads, TVs, andlisteners into profits. Qvist, whose mandate
includes international expansion and product
localization, believes the path to growth lies in
balancing a trio of strategies.
“There are a few ways for us to grow,” she
says. “Growth within existing markets. Expand-
ing into new territories. Enhancing our product
offering. It’s not just one thing. You have to have
enough bets in enough buckets.”
To date, Spotify has bets in 79 buckets—far
more than Amazon Music, which is avail-
able in about three dozen countries, but
well behind Apple Music, which operates in
more than 110. To broaden its reach, Spotify
announced in July what it dubs Spotify Lite,
“a small, fast, and simplified version” of its sig-
nature streaming service that’s optimized for
older computer hardware and slower cellular
networks. It launched Lite in three dozen
emerging markets, including Argentina, Bra-
zil, Canada, India, and Mexico.
“There are almost 5 billion smartphones
around the globe,” Qvist says. “Just look at the
potential that exists.”
One notable omission? China. Spotify
doesn’t officially operate in the most populous
country in the world, though in late 2017 it
swapped minority stakes with Tencent Music,
giving it an indirect foothold. Midia, the mar-
ket research firm, estimates that Tencent Mu-
sic—which went public on the New York Stock
Exchange in December and carries a market
capitalization of $22 billion—claims about 8%
of the global streaming music market, behind
Spotify, Apple, and Amazon. Together, Spotify
and Tencent control a near-majority of the
world’s music streaming business, providing a
bulwark against competition from its Big Tech
rivals. (Neither Apple nor Amazon responded
to Fortune’s inquiries for this story.)
Not that Qvist is terribly concerned about
it. “You would be surprised how little time we
spend looking at competition versus what we
can do on our own,” the Spotify executive says
with an air of defiance. “We are a global ser-
vice, by far the biggest. We are solely focused
on audio, and that’s a big difference.”
W
HICH BRINGS US TO PODCASTS. It was
perhaps unsurprising that Spotify
might look to other kinds of audio as
a way to expand; it was another mat-
ter entirely that it was willing to pay a premium
for a pair of podcast producers.