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Spotify CEO on Freakonomics Radio

The interview sheds some light into the thinking that informs Spotify's emerging podcast adventures.

This morning, Freakonomics Radio subscribers woke up to a new episode featuring Daniel Ek, the co-founder and CEO of Spotify. The interview laid out the standard beats of the company’s origin myth, but it also contained a few interesting — and new, I think — bits on Spotify’s emerging foray into podcasting.

Here’s the first relevant chunk:

Stephen Dubner: Spotify has been streaming podcasts for years. But it made news recently by spending a few hundred million dollars to acquire two podcast-production companies, Gimlet and Parcast, and a firm called Anchor that’s primarily a podcast technology platform.

Daniel Ek: Correct, correct.

Dubner: So that really changes things in a number of ways. Because you have been successful not being a content creator or producer — too much, at least. So I guess first question is why, and then the second question is, how will it unfurl?

Ek: Right. Well, in the future, I don’t think people will make a choice whether they’re subscribing to a music service. We think that they’re making a choice whether they will have an audio service of their choice. And so it wasn’t like this well-thought-out master plan. “Hey, we need an adjacent business, and we don’t know which one it is.” It wasn’t like that at all. What actually happened, because Spotify is a platform, we started seeing, in my home country Sweden actually, record companies buying podcasts and uploading them to the platform as another revenue opportunity for them to grow. And it resonated really well with listeners. And that was like the first step.

And then in Germany, record companies there had massive amounts of rights to audio books, which I wasn’t aware of. And they started uploading that to the service and very very quickly, we went from like no listening to that and now we’re probably if not the biggest, the second-biggest audio book service in Germany. And this is without our involvement. You know, this just happened by proxy of us being a platform. So we started seeing it resonating really well into people’s lives. And they thought of Spotify not just as a music service but as a service where they can find audio. And it played really well into our strategy of ubiquity — i.e., being on all of these different devices in your home, whether it’s the Alexas or TV screens or in your cars or whatever as just another source where you could play your audio.

Whether it’s myth-creation or a straightforward story, I find it really interesting that the leap into the talk category was informed, at least in some part, by activities from adjacent audio businesses located in European countries. It is, at the very least, somewhat unexpected. (Speaking for myself, of course.) In my mind, it’s a move that says a lot less about the value Spotify sees in podcasting in and of itself, and more about the value that it sees in the hidden corners of itself. This might seem like an obvious distinction, but I don’t that distinction is apparent enough to — or emphasized enough by — most folks, including myself, discussing the Spotify acquisitions.

Dubner had a solid follow-up question:

Dubner: Why do you want to go to the trouble to pay a couple hundred million to buy a firm that’s creating it when almost everybody making podcasts would probably willingly have their content on Spotify?

Ek: Well, the reason why is really twofold. So one is I think that the format of podcasts, we’re still very very early on into what it will be. You know, if you really think about it, like for most people, there’s there’s all of these basic things for creators that haven’t been solved, like how well am I doing. It’s not that easy to find out. How am I monetizing the show and the value for advertisers, it’s just not that easy to find out. And thirdly, what are people saying about my show, like feedback. Those are like three very elemental things that if you think about it almost all other formats, if you’re a journalist today and writing in text, there’s there’s ways to solve all three of them. We can already…

Dubner: I mean what you’re describing does exist to some degree on Apple Podcasts, which I realize Spotify has a complicated relationship with. But that’s also, like Spotify, it’s a closed ecosystem. It’s not part of the web, quite. So if Apple Podcasts data existed in a non-closed environment would that have been enough for Spotify to not need to buy its own firm?

Ek: Probably. I mean, in the end I mean it’s all about solving needs, right, that creators or consumers are having. That’s like what we’re focused on. And if someone had solved that need then obviously there would be less of a reason for us to do anything about it. And you know the same thing, if there was massive amounts of audio-book services in Germany, I’m sure we wouldn’t have been successful.

Seems to me that none of that directly addresses the follow-ups, thus fully underscoring the “not well-thought-out master plan” aspect of the move — and the possibility that the gravity of Spotify making its first acquisitions of straight-up content companies (Gimlet and Parcast) might not be fully internalized by the executive team, even at this point in time. Which reminds me, I wonder how the union stuff is going….

Anyway, you should probably check out the full episode yourself.