If you’ve built a great product, you’ll need an audience. And if you’ve built a captive audience, you’ll need a great product. Spotify has one of the most captive audiences in the entertainment industry. The most recent measure places Spotify’s paid subscriber cohort between 90-95 million. This is an extraordinary number of consumers with a payment method on file. But most importantly, it’s an opportunity for the streaming music company to continue evolving with the digital commerce economy. An unconventional leader in this respect, Epic Games could teach Spotify the most about what’s possible with licensing partnerships and micro-transactions.
Member Brief No. 1: Linear Commerce
A point marks a position in space. This point lacks any real value. In geometry, a point is insignificant and for the digital economy – it is too. But a plane is a flat surface extending in height and width. This plane has breadth. When two planes meet, the intersecting planes form a line. And a line is an infinite series of points (i.e. opportunity). This is where businesses want to operate, along this line.
Spotify’s ability to overcome Apple’s recent and notable growth will hinge on the service aligning their brand with exclusive partnerships. The platform’s defensibility will be closely tied to their faculty to “sell” their product. While this is of little surprise, Spotify’s future may be influenced by how it sells content and physical products.
No. 287: Spotify’s Brand Potential
Audience and then commerce; or commerce to build the audience. Spotify identified an opportunity that – in the short term – will benefit its unpaid and premium consumers, alike. And, in the long term, will benefit Spotify if Gimlet Media continues to create content that other platforms want to license for large scale projects. But perhaps the most significant example of linear commerce, from the past week, was Fortnite’s Marshmello concert (see here).
Fortnite, “The Oasis.” This Saturday, Fortnite teamed with EDM performer Marshmello to debut a new concept for attracting and monetizing digital audiences. An estimated 10 million users were “present” (active in the game) for a live, in-game, digital concert that tested the boundaries of our definition of reality. Millions more watched the streams online. For days, the DJ set had been teased throughout the game by way of signage and in-game posters. Fortnite allowed players to enter the stage area in “Pleasant Park”, a well-known area in the game’s playing field. The game automatically removed all of their weapons so none of the attendees could be removed.
Epic Games was reported to have generated a “sizable sum” in microtransaction revenue from two of Fortnite’s in-game properties: skins (appearance) and emotes (dance skills).
The value of Gimlet Media
The traditional podcast network like PodcastOne, Midroll, and Headgum monetizes groups of podcasts by negotiating advertising rates and / or providing the podcasts with production expertise. There are dozens of podcast networks but few are built as direct to consumer operations. Gimlet Media is one of them, they own and administer the podcasts that they broadcast. This could potentially provide value to Spotify in three ways:
Advertising revenue: podcasting’s main revenue stream is ad sales but the entire industry generated north of $360 million in sales in 2018. Spotify will be able to count on a new revenue stream. But there is also Gimlet’s innovation in co-branded podcasts. Led by Creative Director Nazanin Rafsanjani, the podcast network has partnered with the likes of eBay, Virgin Atlantic, Microsoft, Gatorade, Reebok, Squarespace, and Lyft. When the deal is finalized, I’d expect this to continue.
Premium listens: speaking of advertising, consumers don’t enjoy listening to the same five ads about meal kits and recruiting. Spotify can now market that their Gimlet podcasts have no ads, potentially driving more listens of the streaming music app. By advertising ad-free podcasts, the content can be used to convert trial and regular subscribers.
Intellectual property and licensing: Spotify isn’t just acquiring a podcast network, they’re bringing a proven creative group in-house. Reply All, one of Gimlet’s properties is reportedly in the early stages of film development. In 2016, rights to their Homecoming podcast were purchased by Universal Cable Productions. In 2017, Variety magazine reported that director Richard Linklater would lead the adaption of their “Man of the People” episode. It is last slated to star Robert Downey Jr. And in 2018, ABC debuted a sitcom based upon the founder of Gimlet media and their StartUp podcast called Alex, Inc.
Like Wondery and Parcast, Gimlet Media is more than a traditional podcast network. Paired with the streaming giant’s sizable and enthusiastic user base, Gimlet’s properties can become more valuable to potential media buyers. With the added listeners that Spotify would be able to provide, Gimlet could increase the opportunities that it has to license intellectual property or sell the television rights to high paying media partners like Netflix, Hulu, Showtime, and HBO.
The pending acquisition of Gimlet Media is about more than building a direct-to-consumer podcasting powerhouse, it’s about monetizing DTC audio in new ways. Spotify doesn’t own the music that millions of us listen to, they license the rights from three music labels: Universal Music Group, Sony Music Entertainment Group and Warner Music Group. With Gimlet’s pending acquisition, Spotify is positioning themselves squarely as the Netflix of audio. And Gimlet’s portfolio of audio properties could be another tool that Spotify uses to convert casual subscribers to premium, paid users. And incentivizing users to stay away from Apple Music.
Gaming platforms like Epic Games‘ Fortnite and PUBG have captivated audiences while storing their payment methods for ease of purchase. And services like Netflix and Spotify are learning that they can do the same. The monetization of audiences through innovative, exclusive partnerships will continue to build a foundation for how media companies to address an evolving digital economy. By recharacterizing commerce conversion as the beginning of the funnel and not the end, Spotify can reframe the value of their content acquisitions and partnerships – both within and outside of their native platforms.
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Report by Web Smith | About 2PM