Spotify is tiptoeing into new businesses again.
The No. 1 paid music streaming service has agreed to promote podcasts in its app and via ads on buses. In return, the hosts of "Reply All," "Pod Save America" and "The Bill Simmons Podcast" agreed to talk up Spotify on social media and during their shows, which cover topics ranging from internet subculture and politics to sports.
Spotify is testing whether to devote more resources to areas other than music. Podcasts are a fast-growing field currently dominated by Apple. By increasing the revenue it gets from other media, Spotify could reduce the huge share of sales that goes to record labels. Royalties accounted for more than 75 per cent of Spotify's costs last year and are based on the time users spend playing songs.
"The potential for Spotify is to introduce this caliber of storytelling to a much larger audience, who are already in a listening mindset," said Matt Lieber, co-founder and president of Gimlet Media, which produces "Reply All." "I see a growing effort to make podcasts more accessible on the platform. And they're making progress."
Spotify is experimenting in new media to increase the time customers spend with its app -- and boost advertising sales. As of now, most consumers looking for music videos or podcasts leave Spotify for Apple and YouTube. In particular, the company wants to assess awareness of its service among avid podcast listeners and could expand the campaign to more providers later this year. Spotify confirmed the details of the effort, but declined to make an executive available for interview.
In a survey earlier this year, about 15 per cent of Americans over age 12 had listened to a podcast in the past week, and about almost a quarter listened to at least one every month, a number that's doubled since 2013, according to Edison Research. Ad revenue from podcasts is projected to grow 85 per cent this year to US$220 million.
Apple dominates the market, but its share has declined to about 55 per cent from 70 per cent, according to Nick Quah, author of the weekly newsletter Hot Pod. Music services SoundCloud Ltd. and Pandora Media have started hosting podcasts, as have TuneIn and iHeartMedia.
With more than 140 million users, including about 50 million paying subscribers, Spotify has an opportunity to steal share from Apple. The company has already commissioned original podcasts about music, and partnered with Gimlet Media on an podcast series about the late Chris Lighty, manager of rappers Busta Rhymes and 50 Cent. The episodes premiered on Spotify before becoming available on other services.
Spotify will fund a new batch of original podcasts in the coming months, according to people familiar with the matter who asked not to be identified discussing the private plans. The company has also created a tab for podcasts in its browse section.
"Spotify has the potential to do a lot for podcasting," Quah said. "They have a large user base, and all it takes is a few tweaks here and there to put podcasting in the foreground for the daily listeners."
The question is whether the current effort grows beyond tests. Outside of its main field of music, Spotify has struggled to develop a consistent strategy.
Before Alphabet's YouTube, Hulu or Sony introduced online TV services, Spotify tried to assemble a bundle of TV channels for a live video service in Europe. But the company abandoned those plans after failing to line up all the channels it wanted for the right price, according to a person familiar with the matter.
The company later hired former VH1 boss Tom Calderone to oversee original video programming. He commissioned a dozen original series from producers including Tim Robbins and Russell Simmons.
Spotify has released a handful of those shows over the past year, but the video wasn't heavily promoted within the service and didn't draw much buzz.
Music industry executives would like Spotify's video efforts to focus on music. That would bring more attention to their artists and new releases, and not divert royalty-generating listeners to other content. Thanks to Spotify, the music business is growing for the first time in almost two decades and record labels aren't especially keen to see the company diversify into other forms of online entertainment.
The company has tested seeding playlists with music videos and short documentaries, including Rap Caviar, the service's most popular playlist.
If Spotify's steps outside of music seem halting or uncoordinated, it may be that management has other priorities. The company is planning to go public in coming months and before that needs to reach a new long-term deal with Warner Music Group, the third-largest record label. Agreements with Universal and Sony, the two larger labels, were struck earlier this year.
"It doesn't seem like there's a concentrated, thought out strategy,'' Quah said. "They are juggling a lot of things as a company, and podcasting is an interesting, experimental channel for them.''