A month after Spotify announced its acquisition of New York podcasting companies Gimlet Media and Anchor FM, signalling its intent to become a major-league player in the podcasting world, its overall strategy is becoming clearer.

The Swedish company didn’t reveal the size of the investment, but said it intended to spend between $400 million to $500 million this year on podcast-related investments, including the two companies.

Analysts said the purchases further marked the importance of podcasts as a key channel for music streaming platforms like Spotify and Pandora, as companies look for new opportunities to increase audiences along with subscription and ad-supported revenue.

As The Verge reports, both companies will continue to operate, Anchor as the producer of an app that allows anyone to create an app, and Gimlet as a creator of content; but the big question surrounding the investments is: how will they be part of an integrated strategy to turn Spotify into the go-to podcast destination?

Podcasts already generate substantial revenue for Spotify – bringing in an estimated $659 million by 2020.

The next steps are centred on the single biggest obstacle in the podcast sector – discovery.

Helping listeners find the podcasts they want is crucial, Spotify believes. As The Verge points out, there is no equivalent algorithm for podcasts as those used by the likes of Netflix for video.

Spotify has succeeded with music recommendations and now intends to do the same for podcasts.

“The music that we feed to you through our discovery engine through our machine learning is pretty darn good,” said Courtney Holt, Spotify’s head of studio and video, said.

“Well, guess what? That team is now working on podcasts.”

Spotify has made the same emphasis on other occasions, describing the efforts as “improved user experience”.

Investment in content is the second big direction Spotify is taking, a fact that has been stressed repeatedly.

“You’ll see us double down on investment spending in podcast content, and increasingly you’ll see more of that become exclusive on the platform,” Spotify’s CFO Barry McCarthy told a Morgan Stanley conference. 

He stressed that Spotify wouldn’t be an “arbiter of taste”, but rather it will position itself by optimizing content creation and backing shows it was sure would succeed.

“Over time, we have lots of exclusive content because we get super successful at predicting how much to spend and what to invest in because we’re able to extract insights and data we’ve accumulated about our users’ taste,” he said.

Spotify isn’t alone in seeing podcasts as an effective stimulus to growing its subscriber base. Stitcher has Stitcher Premium, and Luminary, which recently raised $100 million to begin a subscription-based podcast service.

Apple currently has a reported 55% of the podcast market as of 2017, according to Bloomberg.

The podcast market is still in its infancy, however, with a mere $314m spent in 2017, according to the IAB; that’s in comparison to almost $12bn spent on online video.

But podcast spending in the US was up a huge 86% year-on-year. Globally, PwC estimates that by next year global podcast adspend will clear $1bn.

Sourced from The Verge, IAB, Spotify, Bloomberg, Strategy-Business; additional content by WARC staff