Spotify made a major move into the podcast space on Wednesday, announcing the acquisition of two privately-held podcast companies, Gimlet Media and Anchor. The company is ramping up investment in original content, similar to Netflix's model, and said it has plans to spend up to $500 million on podcast acquisitions alone this year.
Here's the full transcript of Ek's interview, slightly edited for clarity:
JIM CRAMER: We're quite excited about this Spotify's Co-Founder and CEO Daniel Ek, right here, post nine. Daniel, I've got to ask you, right upfront, podcasts: I understand they're red hot and what we want is an aggregator. I didn't think that a music company would do it, but I do think that an audio company would do it. And that's what this is about, isn't it?
DANIEL EK: Yeah, it is really about expanding our mission from just being about music to being about all of audio and being the world's leading audio platform. And what we are seeing, really is -- we have done podcasts for two years. It is -- our users who are listening to podcasts are listening to the platform almost twice as much. And, of course, the growth in podcasts for us has just been phenomenal. And that's part of the reason why we're now making this move.
JIM CRAMER: I would also imagine that podcasts are a gateway drug for the rest of your products.
DANIEL EK: Indeed, yeah. I mean, great example would be we had in the fourth quarter Amy Schumer and Joe Budden on the platform. Those are all appealing to very different types of audiences who are now trying Spotify for the first time and noticing all the benefits that the platform has.
JIM CRAMER: Now, you've got a Netflix lineage. We've got Barry McCarthy, the CFO who is quite -- let's say he's pertinent or germane on the conference call and he says things that I think are a little unusual. But you use algorithms, you always seem to know – for instance, we use Spotify at our restaurants, we always – we're never worried, you always seem to know what we want. How is that possible?
DANIEL EK: Well, it is really all down to the team of both editors and the machine learning team that we have at Spotify. And we're looking at more than 16,000 signals every single day as we look at your taste profile and try to rank you the things you like the most. So I'm glad that that's working well in the product.
DAVID FABER: You know, there have been those who thought that podcasts was a fad. Why would we go back to something like talk radio? You're finding it is not. The listening patterns are consistent. Is there real growth in the potential audience, though, as well?
DANIEL EK: Well, the growth has been really spectacular for us. And just shy of two years we have become the second biggest podcasting platform. The types of experiences that we're seeing podcasters doing is vastly different than just the normal talk show radio. There are literally shows like Serial, which is drama that is acted out, and there are kids' shows that are now coming, including news, The Daily, being great examples of podcasts that are doing very, very well.
DAVID FABER: Your investors, however, may look at your stock today, down a bit and also sort of wonder about the long-term, which I know you're thinking about. You know, one question I got from a number of people who owned the stock for a while, what about long-term guidance on your margins? Which I think you said it was between 30 and 35% at some point. Does that hurt -- does this new effort hurt that long-term guidance on margins? And should they expect perhaps a different metric?
DANIEL EK: No. We're staying steady with our long-term margin goal. We never said that it would be a linear path to get there. But I think looking at it in our fourth quarter results you can see that the margin is going up. It is very strong. Our core business is very strong. What we're doing now in 2019, however, is we're investing in more original content on the platform. That will broaden the appeal. It will broaden the engagement, which of course is a virtual cycle that then grows the platform and leads to more profitability long-term.
JIM CRAMER: You know, I'm following you guys pretty closely and like your company ever since you became public. And one of the things I thought you would do is not get trapped by the four walls of the spreadsheet. I view you as Netflix, the more great content that you add, the more I want to own the stock. I don't really care, things happen as Barry McCarthy said in terms of the range today. Why are you trapping yourself? Why are you not going with something which just says, you know what, we got a Netflix idea here, Mr. McCarthy is from Netflix, we understand the more content we add, give us a chance, don't look at this as a snapshot, if you want to know the key metric, advertising, going to premium, is what we care about. Why did you revert to traditional guidance when your company is bigger than that?
DANIEL EK: We have always strived to be a very transparent company and we do give a lot of detailed numbers on the guidance. And obviously this is a new business line for us. But I think the way in looking at the potential of the business, it is very much more to be said. We are investing in more original content that will broaden the appeal of the platform. And as we're doing that, we believe obviously subscriber, engagement will go up which increases our long-term opportunity.
DAVID FABER: We know what Netflix spends a year to acquire content. It's nothing like where you are, I mean, we're talking 12, $15 billion a year. But can you give us some sense of what your expectations are in terms of how much you will spend to acquire this original content?
DANIEL EK: Yeah, I mean, again, it is really right now from a very low base. But I don't think it is unlikely that it is a Netflix type of story even if the magnitude of the numbers won't be the same, of us doubling that investment year over year to get more and more content.
DAVID FABER: So you do see yourself doubling potentially how much you're putting towards original content, which would typically come in the form of podcasts, I guess, or of audio as opposed to --
DANIEL EK: Yeah. Exactly. We're definitely investing a lot more in getting more original content on to the service and you should expect that going forward. And as long as we're seeing cost of engagement numbers, the content, we're investing in, you should expect this to make those investments.