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No, Podcasting Is Not a Small Business

February 4, 2019, 3:00 PM UTC

Believe it or not, there’s money in podcasts.

Spotify is in advanced talks to acquire Gimlet Media, the Brooklyn-based narrative podcast company, for more than $200 million in cash, according to Recode. Gimlet has raised approximately $28.5 million in venture funding from investors including WPP, Stripes Group, LionTree Partners, Graham Holdings, Betaworks, Cross Culture Ventures, and Lowercase Capital. Two years ago, the startup was reportedly valued at roughly $70 million.

Podcasting may be a relatively small industry in the U.S, but if I had to guess, Spotify has bigger ambitions than that. Just take a look at the stats: The U.S. podcasting industry brought in $314 million in ad revenue in 2017. Yet the global picture is much different.

The podcast industry in China is 23x larger, estimated to be worth an eye-popping $7.3+ billion. Why? Perhaps because the model is different. Many of the podcasts in China are paid via subscription, while podcasts in America are mostly free or ad-supported. Individual podcasters in China can make $8 million per year with 250,000 listeners. For context, Serial, which was America’s most popular podcast ever, made only about $500,000 in its first year after a whopping 19 million downloads.

It’s important to note that Spotify had actively looked into ways to enter the Chinese market for a number of years. China-based Tencent Music is one of Spotify’s largest shareholders. In its filing to go public, Spotify wrote, “Spotify believes the Tencent Transactions allow Spotify to invest in the long term potential of the music market in China and, in turn, TME to invest in the long term potential of the music market outside of China.”

Of course, I’m just speculating about the possibilities here, but the bigger point I want to make is that headlines that claim the podcasting business is small are misleading. It may be small in the U.S., but if you’re a company looking to expand into other territories, it’s an incredibly lucrative opportunity.

Andreessen’s Connie Chan wrote an excellent essay on multimodal business models. She notes that product success is not just about having a good product, but also having the right business model.

An excerpt from her post on how podcasts in China make money:

Some podcasts rely on sponsorships and ads the way we do in the US, but podcast hosts can also receive tips that are split between podcaster and platform. In the following example, tip options vary from $.30 to $21. This new model means everyone can make money and content creators have more funds to invest in better production and better content; everyone wins.

In other words, the U.S. podcasting market is still in its infancy because content creators are using basic monetization techniques, while Chinese podcasters is experimenting with gamification, coupons, and limited-time memberships.

I’ll be curious to see what Spotify does with Gimlet if the deal goes through, but I’m willing to bet that with Tencent as a partner, it will have some creative ideas.

(On a related note, check out this comprehensive list of the best business podcasts I compiled thanks to recommendations from fellow Term Sheet readers.)

This article originally ran in Term Sheet, Fortune’s newsletter about deals and dealmakers. Sign up here.