Spotify Spots an Opportunity in Podcast Ads

Dynamic advertising allows platforms to rely on subscriptions

Last week, Spotify bought Megaphone, one of the biggest podcast advertising and hosting platforms, for $235 million. It’s been a busy year for Spotify, so you may have missed this one and its significance. In 2019, Spotify acquired Anchor, a creation and hosting platform, and Gimlet, a production company. Megaphone is more like the former. Instead of adding to Spotify’s content library, the Megaphone acquisition bulks up Spotify’s ad sale muscle, expanding its reach outside the Spotify network.

As recently noted in The Verge, podcast ads have come a long way in recent years. In the early days, podcasts relied on ads that were baked into a show, never to be changed. A good point of comparison for the development of ad flexibility comes in broadcast TV. Imagine if a widely syndicated show like Friends didn’t offer networks the ability to change the ads that appeared when it first ran. Someone watching on TBS (or streaming on HBOMax) in 2020 would be seeing Gap ads from 1995. For podcasts, static advertising meant that back-catalogs of shows couldn’t be monetized with fresh advertising deals. There was no meaningful way to collect revenue from past seasons. Given this, it’s easy to see just how important dynamic advertising, which allows ads to be slotted in and out based on audience and current ad campaigns, was for the industry.

Today, podcast ads are more like the internet as a whole, with a “rotating cast of ads targeted to a person based on what needs an audience that day.” But unlike, say, a banner ad on a news site, the majority of today’s podcast ads aren’t tied to user data. They have no cookie trail to follow to better understand what a user listens to, reads, or watches in their larger consumer life outside the podcast. Hosting platforms like Apple Podcasts know what else you stream, but podcast creators themselves aren’t privy to that information. (This is why podcast hosts are always asking you to fill out surveys. They’re trying to collect demographic information the best way they can.) This Spotify deal changes all that. With its user profiles (which are sometimes linked with Facebook accounts), and often years of data on music streaming preferences, Spotify offers advertisers valuable intel.

In January, Spotify launched its proprietary Streaming Ad Insertion (SAI) technology, which mimics the way advertising works on a platform like Instagram — ads appear in real-time based on current campaigns and user data. Now imagine that the rerun of Friends on basic cable was able to show you ads based on your age, what kind of phone you have, and what song you listened to when you woke up this morning. With the acquisition of Megaphone, that’s what Spotify will be able to offer podcasts outside its network. That’s not everything, but it’s way more information than podcasts advertisers have had in the past.

And, to go back to that Friends analogy one more time, it’s good to remember that dynamic advertising allows a platform to remove ads entirely and rely on a different revenue source: subscriptions. This is reportedly something Spotify is looking into, though given the lukewarm success of Luminary, a platform pitched as the Netflix of podcasts, it may have a long way to convince users to pay for something they’re used to getting for free.



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