Spotify has made large investments in podcasts – that is the way it ought to repay
People walk past the New York Stock Exchange (NYSE) the morning the music streaming service Spotify begins trading stocks on the NYSE on April 3, 2018 in New York City.
Spencer Platt | Getty Images
As of 2019, Spotify has invested hundreds of millions of dollars in podcasts. Now it has to show investors that the bet is paying off.
Spotify's podcast library was backed by high profile deals such as the acquisition of Gimlet Media, Anchor, Parcast and The Ringer. It also received exclusive rights to an estimated $ 100 million worth of Joe Rogan's podcast, which has an iconic following and regularly tops the podcast charts. It has since signed TikTok influencers Addison Rae, Kim Kardashian West, DC Comics, Michelle Obama, and The Duke and Duchess of Sussex.
Now it has to show that these investments have paid off. According to analysts, Spotify's new advertising approach will be helpful.
"Once the parts are in place to monetize podcasts in a scalable way, the dollars pouring into podcasts will explode. The medium is only for advertising," Stifel analyst John Egbert told CNBC.
Podcast ad spend is expected to exceed $ 1 billion in 2021, according to an eMarketer forecast. Spotify has new tools to help advertisers get more of the people who listen to podcasts, which could significantly increase advertising revenue in the years to come.
Traditionally, measuring the return on an investment in podcast advertising has been difficult. Podcasters may know how many listeners have downloaded a show, for example, but don't always know how long someone has been listening or whether they have been listening to ads.
Spotify's Streaming Ad Insertion tool, launched earlier this year, dynamically inserts audio ads into podcast streams on its platform for better targeting and metering. For example, the tool allows advertisers to see the age, gender, and device type of people who actually heard an ad. This information is valuable to advertisers, but the tool was originally only used for Spotify's original and exclusive podcasts. Now it's opening up to all podcast publishers with the recent acquisition of ad tech company Megaphone, valued at $ 235 million.
Megaphone provides technology for podcast publishers and advertisers looking for targeted slots for podcasts. The deal gives advertisers more scalability when it comes to who to reach and allows podcast publishers to make money from their shows. Many large companies already use megaphones to address podcast listeners. According to the website, customers include Google, Microsoft, Verizon, Walmart and AT&T.
This type of investment in ad tech is expected to continue. "You will see that they are investing more in technology to better monetize and monetize podcasting in a variety of markets and monetize their ad-supported customers," Jeffrey Wlodarczak of the Pivotal Research Group told CNBC about Spotify's coming year.
As streaming ad insertion technology becomes more important and podcasts grow in popularity, some advertisers can make better use of the spending on many other third-party podcasts available through Spotify.
"I think what will be critical is that Spotify monetize other third-party shows," added Egbert. "It's interesting if they monetize their own podcasts, but the real magic would be using their truly unique scale to bring in more ad dollars for podcasts that have ever hit the medium before."
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