Spotify’s road to podcast dominance started brazenly enough: hundreds of millions of dollars spent at once to buy a respected podcast network, Gimlet Media, and a podcast creation app, Anchor. Now, nearly two years later, the company’s continuing to spend, but this time with its sights set on conquering the podcast ad market.
Yesterday, the company announced it spent $235 million to acquire Megaphone, a podcast hosting company that also inserts and sells dynamic ads for podcasts. The acquisition, though large, isn’t as flashy as some of the company’s other deals, but it sets Spotify up to become a force in podcast ad sales. With Megaphone, Spotify wants to dominate podcast advertising and become the main ad seller for shows both inside and outside its network. This could have repercussions, not just for where and how advertisers and podcast networks spend money, but also for how much Spotify knows about listener behavior both inside and outside its platform.
Podcast ads have become increasingly sophisticated and can be swapped in and out based on who’s listening and what ad deals are active. Dynamic advertising, as this is called, was a big change from static podcast ads that were built into a show forever. Now, podcast ads act more like the web — a rotating cast of ads targeted to a person based on what needs an audience that day. Still, the targeting for these is limited by a lack of user data. At most, the hosting services know where listeners are based, what kind of device they’re listening on, and the app they’re using to listen. This totally changes with Spotify.
Spotify knows listeners’ names, billing information, where they live, their age, what music they like, the other shows they enjoy, who they’re friends with on Spotify, what devices they use, and plenty of other data. It’s still not as much as Facebook or Google know about people online, but it’s significantly more information than podcasters have previously known about their audience.
Naturally, Spotify harnesses this data to sell and insert ads through its proprietary Streaming Ad Insertion (SAI) technology, which debuted in January for its own internal shows. These ads are inserted in real time as opposed to being swapped out ahead of a listen, meaning Spotify’s system makes live decisions about which ads a specific listener should hear based on their data and also based on the goals of the various ad deals Spotify is currently running.
With the Megaphone deal, SAI will be offered to shows outside the Spotify network, so if advertisers or third-party podcasts want to be able to effectively reach Spotify’s 320 million monthly listeners, they’ll have to pay Spotify to do so, whether that means going to Spotify’s ad sales team and asking to be slotted into shows or by hosting a podcast on Megaphone to gain access to SAI. Spotify gets paid even if it doesn’t sell a show’s ads because it still provides distribution services. (Spotify isn’t the only company attempting to own the distribution, hosting, and sales arms of podcasting; iHeartMedia and SiriusXM are, as well.)
Owning a hosting service also gives Spotify unprecedented access to data about other networks’ shows. Only a network and their hosting provider know how many downloads a show receives, where their listeners are based, and generally, how episodes perform. Now Spotify will have that data, too. Megaphone currently says ESPN is a client, for example. This means Spotify could know how ESPN podcasts perform, which is coveted information especially given that Spotify owns The Ringer, which CEO Daniel Ek said the company acquired to build the “new ESPN.”
Since fully entering the podcasting space in 2019, Spotify has spent upward of $500 million on acquiring companies, and stars like Joe Rogan, Kim Kardashian West, and Michelle Obama, in the space. It now owns a podcast creation app, multiple successful networks, and a podcast player. With Megaphone, it also possesses a hosting service and effective ad network. It’s setting itself up to be an integral part of the podcast ecosystem that outside networks will have to engage with eventually.
To pull this off, Spotify has to make SAI enticing enough that podcasters are willing to change hosting networks just to get its more specific ad tech, and advertisers are willing to switch who they buy from for that same access. To get to that point, Spotify needs to become the most popular place people listen, specifically stream, all over the world, which it seemingly hasn’t pulled off yet. Apple might still hold the top listening position, at least in the US, although if Spotify keeps securing exclusive deals, it might force listeners to convert.
That’s the through line in all of Spotify’s deals, forcing people to use its service for access, whether that be access to ad technology or certain shows. We all might end up having to use Spotify whether we like it or not.