Spotify’s plan to monetize podcasts, explained

While the radio star was supposedly killed by video, he’s been rather resistant to podcasts.

According to eMarketer, US ad spend on terrestrial (land-based) radio is forecast to hit $12B this year, vs. $1B for podcasts.

Based on Spotify’s recent “Stream On” keynote presentation, though, the podcast ad industry could be headed for huge growth.

Podcast advertising has been hard to scale

This is thanks to a few quirks with the format:

• Measurement problems: Key industry stats like downloads, impressions, and actual listenership are hard to measure and not standardized.
• Static ads: Once a podcast is downloaded, the ad itself can’t be updated to target a particular listener.

That’s why when a host reads the ad, it’s typically done in a direct response format (e.g., “use code TRUNG for your bullet-proof socks”), which can be easily measured.

In lieu of downloads, Spotify streams the audio file

This change allows for the creation of a new advertising framework, which is being boosted by 2 key acquisitions: Anchor (podcast production) and Megaphone (podcast ad platform).

Spotify’s “Stream On” highlighted 3 advertising developments:

• Streaming Ad Insertion (SAI): A service that provides Facebook-like targeting of ads of Spotify-exclusive content.
• Spotify Ad Studio: A tool for advertisers to make self-serve audio ads.
• Spotify Audience Network: This service is still in its early days but it will allow advertisers to target specific users instead of targeting a specific show.

These developments go hand-in-hand with Spotify’s huge spend on talent, including the likes of Joe Rogan, the Obamas, and Bill Simmons.

Spotify is not the only one making moves

There’s been a flurry of activity in the podcast space in recent years:

• Liberty Media (which owns Sirius XM, Pandora) has acquired podcast player Stitcher, hosting service Simplecast,
• iHeartRadio acquired ad measurement firm Triton Digital.
• Amazon acquired podcast studio Wondery and has rolled out podcasts in its Audible player.
• Apple, a longtime (albeit very laid back) leader in podcasting, acquired Scout FM, which uses AI to curate custom podcast playlists.

As for our old friend radio?

The research firm eMarketer forecasts double-digit billions in revenue for years to come. (They add that 2021 will be a peak and that radio won’t reach “pre-pandemic highs” again.)