It’s been nearly two years since paid music streaming leader Spotify (NYSE:SPOT) kicked off its podcast acquisition extravaganza. The company scooped up Gimlet Media, Anchor, and Parcast in early 2019 before proceeding to buy The Ringer in early 2020. Spotify announced earlier this week that it plans to acquire Megaphone, a podcast advertising and publishing platform, for $235 million from Graham Holdings Company (NYSE:GHC).
Here’s what the acquisition means for Spotify’s podcasting ambitions.
Spotify CEO Daniel Ek. Image source: Spotify.
Taking podcast advertising to the next level — again
Megaphone is an advertising platform that allows content creators to monetize podcasts with robust ad targeting technology. The platform is highly complementary to Spotify’s own advertising business, which introduced Streaming Ad Insertion (SAI) for podcasts earlier this year in a move that promises to modernize podcast advertising.
Traditionally, podcast hosts or creators manually read out sponsored advertisements, but those ads may not be relevant to all listeners. Spotify can leverage SAI to target ads based on what it knows about the listener (which is a lot, since users must log in to listen), improving ad relevance.
With the acquisition, Spotify will bring SAI to third-party podcast publishers for the first time, expanding its reach beyond its own platform. Megaphone has over 20,000 publishers and advertisers that currently use its platform.
“We are still in the early chapters of the streaming audio industry story, but it is absolutely clear that the potential is significant,” Spotify Chief Content Officer Dawn Ostroff said in a statement. “We look forward to Megaphone joining Spotify on our mission to accelerate smarter podcast monetization for advertisers and podcast publishers powered by a scaled audience and state-of-the-art technology.”
A $1 billion bet on a $1 billion industry
Following The Ringer purchase, Spotify had spent $600 million to $650 million in total on podcasting companies. Adding the cost of Megaphone brings the overall bill to $835 million to $885 million.
But that only includes acquisitions. Spotify is also spending lavishly on exclusivity deals, most notably a partnership with controversial podcaster Joe Rogan that’s worth an estimated $100 million. The company has also inked deals with Kim Kardashian and President Barack Obama and Michelle Obama’s production company Higher Ground, although it’s unclear how much those partnerships cost.
It’s safe to say that Spotify has spent $1 billion or more at this point when including both acquisitions and other partnerships.
That may sound like a risky bet when considering that global podcast advertising revenue only hit $1 billion last year. Even if Spotify can dramatically improve podcast monetization, it could take a long time for the $1 billion bet to pay off.
The company has another idea, though: introducing a new subscription podcast service. Spotify has been surveying users to gauge consumer response to the idea of a service that could cost $3 to $8 per month. Between content creation tools, exclusive content, and increasingly sophisticated ad tech, Spotify appears to have all it needs to dominate the industry for years to come.
Evan Niu, CFA owns shares of Spotify Technology. The Motley Fool owns shares of and recommends Spotify Technology. The Motley Fool has a disclosure policy.