The podcast industry has grown exponentially in recent years with the advent of streaming services such as Spotify Technology SA (NYSE: SPOT). Last year, 320 million users in total subscribed to different podcast platforms out of which 70 million have subscribed to Spotify. This is double what was done a year earlier. Now Spotify wants to monetize as much of its content as possible and get some of the money from the $1 billion markets.
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Over $1 billion is expected to be spent on podcast ad spending by podcast advertisers this year. Advertisers continue to recognize the value of podcast content. Since Spotify podcasts are very popular with listeners, and advertisers find them appealing, they will be one of the beneficiaries of this trend.
Spotify has made two other significant acquisitions to enhance ad management. The Anchor operating system is one example of such acquisitions. It lets podcasters upload shows, edit them, and manage to advertise. A recent study by Spotify found that about 75% of new podcast episodes are released via the Anchor tools.
Businesses use a customized approach for each podcast and adjust their price policy independently. Podcasts are not obligated to monetize all episodes, and there are plenty of free podcasts available.
Megaphone, one of Spotify’s other acquisition platforms, works differently. Megaphone allows advertisers to bid on ad slots on various podcasts and connects advertisers worldwide. Podcast advertisements are selected based on listeners’ information, such as their age, gender, interests, and buying habits. Megaphone offers advertisers highly effective targeted marketing and campaign optimization. Podcasters pay a monthly fee of $99 for being present on the platform, plus a percentage for advertising. At this price, podcasters get more flexibility in ad pricing and can control ads’ length and placement.
The financial performance of Anchor and Megaphone has not been made public. However, it can be assumed that their margins are higher than Spotify’s main business. They are both ad platforms for generating advertisements that do not require significant investment in customer acquisition or content creation but require significant upfront development costs for each. In comparison, Spotify spends a lot on royalty payments to music copyright holders in its streaming business. Thus, bringing in these two ad platforms could strengthen the Spotify podcast segment and positively impact its overall gross margin.
Investing Canon reports Spotify Technology SA (SPOT) will grow its revenue by three-fold over the next decade with increased market penetration and more countries under geographical expansion. The thesis suggests that Spotify should expand its gross margins, broaden its product choices, and deal with an increased customer base.
Advertisement represents 10% of the firm’s total revenues and is one of its most underappreciated parts. Nevertheless, it will be “a key driver of the upside opportunity for the company’s financials,” according to the report.
