Can Spotify Revolutionize Podcast Ads?

When Jemele Hill first launched her podcast exclusively on Spotify in April 2019, the moment marked a new chapter for both parties, though neither could have known it at the time. Just two months prior, Spotify had declared itself an audio company for the first time, officially expanding its mission beyond music and signaling its investment in podcasting. Hill, meanwhile, had recently left her job of 12 years at ESPN, where controversy surrounding remarks she made about then-President Donald Trump and Dallas Cowboys’ owner Jerry Jones dogged her departure. Both were looking for a breakthrough moment, and they hoped to find it in each other. The partnership proved fruitful. In the three years since, Hill has cut more than 194 episodes of her podcast, Jemele Hill Is Unbothered, interviewing celebrity guests and newsmakers including Mary J. Blige and former Georgia Rep. Stacey Abrams. The series blends journalistic rigor with cultural commentary, a combination Hill, who doubles as a contributing writer for The Atlantic, has built her career on. Last June, Hill broadened her relationship with Spotify, launching a podcast and production company with audio platform The Unbothered Network. Two podcasts, Sanctified and The Black Girl Bravado, will begin airing exclusively on Spotify through the network this fall, and the fourth season of Jemele Hill Is Unbothered debuts this August. Podcast ads are going to be a more prominent part of our ads business.Dawn Ostroff, chief content and advertising business officer, Spotify As Hill has honed her new role, Spotify has evolved alongside her. The company that music streaming built has been retooling itself to meet the needs of podcast creators. Led by chief content and advertising business officer Dawn Ostroff, Spotify brought in executives like Julie McNamara from Paramount+ to serve as its new head of talk studios and help streamline production of original programming. It also embarked on a spending spree, devoting more than $1 billion to a series of blockbuster acquisitions and exclusive licensing deals that brought top talent, technology and programming to the platform. In October 2021, Spotify officially surpassed Apple in podcast listenership for the first time, placing the company at the forefront of the industry. “Podcast ads are going to be a more prominent part of our ads business, and that has been a huge focus for us,” Ostroff told Adweek. “As we grow those parts of our business and invest in our ad-tech stack, you will see not only our ads business grow, but the industry as well.” While Spotify has established itself as the preeminent force in podcasting, the industry still lacks much of the infrastructure it needs to support a robust advertising business. For instance, although Spotify boasts having 4.4 million podcasts on its platform, only 14% of them currently earn the company any money. Other challenges, such as the complex task of bringing brand safety to audio content, also remain unsolved. Meanwhile, as it races to build the ecosystem it hopes to dominate, the publicly traded company has faced mounting scrutiny from shareholders. Spotify has never turned an annual profit, and the amount of capital it has invested in its push into podcasting nearly outstrips the size of the market itself (podcasting only surpassed $1 billion in total advertising spend last year). These factors, coupled with a broader economic pullback, spooked Wall Street, sending Spotify stock plummeting in early August to an all-time low of $113 per share. To appease investors, recoup its investment and justify its expanded direction, the company needs to overcome the technical limitations holding the medium back. For Spotify, and for the millions of audio creators like Hill who rely on it, the future of podcasting depends on it. What Spotify sees in podcasting Although Spotify has spent heavily to improve its podcasting arm, the company still makes the vast majority of its money via subscription revenue and ad-supported music streaming. In its July quarterly earnings, Spotify reported total revenue of $2.93 billion—$2.56 billion from subscriptions and $368 million from advertising. Still, the company sees podcasting as integral to its future. The channel offers Spotify a line of business with far more lucrative margins than music streaming, where rights holders whisk away 66 cents of every dollar the company earns. In 2019, chief executive Daniel Ek predicted that, over time, 20% of all listening on the platform will come from non-music content. In the first quarter of 2022, podcasting accounted for 7% of total listening hours. The gradual uptick in listenership has encouraged marketers to devote a larger share of their spend to the medium. In 2020, Spotify signed an advertising deal with Omnicom Media Group worth $20 million, and the two struck an identical deal focused on the European market this June. In 2021, Spotify generated $215 million in ad revenue from its podcasts. My focus is building a network for Black women. I have way too much at stake to leave.Jemele Hill Although the market is small compared to other channels, podcast advertising is unusually effective. The intimacy the medium affords, combined with the level of intentionality it requires to tune in, creates a highly desirable audience for marketers. Two in five podcast listeners have bought podcast merchandise, according to measurement firm Luminate, and 35% of listeners intend to purchase a product or service they hear about on a podcast. This level of performance, combined with the expanding footprint of the medium—38% of U.S. adults, or roughly 109 million people, listen monthly—has accelerated its growth. Podcast advertising will top $2 billion this year and $4 billion by 2024, according to a May report from the Interactive Advertising Bureau. Flurry of ad-tech innovation and acquisition Despite the rise in podcast ad spend, Spotify faces a number of challenges in its quest to turn the channel into a profit center. Last year, for instance, podcast advertising accounted for only 2% of its total revenue. To bolster these figures, the company has invested heavily in its ad technology infrastructure. In January 2020, it unveiled streaming ad insertion, a technology that enables marketers to measure ad campaigns with sophisticated metrics. In February 2021, it unveiled its audio marketplace, the Spotify Audience Network. “Advertisers were worried about podcasting because they didn’t know what shows to work with,” said Lee Brown, Spotify's global head of advertising business and platform. “But with the Spotify Audience Network, they can now buy audiences across podcasts.” In January, it launched its call-to-action cards, which allow clickable ads to linger for seven days in specific areas within the Spotify app. And in February, it acquired Podsights and Chartable, bringing their measurement and analytics insights in-house. Spotify has built out these capabilities during a time of transformation in the marketing world, as a variety of privacy initiatives have rendered first-party data newly critical. Because Spotify users must log in to use the service, the company has built up a wealth of first-party data, allowing marketers to layer that demographic information over users’ listening behaviors. Despite these advances, one unsolved challenge still looms large: brand safety. Marketers want to know the environment their campaigns will run in, but the improvisational nature of audio makes that challenging. To tackle the issue, Spotify has partnered with Integral Ad Science to build a tool that will allow it to classify podcasts based on their content. The unnamed tool, which aims to launch early next year, will score audio content by scanning transcripts of pre-recorded podcasts provided by Spotify, said IAS chief executive Lisa Utzschneider. It will also be highly accurate, Utzschneider claimed, though it faces the improbable task of having to discern subtle nuances based solely on the text of a conversation. “All ad tech is meant to do is sort things into buckets so a human can make an educated decision, at scale, about what they do and do not want to pass through,” said Bryan Barletta, founder of podcast ad-tech publication Sounds Profitable. “But context and bias matter—these tools should never be 'set it and forget it.'” The future of the future of audio In expanding beyond music, Spotify has opened up a number of other potential lines of business for itself. In particular, it has set its sights on audiobooks, a market that topped $1.6 billion in 2021, a bigger pie than podcasting. The company finalized its acquisition of the audiobook distributor Findaway in June, and it plans to unveil an audiobooks vertical in the future. The company sees particular promise in countries outside of the U.S. where the audiobook market is less mature, according to Ostroff. As a natural offshoot of its podcasting business, Spotify has also ramped up its involvement in film and television licensing. It struck a multiyear first-look deal with production house Chernin Entertainment in 2020 and has more than 10 projects currently in the works, including an adaptation of the Gimlet podcast The Horror of Dolores Roach with Amazon Studios and a docuseries on Hulu inspired by the Spotify playlist RapCaviar. In July 2020, Spotify also unveiled a feature that would allow a small number of creators to include video to accompany their podcasts, a response to the growing role video plays in discovery. As the platform continues to evolve, expanding its footprint in channels like video and original programming, the value of creators like Hill will only grow more pronounced. For all of its ad-tech innovation, the future of Spotify still relies on its ability to amplify their voices. “As someone who is both in and out of the Spotify universe, it’s clear that the company has changed a lot since I joined in 2019—and overall, the changes have been good,” Hill said. “My focus is building a network for Black women. I have way too much at stake to leave.”

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Spotify Revolutionized Podcasting. Can It Do the Same for Podcast Ads?

The platform has bet big on creators like Jemele Hill, but all ears are on its ad tech

Mark Stenberg

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