Spotify's Plan to Shape the Future of Podcasting

‘Spotify’ is synonymous with ‘music streaming’ these days (we wrote about that right here), but the company’s founders see music as just one component of their future.

CEO Daniel Ek has remarked in the past that, as a platform, Spotify could be used to create and distribute all manner of media. It’s mainly used for music today, but why not music videos or TV shows tomorrow?

The first evolutionary stage of this transition is to go from a ‘music streaming platform’ to an ‘audio streaming platform’.

Spotify sees podcasts as a key growth opportunity for 2020. On its Q3 2019 earning call, Daniel Ek said, “We believe monetization of podcasts remains a huge opportunity, and it is something that we’re going to start looking at in 2020.”

See? I’m not making this stuff up out of nowhere.

In truth, Spotify is already doing pretty well in the podcast game.

It has overtaken Apple as the top podcasting platform, but it still reaches just 14% of its user base with spoken-word content. By the end of 2020, it aims for podcasts to take up 20% of total listening time on the platform worldwide. Spotify already hosts over 500,000 podcast episodes, so quantity is no longer the challenge.

There are some inevitable growing pains for a music streaming site that the nascent podcasting industry can deftly evade.

Spotify pays 52% of revenue generated from a song to artists or record labels, totaling over $13 billion to date. When a company grows to the gargantuan size of Spotify, those margins start to frustrate the money people.

The podcast industry, still in its formative years, is a very different proposition to the music industry. It does not have the same legacy of entangled interests between record labels and artists, and nor is it a global corporate machine. It is certainly getting there, but it still retains some of its homespun charm.

As such, Spotify has moved quickly to secure a number of notable acquisitions, including the podcasting company Parcast for over $100 million in 2019. It is also in talks to buy ‘sports and pop-culture’ content producer The Ringer.

This brings us a little closer to what Spotify is aiming to achieve with its purposeful foray into podcasts. In essence, Spotify wants to shape the podcasting industry, from content creation, through to hosting and advertising.

In music, Spotify has a couple of key advantages, some of which are harder to replicate than others. For example:

- It has over 50 million songs, which is great but can be matched by some rivals.

- It uses data to curate personalized feeds and recommend new music, which is a lot harder to copy.

As a platform owner, Spotify has access to vast repositories of user data. The company’s data scientists use this to great effect with features like the Discover Weekly playlists, but music can be a restrictive business in other ways.

Spotify can see the types of music people like and it can identify shifts in taste. However, it would be a significant leap for them to set up a recording studio and start making tunes. Podcasting is a skill, of course, but its barriers to entry are notably lower.

Moreover, 118 million Spotify users pay a monthly subscription fee (great for the company’s recurring revenues) to avoid advertising (not so good for the ad revenues).

This week’s announcement arrived at the convergence of these particular ‘streams’.

So, what is Spotify Podcast Advertising all about?

Spotify Podcast Ads will use Streaming Ad Insertion (SAI) to create a more efficient, targeted platform for advertisers. Streaming Ad Insertion will place ads within podcasts in real-time, in a similar fashion to Spotify’s music advertising model.

SAI will collect data on how many impressions its ads create, their frequency, and their reach. It will also capture anonymized user data on their device, age, and gender.

There is a catch; Streaming Ad Insertion is only available for shows that are either produced by Spotify or exclusive to the platform.

So, Spotify is buying up popular shows so that they are exclusive to the platform, then sweetening the deal for advertisers by giving them accurate tools to reach their audience through these shows.

In a competitive market with podcast competitors like Google and Apple, it is easy to see why Spotify is taking the ‘belt and braces’ approach here.

YouTube offers a huge reach and advanced audience targeting tools but still struggles to pair the right ads with the right videos. At times, this leads to some very uncomfortable situations, with wholesome products advertised during extreme content.

The core promise of Spotify Podcast Ads is entry-level stuff in modern digital marketing, but it’s actually a big step forward for podcast advertising.

A brief look at the world of podcast advertising

Podcast ad spending is expected to soar past $1 billion per annum soon, even though its current marketing capabilities are limited.

Brands go where their audience likes to hang out and it looks like a lot of people like listening to podcasts these days:

In particular, they like listening to non-fiction programs, although there is a growing market for new, scripted drama too:

There is a strange tendency to group together ‘podcast listeners’ as though they were a homogenous group, cut off from the rest.

Research into this exalted species finds that they are wealthy (37% more likely to earn $100k+ per assum than non-listeners), educated (45% more likely to have a college degree), and young (49% of listeners are aged 25–44). Essentially, they have the luxury of time. Even in some offices, people can listen to podcasts as they go about their business.

These podcast listeners tend to own a smart speaker, watch Netflix, and have a paid music subscription.

It is a frustrating riddle for brands. These are the exact people they want to speak to, but they can’t reach them. This audience watches less TV, listens to less radio, and own smart speakers that do not easily lend themselves to advertising.

Do people really want podcast ads?

Podcast ads could provide a timely solution to this conundrum.

The lure for advertisers is self-evident at first glance. Not only is podcasting popular, but it also provides a much higher likelihood that the listener is paying attention. The medium focuses on one sense, after all.

The true picture for advertisers is much more nuanced, however.

There are different ways to conclude the following series of evidence. I would offer:

A young, educated, affluent audience pays for on-demand music and TV, they use ad-blockers on their browser, but they do hear ads on podcasts,

THEREFORE,

They don’t like ads and will block them on podcasts if they can, or pay for premium access to avoid them.

All too often, the flawed, self-serving syllogistic reasoning of digital marketing types leads them to conclude instead:

THEREFORE,

We will use data-driven targeting to reach our core audience segments at these high-intent micro-moments.

Now, good advertising works. Even bad advertising can work. But recent history suggests brands will get too excited about the opportunity to speak to their audience, losing sight of the fact that the audience has a choice today.

Fortunately, there are a few examples that suggest this is not an inevitability.

Mailchimp was an early sponsor of the hit true-crime podcast Serial and reaped the huge, cost-effective rewards. The partnership is already a marketing case study and shows how brands can use audio creatively. However, such finds are rare and they require a level of commitment from the brand to make them work.

Bigger companies have invested in their own shows, with sometimes impressive results. eBay’s Open for Business has been a huge success, for example. Nonetheless, just 6% of podcast listeners say they listen to corporate podcasts and the content needs to be particularly engaging to encourage them to buck that trend.

For most businesses, advertising across a range of already-popular shows is the easiest and most reliable way to take advantage of the podcasting boom.

The ad formats available today (handily displayed in the graphic from Marketing Dive below) should be familiar to many of us:

On platforms like Spotify, they can buy ads in bulk, or they can work with individual shows to strike deals.

There are limited options for tracking the impact these ads have on sales. Generally, there are three ways to do so:

• Promo codes: A specific word or phrase that is entered into a website’s checkout screen to track if a podcast generated a sale.
• Vanity URLs: A specific website link that allows advertisers to count how many visitors a podcast drove.
• Checkout surveys: A question posed during a payment process to determine whether podcasts sponsorships created sales.

The content of these ads is typically rather retro, to put it politely.

Much of it reminds me of this classic bit from Frasier, the sitcom for sophisticates. It’s hard to believe that was only in the 90’s — you’d never, ever get away with that now, which is probably fair enough. (Bonus clip for the real Frasier fans out there.)

On Spotify podcasts, the hosts read out prepared statements about their supposed affection for the product in question. Influencer advertising is annoying, but at least you normally get a nice picture to look at along with the corporate promotion.

Very little has changed from the ads I used to hear on Belfast radio stations in the 1990s. If it ain’t broke, I suppose.

In summary: Spotify and Podcasts

Spotify’s pitch to improve podcast advertising is simple, in theory: The mass reach of radio advertising, with the accurate targeting of digital marketing. Yet, it is not the only company that could offer this.

Google is working to transcribe podcast episodes automatically and include the content within its search index.

There are already links to podcast episodes within search results today:

By confining its new advertising capabilities to platform-specific podcasts, Spotify will create an appealing offering for brands that Google cannot immediately imitate.

This is just the beginning, however. Next, Spotify must provide new advertising formats and content creation tools that allow brands to engage with their audience appropriately.

US-based music streaming company Pandora offers a glimpse at the future of digital audio advertising. It has trialed conversational ads that allow the user to ask for more information or skip the message.

This example doesn’t paint it in the greatest light, admittedly:

But you can imagine that brands could do something a little more inventive with the format.

We can see that the podcast industry is quite some distance from where it could be within the next few years.

Spotify’s ambition is to help create that future, dictating the terms of how content is created, distributed, and measured. This is a marked positional shift for a platform owner, akin to Netflix’s move into content production.

It will also prove fundamental in Spotify’s aim of moving beyond music streaming, to become an all-encompassing entertainment platform.