In a deal that values the acquisition at $235 million, Spotify Technology SA agreed to acquire Megaphone, which creates tools for podcast advertisers.
Founded by the Slate online news company, Megaphone links advertisers' networks to podcast publishers such as Vox and ESPN. Spotify will use the Megaphone network and tools to offer thousands of additional podcasts with its advertising technology. Spotify is now trying to line up more ads after building up its podcasting operations, helping it justify investing in a still-nascent genre. More than $800 million has now been spent by the music streaming giant acquiring podcast companies, including Gimlet Media, Anchor, and the Ringer, aiming to reduce its dependence on record companies.
According to the Interactive Advertising Bureau, podcasts generated $708.1 million in advertising sales in the U.S. last year. Every year, that number has grown and should surpass $1 billion in the next year or two.
Spotify and its investors have been betting that podcasts will have a substantial long-term payoff. The audience for podcasts is growing, while the radio audience is shrinking, generating more than $10 billion in U.S. advertising sales. That potential has helped drive up 83 percent of Spotify shares this year.
Major companies in advertising are just beginning to experiment with podcasts. Only after downloading them do most people listen to podcasts. So podcast distributors struggled to tell advertisers when or if anyone was actually listening to their spots. Spotify says it can do just that, and that its technology will enable marketers at the right time to insert the right advertising.