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By tech and by acquisition: inside Spotify's podcast expansion plan

To celebrate the Digital Transformation Festival, The Drum is revisiting some of the best writing we’ve published on marketing innovation. Here, we take a look at Spotify's big podcast push, and its plans for monetising podcasts on its platform.

Spotify’s big podcast bet hinges on growing its stable of original content while hoping other podcasters will put their inventory in the hands of a competitor.

As of the audio streaming giant’s 5 February earnings report, Spotify has over 700,000 podcasts on its platform.

That number is set to grow once Spotify closes on its acquisition of The Ringer, which boasts an array of popular podcasts, at the end of the first quarter for between €130 to €180 million ($141 million to $196 million).

“We're making aggressive strides in that marketplace,” Spotify global head of advertising sales Lee Brown tells The Drum.

Podcasts expose all of Spotify’s 271 million monthly active users, whether or not they use the ad-free version of the platform, to ads. Over half of Spotify’s users are on the ad-supported tier, but only 12% of the company’s overall revenue comes from that set of users.

Over the last year, the Swedish-based company has bought The Ringer, Parcast, Gimlet and Anchor. Depending on final considerations and deal incentives, Spotify is set to invest around $582m in podcasting.

Spotify also wants to acquire more podcast companies to grow its output of original and exclusive content, since Spotify doesn’t take a cut of ad revenue from third-party podcasts.

“It's fair to say that we're just very early in the monetization of podcasts overall,” Spotify chief executive officer Daniel Elk said in the company’s recent earnings call.

“And as it relates to third-party content, [as in] content that we've just licensed and put on the service, right now, all monetization is their own, and we're not participating in that.”

Spotify says it has over 200 original and exclusive podcasts, but that’s a fraction of the 700,000-plus podcasts that live on the platform.

“Our studio business is getting started cranking out production for our owned and operated [podcasts],” says Brown.

Enter streaming ad insertion (SAI), a new tool Spotify has introduced to dynamically insert personalized ads into podcasts.

Right now SAI is only available for original and exclusive podcasts within the Spotify platform, but Brown said the hope is to extend it third-party podcasts, finally letting Spotify monetize all podcasts on its platform.

A Spotify spokesperson said the company is currently focused on testing SAI with its originals and exclusive podcasts, and will "continue to explore" other possibilities for the product.

Brown says the goal is to move beyond the traditional podcast model of downloading a piece of content with ads permanently “burned into” them, to one that takes advantage of the capabilities of streaming.

“That's the model that we're innovating,” says Brown, who joined Spotify last September following the departure of former sales boss of Brian Benedik.

But like Google in digital and Xandr or FreeWheel in video, Spotify will face questions over competitive separation of podcast advertising. Why would a third-party podcaster use SAI when Spotify has its own podcasts to push?

“How many third-party shows are going to turn to them to help monetize that inventory when they're going to be competing against Spotify at the same time?” asks Stephen Smyk, senior vice-president of podcast and influencer marketing at audio agency Veritone One.

Spotify declined to comment on this potential conflict.

To do SAI with host-read ads, the host would have to prepare a handful of reads that need to be seamlessly inserted into the podcast without disrupting the intimate feeling of a live ad read.

“If you have a really great editor, and you have a host that's really flexible, you can actually do [SAI],” says Smyk. “It's just very hard to do it well.”