Here’s Why Spotify Spent $235 Million To Acquire Megaphone

Another day, another Spotify acquisition. This time, it’s podcast advertising platform Megaphone, which the music streaming giant announced it was buying earlier today, in an attempt to beef up its advertising chops as it expands its roster of podcast programming.

The acquisition accomplishes a few things for both the buyer and buy-ee. On Spotify’s end, the acquisition allows the major brands currently working with Megaphone to funnel some of their major brand bucks through Spotify’s systems, which will help Spotify pinch off a bigger chunk of the roughly $1 billion dollars worth of podcast advertising expected to be spent by the year’s end. Thanks to the acquisition, Spotify’s podcasters will also get the ability to “opt in” to having their shows monetized.

Aside from opening those floodgates, podcasters currently monetizing through Megaphone will get access to Spotify’s proprietary ad-serving system, called Streaming Ad Insertion, to target listeners with ads served in real-time, based on everything from the artists that they stan to their zip code or gender. This ad-insertion tech also tracks how many people hear these ads, and how often a single person tends to hear them.

As is the case with most things adtech, it can be a bit tricky to wrap your head around why a podcast-based-ad-platform like Megaphone would be worth much of anything, let alone the reported $235 million dollars that Spotify paid in the deal. In short, the answer is data. Back in 2017, Megaphone—then called Panoply—partnered with the data brokering giant Nielsen to become one of the first companies that gave podcast advertisers the same, well, kinda creepy targeting abilities companies had everywhere else on the web. If an advertiser wanted to know what podcasts a middle-aged divorcée in Utah was listening to while she drove out to buy groceries, chances are, Megaphone would be able to suss it out with the tens of thousands of bits of data it collected across the over 900 shows that were plugged into its platform, as of the middle of last year.

Spotify largely allowed its users to be tracked and targeted based on the genre of podcasts they listened to until now—but even that was pretty basic, at least according to Spotify’s own description. On its own, Spotify might be able to tell advertisers that I was the type of person who binged comedy- and history-related podcasts on the regular, but any other demographics were typically inferred. Acquiring Megaphone is Spotify’s way of collecting more precise data on its rapidly growing listener base, so that base can be better targeted by data-hungry troves of high-paying advertisers.

Podcast ads were a big motivator behind some of Spotify’s other recent acquisitions. Last year, when the company bought out the podcasting companies Gimlet Media and Anchor in a single-day, $343 million dollar splurge, analysts pointed out at the time that because there’s a top-shelf podcast for just about any imaginable niche out there—from true crime to comedy to breakfast enthusiasts—buying out these companies gave Spotify’s advertisers a fast pass to reach those audiences and more. The same could be said of The Ringer, another big-budget acquisition on Spotify’s part, which reportedly cost the company upwards of $196 million.

While this changes little for users in terms of the content they have available, the Megaphone acquisition clarifies how to think about Spotify overall: It’s quickly becoming an advertising behemoth—less the Netflix of audio and much more akin to Facebook or Google for your ears.