Dive Brief:

• Spotify unveiled an audio advertising marketplace as it simplifies the process of running campaigns across its properties, according to a blog post and announcement at the platform's Stream On event.
• Spotify Audience Network allows marketers to manage campaigns across the streamer's ad-supported music offerings, podcasts and on content from Megaphone and Anchor. The network includes tools designed to engage listeners during screenless moments, as well as targeting and addressability products such as Spotify's Streaming Ad Insertion (SAI) for podcasts.
• Spotify is working to lessen fragmentation in the audio advertising market with the move. At the same time, the platform is adding a self-serve option for podcast advertising to its existing Spotify Ad Studio to attract a wider swath of marketers.

Dive Insight:

Spotify has placed a heavy bet on podcasts in recent years, spending millions to acquire high-profile shows, publishers and production studios in the burgeoning audio space. With the launch of the Spotify Audience Network, the company is hoping to better translate podcasts' popularity into a revenue-generating machine as the format goes through some of the growing pains other digital channels have experienced.

Speaking to how the company has hit the gas on pushing past its music-streaming roots, Spotify estimates it offers listeners about 2.2 million podcasts. Beyond investments in original programming, Spotify has bought publishers Gimlet, The Ringer and Parcast, as well as the production studio Anchor and, most recently, the audio advertising company Megaphone. Megaphone is both a publisher and provider of podcast monetization tools.

Spotify has created some proprietary podcast monetization products. In January 2020, it introduced SAI to provide podcast marketers a better read on ad impressions, frequency and reach, along with anonymized data about listeners' age, gender and device type. SAI is now available on almost all exclusive and original Spotify podcasts in the U.S. and is expanding to the U.K. and Germany, with plans to go live in other markets throughout 2021.

But Spotify's ability to turn podcasts into a significant revenue engine has been called into question by some industry watchers. In a note shared with clients last month, Citi analysts were skeptical about Spotify's podcast monetization prospects, noting that the company's results "did not show any material benefit from recent podcast investments (that began in 2019)," per CNBC.

"If we were to see a material positive inflection in app downloads or Premium subs ... we would alter our view," the analysts wrote. "But, our fear is that if podcasting doesn't provide a way for Spotify to shift away from music label dependence, [Wall Street] may reassess the underlying value of the business."

Still, the audience interest in podcasts is clear. Spotify reported that 25% of its total user base engaged with podcast content in the fourth quarter of 2020 and that hours spent listening to podcasts nearly doubled compared to the same period the year prior.

The Spotify Audience Network looks to address gaps in podcast advertising that have proved frustrating for marketers, including the inability to precisely target audiences at scale, a lack of insights around ad delivery and efficacy and barriers to entry such as high costs and a lack of self-service tools, per the blog post. The network debuts with demographic-based targeting and audience segmentation tools, and intends to add contextual targeting capabilities later in 2021.

"While title-based podcast buying remains an effective way to align with trusted voices, the podcast industry is still highly fragmented," Spotify wrote in its announcement. "This presents a significant challenge for advertisers who want to reach screenless audiences at scale and the vast majority of creators who want to earn more from their work."

Concurrently, Spotify is opening more self-serve podcast advertising options, which could be key in attracting small- and mid-sized marketers that don't have the budgets for large, custom audio campaigns. Spotify last June introduced self-service video ads to its Ad Studio.