On Tuesday, Spotify, the audio streaming behemoth, announced another acquisition. It struck a deal to buy Megaphone, a podcast ad tech company that works with thousands of content publishers, including Disney and Spotify itself. The $235 million purchase positions the Swedish company to become a dominant player in the podcast advertising business.
The deal with Megaphone is just the most recent example of Spotify’s aggressive expansion into podcasting through a rapid string of acquisitions. In 2019, it purchased the premiere podcast production network, Gimlet Media, and later snapped up Parcast, which specializes in true crime shows, and bought The Ringer, a media company focused on sports and pop culture. It acquired Anchor, which makes podcast creation tools. And it has cut a series of exclusive deals with top talent, including Joe Rogan and Michele Obama. The company, in other words, is building a podcasting empire, operating as a podcast player, a one-stop-shop for making your own podcast, a top producer of original shows, and now, as a podcast advertising and hosting company.
Spotify’s acquisitions are part of a larger wave of corporate consolidation in the podcast industry, which has long maintained a low barrier to entry, welcomed experimentation, and run on an indie ethos. As tech companies like Amazon and Spotify jockey to become leading podcast platforms, and other media companies, like SiriusXM and iHeartMedia, buy up downstream companies, a looming question is whether podcasting will remain a sustainable business for independent creators and journalists.
That’s why Spotify’s purchase of Megaphone—though less glam than, say, its podcast deal with Kim Kardashian West this June—is consequential. Advertising is the primary source of revenue for many podcasts, so consolidation in that space has ramifications for how the whole industry makes money and who gets how much.
Podcast ad technology has traditionally been less sophisticated than advertising on the internet, where companies can target you with ads based on your sexual orientation, interest in K-pop, whether you’ve been visiting car rental websites, or any number of interests revealed by your devices. Without the tracking infrastructure companies like Google and Facebook, podcasts ads have traditionally been one-size-fits-all-listeners, often read by the hosts themselves, and slotted in before someone starts listening to a show. That method doesn’t provide companies with the fine-grained data they’d like, such as how many people fast-forward through their ads, but market research suggests that podcast ads can be more effective than other forms of advertising. This arrangement has also worked well for creators, who can charge high rates for their direct, intimate pitches to listeners. (On a per-listener basis, ads on top podcasts can cost more than Super Bowl ads on TV in recent years. The Super Bowl, of course, has far more viewers than even wildly successful podcasts).
Megaphone offers a more advanced form of podcast advertising, which can aim ads at specific audiences. It will be even more formidable when it’s combined with Spotify’s massive listener database, which includes details such as when exactly a listener tunes in, their music and podcast listening preferences, their precise location, and even whether someone’s phone is in their hand or in their pocket. Megaphone’s technology will be combined with Spotify’s Streaming Ad Insertion technology, a novel tool that enables the company to insert ads into shows as a listener is streaming (as opposed to inserting them when someone downloads a podcast, which could be days before they intend to hit play). Spotify did not respond to a request for comment on this story.
The combination of the two companies’ services will make podcast ads more like internet ads: personalized to the listener, placed in real-time. The deal will also make Spotify’s Streaming Ad Insertion technology available to the thousands of podcast publishers on Megaphone. Megaphone hosts more than 5,500 shows, and Spotify is home to 320 million monthly listeners, according to The Verge. If that combination of scale, as well as Spotify’s ability to offer more detailed data, draws advertisers to spend their money via Spotify, it could make the platform unavoidable for content creators.
But there’s another reason this deal is important: It echoes a trend in digital advertising that hurt newspapers and magazines. Media outlets were once, of course, the way to reach large, captive audiences, so that’s where companies bought ads, underwriting quality journalism in the process. Then Google branched out from the search engine business and got into digital advertising. It bought up companies such as DoubleClick and AdMob and leveraged the personal data it was vacuuming up across its properties, like Gmail, YouTube, and others, to offer brands the ability to microtarget their ads. Google, and now Facebook, have, notoriously, become the dominant forces in digital advertising, capturing 88 percent of the market’s growth from 2018 to 2019. That growth has come at the cost of advertising revenue for journalistic outlets, which have shed jobs at an alarming rate in recent years.
With its purchase of Megaphone, Spotify is “really reading the Google playbook,” says Daniel Hanley, a policy analyst for Open Markets Institute, a research and advocacy group focused on antitrust. “It’s almost word for word. It’s kind of crazy.”
Much as consolidation in digital advertising hurt journalistic outlets, there’s concern that targeted advertising in podcasting, concentrated in the hands of a few companies, could have a similar effect on podcast creators. Spotify, for its part, claims the deal will help, not hurt, podcasters. “With this acquisition,” the company said in a statement, “we’re helping podcast publishers earn more from their work—while also helping advertisers connect with engaged podcast audiences.”
That may be true. Spotify’s technology could be a boon to your microbrewing podcast or your crafting talk show, for now. But as a streaming platform and mobile app, Spotify has far more personal data on users than its ad tech competitors could ever have—that is until Google and Amazon get into the business. The next podcast-obsessed Texas Tech grad who launches a podcast ad tech company might be crushed by Spotify’s data advantage. And if the platform is able to crush its competitors—or even just shrink the market to a few big players—podcasters could see a decreasing share of the spoils of each ad sale. That concern may seem several steps ahead of the ball, but then again, few predicted that Google would morph from a search engine company into a digital ad giant when it bought its first ad tech company.
Before the Megaphone deal is complete, Spotify will likely have to get the Federal Trade Commission’s approval. That probably won’t be a high hurdle. In rare cases where the FTC has concerns about a deal being anticompetitive, the commission might ask the two companies for more documents to get a better sense of the industry, holding up the sale’s approval. If further examination convinces the FTC that the acquisition is anticompetitive—an incredibly unlikely outcome—the panel could tell Spotify it must sell off part of its business in order for this deal to go through, or it could take the company to court to prevent the purchase altogether.
Antitrust enforcement isn’t as vigorous as it used to be. Forty years ago, before the Reagan era began, the thinking was that agencies shouldn’t wait to take action until an industry becomes highly consolidated, they should actively try and maintain markets with vigorous competition. In the 1960s, for example, the Supreme Court blocked a merger between two grocery store chains in Southern California because combined, they’d have had a market share of about eight percent in the Los Angeles area. That precedent has largely been ignored since the early 1980s but never overruled.
During his first term, Joe Biden will have a chance to change the balance of power at the FTC by appointing another commissioner. (Currently, the agency has three Republican-appointed commissioners and two appointed by Democrats. Biden will be able to flip that ratio, with three Democratic appointees). The Democrat-appointed commissioners currently seated have been calling for more active antitrust enforcement.
Spotify is not the only company to look for gold in podcast advertising and publisher-side analytics. SiriusXM bought SimpleCast, a podcast management and analytics company; snapped up AdsWizz, a podcast ad tech company, via its purchase of Pandora; and acquired Midroll, a podcast ad tech company, via its purchase of Stitcher. iHeartMedia bought VoxNest, a company that offers podcast analytics and programmatic ad tools.
Acquisitions by these players happen against a backdrop of moves by even larger titans. Amazon, for example, is fashioning its audiobook company, Audible, into a podcasting network. It’s also turning its Spotify-like streaming service, Amazon Music, into a purveyor of podcasts linked up to its popular line of smart speakers. Apple, whose product begat the term “podcast”—a portmanteau of iPod and broadcast—in the first place, is also a major player. It not only has its Podcasts app pre-downloaded on millions of iPhones, but it also purchased a podcast recommendation software company, Scout FM, in September. Since it’s already making feature films and series through AppleTV, the world’s most highly valued company is bound to end up producing its own podcasts, as well as owning the platform and hardware on which they play.
“We’re witnessing the foreclosure of this really dynamic industry that’s open and accessible,” says Hanley. We’re “really seeing it consolidated into the hands of just a few players.”