Since the start of 2019, global audio-streaming company Spotify Technology (SPOT 2.24%) has been making a huge push into the world of podcasting, and it seems for good reason. In the last three years, the number of podcast titles on Spotify has increased nearly 20-fold, and the segment is quickly becoming a meaningful contributor to the company's overall revenue.
To help propel this segment even further, Spotify just announced that it has acquired two more podcast-related companies in Chartable and Podsights. Let's see why they did and what it could mean for investors.
Enhancing both sides of podcasting
Before diving into how each of these acquisitions could benefit Spotify, it's worth understanding what both businesses do.
Chartable is a premier analytics platform for publishers in the podcast industry. Chartable has some big-name customers like Vox Media and iHeartMedia's iHeartRadio, and it helps podcasters make better sense of their data through its freemium model. On the free side, podcasters can get access to their category-specific rankings across more than 150 countries. And on the paid side, Chartable provides tools so that publishers can leverage their data to help grow their audience.
The two tools that Chartable provides for its premium users are SmartLinks and SmartPromos. SmartLinks are clickable URLs that enable podcasters to track where their listeners come from, and SmartPromos are podcast-to-podcast promotions that help publishers get exposure to a bigger audience. While these are two different functions, both ultimately have the same objective: help publishers grow their shows.
Unlike Chartable, which primarily serves publishers, Podsights is designed to help the other stakeholder group within the podcast ecosystem: the advertisers. Podsights helps advertisers measure their podcast marketing campaigns in a number of ways. While this might sound like a simple service, it has historically been a major pain point for the industry. According to Spotify's press release announcing the deal, "Measurement and attribution remain the two biggest unsolved challenges for podcast advertisers."
Since podcasts don't have cookies like traditional digital advertising, Podsights is able to provide value by blending together various different signals to tell advertisers how effective their marketing campaigns are.
Why does this help Spotify?
At Spotify's February Stream On event, the company introduced a first-of-its-kind digital audio advertising marketplace called the Spotify Audience Network (SPAN). It allows advertisers of any size to run targeted audio ads on podcasts and over Spotify's ad-supported music. And in order to grow this marketplace, Spotify has two major points of focus: build tools to help podcasts grow, and connect advertisers with their right audience.
In its press release, Spotify said that it plans to integrate Chartable directly into its own podcast distribution platform, called Megaphone. With Megaphone, podcasters get to distribute their shows to all the major listening platforms and can easily plug in advertising slots for the Spotify Audience Network. Now, with Chartable's audience insights included in the service, the announcement said, Megaphone will be a one-stop shop for publishers to "create, monetize, and measure their podcast businesses."
On the advertising side, Podsights should enhance the experience as well. Spotify's advertising marketplace already allows brands to target listeners, and now with greater measurement tools, those advertisers will also have a better sense of their campaigns' effectiveness. By knowing which channels generate the best return on dollars spent, advertisers will likely be willing to spend more within those successful channels.
What does this mean in the long term?
While it's difficult to determine whether or not these were sensible acquisitions given that the terms weren't disclosed, it seems like each business should provide some improvement to Spotify's podcasting efforts for both publishers and advertisers.
Although subscriptions still account for the lion's share of Spotify's revenue, advertising is quickly becoming an impressive business in and of itself. Spotify generated roughly $1.4 billion in ad-supported revenue in 2021, which is a 62% increase from the year prior. CEO Daniel Ek expressed his optimism for this segment during the company's third-quarter conference call when he stated that he believes it could potentially account for up to 40% of revenue within five to 10 years, up from 15% in the most recent quarter.
Though Spotify's podcast business is still fairly young, the opportunity here is quite large. According to eMarketer, "U.S. digital audio advertising revenue is poised to grow to nearly $8 billion -- and of that, $2.7 billion for podcast advertising alone -- by 2025."
With Spotify's more than 400 million total monthly active users and its one-of-a-kind audio advertising marketplace, it seems there might be no company better positioned to capture this rising market opportunity.