Reviewing Spotify’s New Podcast Ads Announcement

Just going to rip through the latest announcement from Spotify and provide some commentary as I do so. Take from it what you will. The original announcement is here: https://www.spotifyforbrands.com/en-US/news/sai-announcement

Introducing Spotify Podcast Ads

“With a direct connection to millions of podcast listeners, best-in-class content, and a robust monetization platform, Spotify is uniquely positioned to make podcasts addressable for digital advertisers. Spotify Podcast Ads are powered by Streaming Ad Insertion (SAI), which leverages streaming to deliver Spotify’s full digital suite of planning, reporting, and measurement capabilities. Spotify Podcast Ads offer the intimacy and quality of traditional podcast ads with the precision and transparency of modern-day digital marketing.”

I’m on record as saying, for nearly a year now, that the motivation for the Gimlet / Anchor acquisition was about leveraging podcasters’ thirst for exposure to increase listening time, to increase the number of ads served, and to increase company revenue without having to pay for the content responsible for enabling them to do so (podcasts).

Spotify pays musicians. They do not pay podcasters and, frankly, if I may be so bold, I don’t think they ever will. I think even ad-revenue sharing would hurt their sustainability as a company significantly. If a YouTube-esque revenue sharing plan ever comes out, you can be sure that the CPM rate will be as low as it is on that platform — if not lower. Think $3.

On the upside this is great for advertisers. Finally guaranteed placement in front of the audiences they actually want to reach. That’s a checkbox they’ve been waiting for for a really long time.

Moving on…

“Deliver your ads with confidence”

To date, podcast advertisers have had to rely on audience surveys or inferences about the podcast’s content to figure out where to allocate their podcast ad budgets. Spotify Podcasts Ads reach a logged-in user base of millions of listeners. We provide data-driven recommendations and insights to help you reach the right audience.

This is really the crux of the “win” for businesses and brands looking to advertise more efficiently in the podcast space. Spotify has big data, podcasters don’t. Spotify can match ads to the right demographic, podcasters can’t. I cannot understate how big a deal this is for brands. I also cannot understate how much this will undercut podcasters looking to monetize their podcasts via adverts. The direct relationship between advertiser and podcaster is all but dead, as is the podcaster’s ability to demand a high CPM.

This was inevitable of course, responsible brands want to reduce ad-spend risk as much as possible and podcasters aren’t, and never will be, capable of providing the processes or data necessary to accommodate this want on their own.

“Understand the impact of your investment”

“Without knowing who actually heard an ad, podcast advertisers have largely been unable to measure the impact of their podcast advertising through typical digital media practices like brand lift studies or conversion reporting. To date, podcast advertisers have found creative ways to directionally indicate whether their ads resonated through tactics like coupon codes and vanity URLs. With Spotify Podcast Ads, we will be able to tap into our suite of digital measurement capabilities to learn more about how people perceive your brand and take action after hearing your ad.”

Really just reinforcing the last item. You want to reach Millennials interested in conservative politics? You’re no longer targeting a podcast and hoping a high enough percentage of that podcast’s audience is relevant to your message to maintain a positive (and healthy) ROAS. Now you’re saying “play this ad to people you already know are qualified to be interested in it based on all the data you’ve collected on them.”

This changes the entire landscape of monetization efforts for podcasters — again, I cannot overstate it.

There are plenty of reasons for podcasters to feel very angry about this.

Podcasters are creating content for free and struggling to make money doing so. Spotify is leveraging that free content to drive additional revenue. Podcasters are “forced” to list on Spotify for the sake of exposure (which they need if they’re going to grow) because Spotify is already the #1 platform for listening to podcasts in the US and in many other countries. Podcasters cannot afford to boycott Spotify.

All this can feel very Machiavellian, very intentional, very like Spotify is sticking it to podcasters and that they know podcasters aren’t in a position to do anything about it.

But that’s pretty jaded and might not be the case at all.

Probably isn’t.

Hopefully isn’t.

Will Spotify take care of the podcast creators driving their growth? Or will they not?

With Anchor and Gimlet in their pocket, Spotify has a talent farm and a method of grooming good talent into original productions. Those shows have a viable path to monetization: being bought by Spotify — but this is only the path for the best of the best.

What about the hyper-niche creators trying to monetize an audience of 100K or less?

Spotify would need to create a revenue sharing platform that provided a CPM of at least $7 for a podcaster to earn a living off their audience. That would look like this:

1,000 listeners per episode =~$7/episode

10,000 listeners per episode = ~$70/episode

100,000 listeners per episode = ~$700/episode

A weekly podcast would need 100,000 subscribers to earn ~$3K a month or ~$36K a year gross.

Will Spotify do that? Who knows. I’m giving them the benefit of the doubt, I think they will do the right thing and that they’ll do it by the end of 2020. But, even if they do, here’s something you must accept as a podcaster:

Podcasts are no longer (if they ever really were) a viable option for 99% of podcasters to earn a living. If you’re not good enough to be bought as a Spotify Original, if you’re not good enough to amass 100,000+ subscribers (and even if you are, honestly) you need to be approaching your podcast more thoughtfully.

Takeaway: design your podcast as a funnel that leads to your more marketable skills, products, services, or subscriptions.

Write a book, start an online course, leverage your knowledge and skill set, create a master mind… whatever it is, podcasts are not a standalone answer, not anymore.