Podcasts have become a powerful tool for reaching audiences and have driven a renewed interest in audio. But for companies that are creating them, the questions remain: Do they make money? And are they worth the investment?

During Tuesday’s INMA Product and Data for News Media Summit, Michael Villaseñor, director of product design at Spotify, looked at the power of podcasting and shared some of the tools Spotify has created to help focus on growth.

“We’ve reached this critical inflection point with podcasting,” he said. “Podcasts today reach about one in three Americans every month.”

The average listener spends about 48 minutes per day listening to podcasts. Spotify has continued expanding its content inventory in the past few years and is looking at how it can help creators not only create content but also help them publish and monetise their content better. 

The market has matured to the point that Spotify no longer looks at it as a new business but as a core business.

“Now it’s about looking forward and saying, ‘Well, how do we really make this not only valuable to Spotify, but more valuable to the people who are contributing’ — whether it be from a publisher standpoint on inventory or an advertiser standpoint on monetisation.”

Podcasts tend to attract a younger, more educated, and more affluent audience, and that audience has a high level of trust in what they’re hearing. Another bonus is that podcast listeners tend to give their full attention to the episode and have shown to have higher trust in the ads that they hear. 

That’s an important distinction Villaseñor said Spotify wants to leverage: “We want to make sure that we’re driving a valuable audience [to listen to a podcast], creating an engaging environment, and then driving action. Because I think ultimately that’s what everyone’s looking for.”

Transforming the podcast space

Despite high rates of engagement in podcasts and an affluent, loyal audience, podcast advertising hasn’t gained the traction one would expect. In 2020, podcasts represented less than US$1 billion — or just .6% — of the entire U.S. media ad spend.

“We’ve identified that as not only, well there's an opportunity here, but [also are asking] why is that?” Villaseñor told summit attendees. Spotify decided to lean into three core areas of the business to answer three pieces of feedback it received from advertisers:

• The inability to target audiences with precision at scale.
• Limited insight in understanding of ad delivery and efficacy.
• Barriers to entry, such as a high minimum spend or a lack of self-service options.

Three solutions

The solutions Spotify created for each challenge was:

1. Spotify Audience Network, which Villaseñor called the company’s equivalent of the marketplace. The concept is to provide a space that invites creators to publish content and also allows advertisers a space for matching with that content. It looks at the contextual signals within the episodes and also provides the advertiser with information on geographics, demographics, and audience match. 

“So all of this data is combined with all this awesome opportunity for there to be a transaction in this marketplace,” he said.

To improve those matches between content and advertisers, Villaseñor said Spotify is investing heavily into machine learning and AI so it can better transcribe episodes and look at key words within it to do a better job targeting the right demographic. 

2. Streaming Ad Insertion, which allows for the addition of ads at the point of listen. It gathers specific information from the time of the download or stream, such as the IP address, and Spotify then matches the request information with information provided by Nielsen and is able to serve relevant ads to the listener. This, he said, “allows us to have more integrated, more real-time ad insertion that aligns more closely to the listener and what the listener may be expecting.”

This model is a big leap from the current industry standard, dynamic ad insertion, in which advertisers have limited information available to them beyond how many times the ad was downloaded in a specific podcast. The new approach means advertisers can access better measurement, reporting, and improve digital planning. They can view campaign metrics and audience insights based on those ad impressions.

3. Megaphone, a Spotify product that compiles and shares the insights in a way that lets publishers understand the data and make tweaks to improve their advertisers’ performance. Villaseñor said he sees a tremendous opportunity for publishers and advertisers alike: 

“There’s so much goodness within the audio space that has been untapped,” he said. “We're at a moment where the audio space is truly in an opportunity to catch up. And I think as publishers, as advertisers, as content creators, the one thing that’s been lacking within this space is true transparency. And so with that, I think there’s a great opportunity.”

The Product and Data for News Media Summit continues on Tuesdays and Thursdays through November 17. Registration continues throughout the summit.

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