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Spotify Acquires Megaphone, Allowing Insertion of Streaming Ads

On a few short years, podcasts have evolved from a niche form of media. They have become a mainstream activity that occupies valuable time and the attention of consumers. A study from Edison Research found that approximately 80 million Americans now listen to podcasts. Some are listening to more than one podcasts a day. And some are listening to Spotify.

That means an opportunity for advertising revenue. Spotify is the leader in the industry. Recently, Spotify unveiled its strategy to move into the black and profitability: advertising.

Spotify is debuting a multi-faceted advertising suite that has an in-house studio and marketplace.

The acquisition of podcast hosting platform Megaphone for $235 million may have been the final piece of the puzzle. The acquisition will allow Infinity Stone Spotify to push ahead of its competitors.

Megaphone’s platform lets publishers distribute their podcasts to various platforms. These platforms include Spotify and Google Podcasts which allow the insertion of dynamic ads. The key difference is that Megaphone inserts ads at download. In contrast, SAI (Streaming Ad Insertion) on Google Play inserts ads during playback. This enhances Spotify’s targeting abilities and keeps the ads fresh. By acquiring Megaphone, Spotify can offer SAI to more paying customers.

A year back, Spotify announced the new SAI tool that enables it to bring targeted ads to its podcasts. In the past few years, Spotify has spent freely, acquiring podcast production and hosting companies. The Megaphone acquisition is remarkable for its ability to strengthen its SAI feature.

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The company plans to launch three new products to entice advertisers. The audio advertising marketplace, Spotify Audience Network, will connect advertisers to listeners through Spotify’s Originals & Exclusives, Megaphone, and Anchor podcasts, as well as advertising-supported music. Plus, Spotify is currently testing ad-buying through its in-house ad studio. They plan to expand their improved SAI beyond the United States, Canada, Germany, and the United Kingdom yet in 2021.

The news of the SAI adds to the announcement of an approved patent that was filed in 2018 that’s described as, “Methods and systems for personalizing user experience based on [user] personality traits.”

According to the patent, Spotify would be able to assign various characteristics to music tracks, genres, and usage patterns based on a machine-learning algorithm, then match them to “personality traits” like “openness, agreeableness, extroversion, neuroticism, and conscientiousness” to create user profiles. Behavior such as users’ frequency skipping a track or employing the “shuffle” feature will also help the AI in assigning them to a number of predetermined classifications. The AI could then leverage these profiles to provide more “personalized” ad experiences and future content suggestions.

Spotify would determine a user’s “personality traits” by obviously tracking and categorizing their every minute of their time on the app.

There are also unsubstantiated reports of a podcast-specific subscription plan. The patented tool applies the Big Five (OCEAN) personality test often used by employers during hiring processes to assess how users interact with content. This can be used to drive Spotify’s SAI. The company is also eying the film industry, based on its podcast content. They already have a strong relationship with HBO Max.

Spotify will continue to pay attention to its music with the release of new features like lyrics search, and an upcoming Hi-Fi offering.

This is a first-of-its-kind audio advertising marketplace where advertisers can connect with listeners consuming a broad range of content.

It includes Spotify’s Originals & Exclusives, podcasts via Megaphone and Anchor, and ad-supported music. The company says it will leverage its “medium-defining technology to give advertisers the ability to reach our audience of hundreds of millions of listeners — at scale — both on and off Spotify.”

The release is expected in the coming months.

Ryan Carpenter serves as Attorney and Managing Director of Carpenter Wellington. Ryan advises clients across a broad set of corporate and commercial matters.

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