Spotify Agrees to Buy Podcast Ad-Tech Company for $235 Million

(Bloomberg) -- Spotify Technology SA agreed to acquire Megaphone, which creates tools for podcast advertisers, in a deal that values the acquisition at $235 million.

Founded by the online news company Slate, Megaphone connects podcast publishers such as Vox and ESPN with networks of advertisers. Spotify will use Megaphone’s network and tools to offer its advertising technology to thousands of additional podcasts.

After building up its podcasting operations, Spotify is now trying to line up more advertising — helping it justify the investment in a still-nascent genre. The music streaming giant has now spent more than $800 million acquiring podcast firms, including Gimlet Media, Anchor and the Ringer, aiming to decrease its reliance on record companies.

Podcasts generated $708.1 million in advertising sales in the U.S. last year, according to the Interactive Advertising Bureau. That number has grown every year and should surpass $1 billion within the next year or two.

Spotify — and its investors — have been betting that podcasts will have a significant payoff in the long run. The audience for podcasts is growing while the audience for radio, which generates more than $10 billion in advertising sales in the U.S., is shrinking. That potential has helped drive up Spotify shares 83% this year.

Major advertising companies are just starting to experiment with podcasts. Most people listen to podcasts only after downloading them. So podcast distributors have struggled to tell advertisers when — or whether — anyone actually listened to their spots. Spotify says it can do just that, and that its technology will allow marketers to insert the right commercial at the right time.

Spotify shares fell as much as 3% to $266.11 in New York trading Tuesday. Graham Holdings Co., the parent of Slate, rose as much as 2.2% to $445.

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