In November 2020, Spotify acquired Megaphone for $235M. Megaphone not only hosts podcasts but operates a system that sells and inserts ads into podcasts as well. It's just one of several acquisitions Spotify has made in recent years, but it's especially important to the future of podcasting as it strengthens the company's ability to insert dynamic ads into programming.

Shortly after the acquisition, Inside Podcasting's Shreya Sharma spoke with Bryan Barletta, author of Sounds Profitable, a weekly newsletter covering adtech in podcasting.

Below is that interview, edited only for space and clarity.

Inside Podcasting: Why is Spotify buying Megaphone a big deal?

Bryan Barletta: We're looking at an acquisition worth $235 million, nearly double what Spotify paid for Anchor. This legitimizes podcast adtech prices and data.

Next, we have Spotify connecting the dots with everything. They own entry-level publisher Anchor, which is the TikTok of podcasting. And now they own Megaphone, which is on the higher end of the spectrum.

If the rest of the podcasting world disappeared right now, Spotify has a full solution. From creation to monetization, they have every step in the process available to them.

Then there’s Spotify’s SAI ad insertion, available only for podcasts that are served in Spotify, compared to Megaphone’s DAI which is available for shows outside the app.

Inside Podcasting: What are DAI and SAI?

BB: Dynamic Ad Insertion (DAI) is a combination of multiple files. The show is the first part, the specific ad being the second, then back to the content, and so on. It's like creating a unique playlist of content and ads for every listener but sending it to them as one MP3.

A user (listener) requests an episode by downloading, streaming, or pressing play. The host receives user info and inserts ads based on location, demographic data, and other criteria. In case of a DAI placement, the ad is placed at the time of episode download, not when the listener gets to the ad break.

Streaming Ad Insertion (SAI), on the other hand, places ads in real-time, when the episode is being streamed. Only when the listener gets to that specific spot does Spotify pause the episode and make an app-based call on which ad should play.

SAI monetizes the podcast like an app, while DAI monetizes the podcast like a podcast.

Inside Podcasting: How do they work?

BB: In the case of DAI, Megaphone makes the complete decision on which ad gets served at the time of download, regardless of podcast player.

But take, for example, that we're listening to a JRE episode on Spotify before it goes exclusive. (Note: Since this interview was published, "The Joe Rogan Experience" has officially become exclusive to Spotify.) Megaphone, as the hosting provider, when it receives a request for an ad, will see it's from Spotify and not fill any of the ads. This is SAI.

Megaphone will pass the episode over to Spotify and tell them there are four slots at whatever minute markers. Spotify thus gets precedence on the ads played via Megaphone.

One can reach every single download with IP-based targeting. The other can reach only Spotify listeners if the podcast is hosted by Megaphone, but has more granular listener data than IP.

Inside Podcasting: Is one superior?

BB: I don’t think so. SAI legitimizes DAI. Spotify’s acquisition of Megaphone is them accepting that SAI's reach is limited.

P.S. - Bryan and Shreya recommend this "a16z" episode, featuring Spotify’s chief R&D officer Gustav Söderström, discussing how players in the audio space might evolve and "disrupt themselves."

Inside Podcasting: What does this mean for listeners, creators, and advertisers?

BB: For listeners, Spotify has taught us that podcasting, as an entity, has ads. Spotify Premium users should wonder why there's an ad in the podcast. But typically, they don't. They know that podcasting has ads and identify the fee as part of Spotify's paid music service. (P.S.: A reminder that host-read ads work.)

For creators, I think every creator should align their tech stack with their goals. If the goal is to make money fast, creators should be considering Megaphone. If they do care about tools, they might consider evaluating a platform that better utilizes programmatic advertising.

For advertisers, every advertiser should spend some money on Spotify to figure out what it has, what its limitations are, and how it fits for them.

Shreya Sharma is a podcast geek and digital marketing strategist. She loves storytelling in all forms but podcasts are her favorite. Someday, Shreya plans to create her own podcast on classic rock. Follow her on Podyssey and Twitter.