Brief:

• Spotify this week agreed to buy podcast advertising and publishing company Megaphone. The deal values Megaphone at $235 million, parent company Graham Holdings said in an announcement.
• Advertisers on Spotify can now target 60,000 different audience segments on Megaphone, which is used by more than 20,000 marketers and publishers, The Los Angeles Times reported. Megaphone has more than 5,500 podcasts on its platform, including those produced by Slate, iHeartMedia, Disney and Vox Media, The Verge reported.
• The deal gives advertisers a way to reach audiences through Spotify's original and exclusive podcasts and expand their reach through the Megaphone Targeted Marketplace, a platform for dynamic, audience-based targeting among podcast apps. Spotify plans to make its Streaming Ad Insertion for targeting available to all podcast publishers on Megaphone for the first time after the deal closes, the company said in Tuesday's announcement.

Insight:

As the audio streaming platform aims to boost ad revenue, Spotify's planned acquisition of Megaphone can help mobile marketers reach the growing audience for podcasts while improving their respective ad targeting ambitions. Combining Spotify's Streaming Ad Insertion technology with the Megaphone Targeted Marketplace, marketers will have more flexibility with audience-based targeting and may strengthen their reach among a wider variety of podcasts. Megaphone, which until last year was named Panoply Media, has developed software tools to provide audience targeting at scale, helping to fill out Spotify's services for marketers.

The deal comes as ad spending on podcasts is forecast to rise 15% to about $1 billion this year, according to the Interactive Advertising Bureau and consulting firm PwC. The percentage of advertisers that added podcasts to their annual media plans had nearly doubled to 47% from a year earlier as more marketers sought to reach the growing audience for spoken-word programming. Spending on podcast ads next year will grow 45% to $1.13 billion in the U.S., eMarketer forecast in a separate report from August. The growth will give podcasts 21% of the U.S. digital radio ad market. The percentage of U.S. consumers who have listened to a podcast grew this year to 37% — or 104 million people — from 32% last year, per a study by Edison Research and Triton.

For Spotify, the Megaphone acquisition is the latest step to evolving its advertising business, which is growing slower than paid subscriptions to its ad-free service. Spotify's ad revenue rose 9% to $185 million in Q3 from a year earlier, though its subscription revenue increased 15% to $1.79 billion, per its quarterly earnings report. Its efforts to monetize podcast programming include an agreement with Omnicom Media Group, which in July agreed to spend $20 million by the end of the year on podcast ad placements.

Spotify also has expanded its podcasting platform through a variety of acquisitions and licensing deals to differentiate its content from rivals like Apple Music, Pandora and iHeartMedia. The company in August signed a multiyear partnership with Riot Games to be the official and exclusive streaming partner for the game maker's "League of Legends" global events, a deal that includes several podcasts. Spotify also inked a multiyear agreement with Warner Bros. and DC to carry scripted podcast series based on the comics imprint's superheroes.

Those agreements followed a variety of acquisitions including its purchase of Bill Simmons' The Ringer network in February to expand its sports and pop culture programming. Before that, Spotify last year acquired Gimlet Media, the home of popular titles like "Homecoming" and "Reply All," podcast production platform Anchor and narrative-focused podcast studio Parcast.