Amazon’s Podcast Move Was Play For Ad Avails

Amazon.com Inc. announced earlier this summer that it had acquired distribution rights to SmartLess, a popular podcast hosted by actors Will Arnett, Jason Bateman, and Sean Hayes. The e-commerce giant will be spending more than $20 million a year so it can offer new episodes of the talk show on its music service exclusively—for just one week—before they’re released on other outlets. Bloomberg reports most outsiders thought Amazon had overpaid.

But, Bloomberg reports,  the company didn’t make the deal for distribution rights. It was far more interested in the right to sell advertising slots during the show. Podcasting differs from most other media businesses, in which such platforms as YouTube or CBS sell the commercials. In podcasting, individual shows and networks sell their own ads. The platforms then distribute the shows with advertising already included—an attractive opportunity for a company trying to catch up with market leaders Facebook Inc. and Alphabet Inc.’s Google in lucrative online advertising.

SmartLess averages from 7 million to 10 million downloads a month, and it was bringing in about $6 million to $7 million a year in advertising before the Amazon tie-up, according to a person familiar with the numbers. While that won’t pay for the deal on its own, it gives Amazon valuable inventory it can add to its expanding podcast network. In December it signed an approximately $300 million agreement to acquire the podcast network Wondery. In addition to producing popular shows such as Dr. Death and Bunga Bunga, Wondery operates one of the largest podcasting advertising networks, selling ads for more than 100 shows that reach more than 8 million listeners a month, according to Podtrac. With the back-to-back deals for Wondery and SmartLess, Amazon has signaled its ambition to become one of the biggest names in podcast advertising.

“To become a player in the audio advertising market for podcasting, we need to be an intellectual property owner,” says Steve Boom, the head of Amazon Music. “The market for audio ads is growing quickly. Consumer behaviors are evolving, and this is a global opportunity.”

When Boom first introduced Amazon’s music streaming service in 2014, his main priority was catching up to Spotify Technology SA. The Swedish company had created a new business model for music, undercutting the two biggest music retailers, Apple Inc. and Amazon. Boom secured streaming rights from music rights holders, hired people to program his service, and started marketing Amazon’s new music platform to potential customers. Amazon Music has established itself as one of the four major services in the U.S. alongside Spotify, Apple Music, and YouTube.

Yet over the past couple of years, Boom watched as Spotify once again changed the game, spending more than $1 billion to transform its music service into a home for all kinds of audio, including talk. In a little over two years, Spotify has acquired studios Gimlet Media, Ringer, and Parcast, as well as rights to dozens of original series. It also invested in advertising tools. As a result, ad sales, long a tiny part of its business relative to subscription revenue, has swelled to hundreds of millions of dollars a year. That puts it in the running to become the biggest player in online audio advertising, especially since Apple, the biggest player in podcasting, doesn’t sell ads, though it did just start enabling creators to sell premium subscriptions.