By Anne Steele
Spotify Technology SA has launched a new digital tool that for the first time will let advertisers know how many people heard a given ad in a podcast, as the streaming giant continues its push into a rapidly growing business that has struggled to produce reliable data on listeners.
The largest music-streaming platform globally has been investing heavily in podcasting in an effort to keep its users engaged, lure listeners from radio and increase profit margins. Podcast content is generally cheaper to license than music. Spotify is the second-largest podcast platform behind Apple Inc., and last year acquired a trio of podcasting companies for $400 million.
U.S. ad revenue from podcasts was estimated to grow 42% to $678.7 million last year, according to the Interactive Advertising Bureau and PricewaterhouseCoopers LLP, and is projected to top $1 billion by 2021.
Spotify reported podcast consumption on its service rose 39% from the second quarter to the third quarter last year.
For years the podcast industry has measured audience and reach through the number of times an episode is downloaded and with survey data. While a key measure of popularity, a download doesn't necessarily mean a consumer listened to a podcast, and most services make it easy to skip through ads. Though advertisers have been flocking to podcasts -- particularly for ads read by hosts -- specific data on the performance of those ads hasn't been widely available.
Spotify's new offering, called Streaming Ad Insertion, operates much like the ads on the company's free music tier.
Podcasts have been delivered traditionally by downloads, making specific data collection about the ads in them nearly impossible.
By delivering ads via streaming, Spotify is able to track more precisely the number of impressions and frequency, as well as audience insights including age, gender, listening behavior and the type of device a consumer heard the ad on.
The technology is available initially only for Spotify's original and exclusive podcasts in the U.S. The company made nearly four dozen deals last year for such content, according to a person familiar with the matter.
The company expects the move to help podcast creators better make money off their work.
Spotify tested the technology with footwear brand Puma SE on host-read ads during its podcast "Jemele Hill Is Unbothered." The company said it was able to track a significant increase in the number of listeners who were able to recall the ad -- an important measure of effectiveness.
Bre Rossetti, executive vice president of strategy at Havas Media Group, which tested the new ad tech with Puma, said there has been a misalignment between consumer time and ad dollars spent on podcasts -- not because advertisers don't believe that consumers are listening, but because the proper targeting and measurement technology hasn't been there.
"It's solving for something that is desperately needed in podcasts which is transparency when it comes to targeting and measurement. In some ways we all expect this from podcasts because they are a digital medium, but to date it just hasn't existed," she said.
Spotify said it will explore rolling out the new ad tech more widely -- outside the U.S. and to third-party podcasts.
The launch follows a year in which large media companies including iHeartMedia Inc., Sirius XM Holdings Inc. and Entercom Communications Corp. made big bets on podcasting.
Write to Anne Steele at Anne.Steele@wsj.com