2019 was a breakout year for the podcast industry with major shifts in industry dynamics.
In my October 2018 post “What’s next for podcasting?” I argued that Hollywood’s surging interest in podcasts would bring greater investment in high-production quality shows and gradually realign the podcast industry around paid subscriptions and exclusive deals.
That’s still the direction the industry is heading but it’s not happening overnight and it may look a little different than I initially expected. Here’s a review of the state of podcasting as we conclude 2019.
Corporates vs. entrepreneurs
It is clear that the major music streaming platforms will dominate podcast distribution as well. The crowded landscape of startup podcast streaming apps will fade into 3-5 top platforms, much the same as music streaming consolidated. The top music streaming platforms have the user base and resources to promote podcasts to mass audiences, and Spotify has shown people are fine with both music and spoken audio in the same app. As with songs and videos, the consumer experience with podcasts is defined by the content so minor feature differences between the apps distributing the content are not going to pull consumers away from the audio apps they already use.
This makes podcasting a tough market for VC investment; the incumbents are capturing the big tech platform opportunities and likely to own most of the advertising, infrastructure, and analytics tools as well through a mix of internal product development and acquisitions. The best position for entrepreneurs to be in podcasting is either a bootstrapped startup whose tool set can get acquired for tens of millions of dollars or a production company creating popular content in this boom.
Spotify’s breakout performance
The most important player in the industry is now Spotify, even though Apple’s Podcasts app remains the largest by global and US market share. In just three years, Spotify went from not being a destination for podcasts to being the first or second most used podcast service across dozens of countries and most US states. 2019 was its breakout year.
Spotify redesigned its app to give podcasts nearly equal footing as songs and it bought two of the leading podcast production companies (Gimlet, Parcast) and one of the most popular production tools (Anchor), positioning it at the heart of the podcast ecosystem and fueling investment interest in the sector more broadly.
For Spotify, podcasts are a rapidly growing new category of content that’s still small enough that they as a $28 billion company could make a play to dominate. The company is battling to differentiate itself from Apple Music and other music streaming competitors who all have the same libraries of songs, and it’s battling to improve its gross margins. Since 70% of all money earned from music on Spotify must be shared with music rights holders, expansion beyond music can improve the company’s profitability. Its CEO Daniel Ek envisions over 20% of listening on Spotify to be non-music audio content within a few years.
Most importantly for the industry, Spotify is expanding the overall pie and pushing more podcasts into mainstream pop culture by promoting shows to demographics of music listeners who weren’t meaningfully engaged with podcasts before. The company is proactively recommending specific podcasts to users it predicts will like them and made a point to include podcasts in its popular year-end summaries of users’ listening habits.
Justine Moore and Olivia Moore at VC firm CRV summarized the diversification of podcast listening in their TechCrunch op-ed in August:
“As podcasting grows, the listener base is diversifying. Edison Research looked into data on “rookie” listeners (listening for six months or less) and “veteran” listeners (listening for 3+ years), and found significant demographic differences. Only 37% of veterans are female, compared to 53% of rookies. While the plurality of veterans (43%) are age 35-54, 54% of rookies are age 12-34. Rookies are also 1.6x more likely to say they most often listen to podcasts on Spotify, Pandora or SoundCloud (43% versus 27% of veterans).”
It will be surprising if Spotify doesn’t make multiple podcasting-related acquisitions in 2020. It may buy more studios to bolster its in-house production team and its library of in-demand content that could eventually be made exclusive to the platform, but the primary acquisition targets are likely to be on the technology side. Tech solutions it may want are a programmatic advertising network for podcast ads, natural language processing tools that make podcast audio more easily searchable, and a flexible solution for media companies with subscriber-only podcasts to still have those podcasts available on Spotify. Fellow Stockholm-based company Acast seems like a natural, though still bold, potential target here.
Apple fell behind
Apple incubated the podcast market for years with its Apple Podcasts app installed by default on iPhones since 2012, and it has remained the dominant distribution platform for podcasts since. Apple has largely sat this recent surge of podcast activity out, watching its market share shrink from 80% to 63% and not making major changes to its app.
Much of the shift in market share is likely due to the rapid growth of the market among consumers who choose alternative apps. As more diverse consumer demographics start listening to podcasts, the proportion of podcast listening from devices running on Android — the most popular mobile operating system — will keep growing and the Apple Podcast app isn’t available on Android. Apple made its app available on web browsers and on Mac computers but consumers aren’t likely to use a service they cannot also access from their phone when they’re on the go.
Apple launched subscription streaming services in both the TV/film and video game markets this year, which are more important bets for the company’s future growth given the size or those markets. In July, Bloomberg reported that Apple is looking to fund a slate of original podcasts that will be exclusive to its app, however. Given the strength of its market share and the small size of the podcast market even with its rapid growth, it’s not falling so far behind that it can’t quickly catch up. It certainly has the user base and financial resources to do so. Expect it to go on the offensive in 2020.
Production money and Hollywood talent
The surge of advertising money and distribution deals is good news for production companies as they create shows under their own branding or for other media companies.
Money is pouring into the industry and greater consumer adoption makes it more worthwhile to create podcasts. The challenge for creatives in Hollywood has been the opportunity cost of creating a podcast is too high: a success would still make them less money than if they worked on other projects in entertainment. That is starting to change.
Production financing to start and grow a podcast production studio is more available as well. Most money is still coming from strategic investors within media. Barack and Michelle Obama’s new film production company, Higher Ground Productions, launched a podcast division in June underwritten by an exclusive partnership with Spotify for example. This quarter, the major record label group Sony Music announced a series of new joint ventures with production companies to create podcast shows that are unrelated to music.
In large part due to the breakout success of the New York Times’ daily news show “The Daily”, mainstream news organizations also shifted in 2019 from treating podcasts as an experiment to investing in them as a serious new content category. A trend among news organizations is producing shorter podcasts that are released more frequently, like a daily show for 5 or 10 minutes instead of a weekly 60 minute show.
Exclusives
A year ago, the leading distribution platforms were heavily pitching popular podcasts (and celebrities who could launch podcasts) for exclusive distribution deals with upfront payment. From my conversations with executives in the space, the war for exclusives is ongoing but has slowed.
While growing at an extraordinary pace, the podcast market is still small and podcast creators are wary of restricting their potential audience to solely one streaming service. The streaming services who do own or have exclusive rights to original content, like Spotify with Gimlet Media’s shows, are often still distributing those shows everywhere. It seems the strategy here is securing exclusive rights but holding off on actually exercising them until the listener base is larger and there’s a bigger library of shows to all go exclusive at once.
Podcast subscriptions
The big question in the industry is whether consumers will buy into “premium podcasts” that are only available behind a paywall, in one format or another. There are essentially four structures here:
- a freemium platform with some shows behind a paywall
- a freemium model with all shows available on a free ad-supported tier and an ads-free premium tier;
- a freemium model around an individual show with some episodes available publicly and other episodes restricted to members-only;
- an entirely premium platform with all shows behind the paywall.
The verdict is still out on which of these models will become the norm, and that is likely to remain the case for another three years or so.
French startup Majelan recently announced another €6 million fundraise to grow its platform on the first model: a free aggregator of podcasts with subscription for access to certain premium shows.
Luminary Media, the NYC startup that launched in March and has raised over $100 million in VC funding, is the highest profile example of the premium-only model. Aside from a free trial, everything is behind their $8/month paywall. Luminary was active in buying exclusive rights to shows this year but faced a rough launch and, based on my conversations with several executives across the industry, has converted far fewer subscribers than hoped.
Luminary brought in former HBO president Simon Sutton as its new CEO in October which suggested both investor frustration with slower than expected consumer adoption and continued belief that a subscription business model with exclusive shows is still the best strategy (it’s the HBO strategy in television).
There are VC-backed podcast streaming services in other countries, like Podimo in Denmark and Germany, that are subscriber-only but it’s not clear any have gained substantial traction yet. We’re still in the early days of mainstream consumer interest in podcasts and experimentation with different audio entertainment formats, so I wouldn’t rule this business model out yet.
Over the next year, we will see a lot of trials with the third business model — individual podcasts being partially paywalled. This is partly because in the US (and less so in Europe) news publishing companies and individual writers with popular newsletters and blogs are the leading creators of popular podcasts. Since these creators often already operate subscriptions for their readers, there’s a natural desire to include some podcast shows or episodes as a subscriber-only perk.
Glow, Substack, and Supporting Cast are among the startups offering paywalling and payments infrastructure for podcasters. If a show is going to be individually paywalled, it’s critical that it’s still available on the platforms where consumers listen to all their other podcasts, otherwise it’s a bad user experience and the top-of-funnel discovery of the podcast evaporates (like streaming a TV show only on its own website and not on a major streaming platform).
Acast now provides the infrastructure for shows using its hosting to restrict any episodes (or even parts of episodes) to subscribers while still distributing the show through major podcast apps. So its launch partner, the Financial Times, can make podcasts available on Spotify that Spotify users access by authenticating that they are also Financial Times subscribers. This model for subscriptions seems likely to expand over 2020 more so than premium-only platforms since it allows the major streaming apps to focus on user growth without a platform-wide restriction on accessing most shows and since many consumers already have one or more media subscriptions (so authenticating those to access podcasts won’t cost them any more).
In the long-term, premium podcasting could be a hybrid of these business models. Major platforms could have their own subscriptions — freemium or not — then individual podcasts or podcast studios could still maintain their own special subscriptions on top of that if they have enough demand to pull it off, much like a Showtime subscription add-on for Hulu subscribers in the subscription video-on-demand (SVOD) space. This will result in a lot of bundled subscription offers and consolidation of successful podcast production companies to achieve a small number of leading content subscriptions.
Downloads to streams
An important shift underway in podcasting that doesn’t get enough attention is the transition from downloads to streams. Much like music transitioned from iTunes downloads to streaming of songs, podcasting has been centered on Apple’s Podcast app and downloading audio files from RSS feeds.
Streaming is a better consumer experience — no need to store a podcast you will only listen to once on your device — and it provides detailed data on how consumers are interacting with the audio track, which is enormously insightful to producers and advertisers, helping the industry mature.
Just like with music streaming services, the option to download a podcast episode will remain so listeners can consume content during a flight or otherwise internet-limited experience, but it won’t be the primary way to listen to podcasts after 2020. According to an executive at one leading podcasting platform I spoke to, most podcast consumption in Europe is already via streaming; in the US, the majority of listening is still via downloads but that’s declining quickly.
Programmatic ads
The actual size of the podcast industry requires combining the industry’s ad revenue–a stat often mistakenly cited as the overall industry size–with measurements of merchandize sales, tour ticket sales, subscription revenue, and tips/donations. There’s no good measurement of that, at least publicly. The IAB estimates 2019 ad revenue in the US at $679 million and forecasts 2020 ad revenue of $864 million.
Host-read ads, which dominate podcast advertising, are influencer marketing — they require the direct involvement of the show’s talent and reach all listeners regardless of whether the ads are relevant to them. This has been the territory of brands looking to spend a lot to reach mass audiences on the most popular shows. Podcast ad networks have had minimum of 50,000 downloads per episode for shows to participate. Micro-influencer offerings, matching smaller podcasts with smaller brands keen to engage their niche audience, is still nascent though new companies like Podcorn are vying to address it.
The much bigger market is programmatic advertising where ads are inserted into the show, separate from the content of the show, to target listeners based on demographics and context. Most digital ads are distributed programmatically and that will almost certainly be the same in spoken audio as the market matures.
Radio Public, a Boston-based streaming platform, enables podcast creators to add ads to their show regardless of its audience size. Acast has its own programmatic network as well. Music streaming platforms like Spotify and Pandora have already built this ad infrastructure to monetize songs and have an edge over startups given their existing scale. None of the audio platforms have the level of detailed demographic data on users that Google and Facebook have on theirs, however. Due to this, and the regulatory winds behind increased data privacy, the focus of advertising in audio will be targeting ads based on context of the content more so than on demographic data.
Natural language processing will continue to improve the accuracy of assessing what any given podcast episode is about and targeting the most relevant ads. There’s a lot more work to be done here, which makes it an active space for internal and external investments by the large platforms.
The end of “podcasting”
As all these changes highlight, podcasting is in flux. In 2020, the term “podcasting” will become less defined and businesspeople will start to recognize that radio shows, meditation apps, and podcasts are all the same spoken audio industry. Increased experimentation in podcast formats, length, and monetization strategies — not to mention large companies in each of those categories expanding into content in the others — will blur the lines further.
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