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.