Podcasts are enjoying a period of extraordinary growth. Ovum estimates that there were 484 million podcast listeners worldwide at the end of 2017, three times more than three years previously. Yet as the rapid growth of the market attracts more interest, many observers are scratching their heads. How does so much listening make so little money?
True, advertising revenue grew rapidly to some $490m in 2017. One study found a self-reported 275% increase in revenues for US podcast companies between 2015 and 2017. Scratch the surface, however, and these figures are not quite as impressive as they seem. Podcasts are time-intensive. Listeners typically subscribe to half a dozen different podcasts, each often producing several episodes a week. This means podcasts have an outsized role in the attention economy, absorbing a considerable amount of consumers’ time despite being dwarfed in revenue terms by other entertainment media. On average, Ovum estimates that each hour of podcast content listened to generates only $0.02 in advertising revenue, a figure that is actually declining as podcast listening grows in emerging markets.
Figure 1. Podcasts produce very poor returns per hour listened
It is no surprise then that many are wondering if there isn’t a more effective way of monetizing podcasts. Perhaps the biggest question now facing the market is whether people will pay for podcasts. As little as a year ago, the idea of premium podcast subscriptions seemed highly speculative, but since then the list of podcasts that have successfully pulled off the transition to paid subscription models of one sort or another has become too long to ignore. Early trailblazers, such as US political podcast Chapo Trap House and Irish sports podcast Second Captains, attracted paying subscribers in previously unprecedented numbers, encouraging many more independent producers to take the plunge over the last 18 months.
Paywalls are not easy to set up
Remarkably, this burgeoning of the paid podcast market is taking place despite the absence of support from existing major podcasting platforms. Instead, awkward workarounds via crowdfunding platforms such as Patreon have been found. These create a lot of unnecessary friction, however, suggesting that the ceiling for the market could be a lot higher than we have seen so far. Swedish podcast platform Acast is one of the few to offer premium subscription tools, but the combination of high fees and Acast’s relatively narrow reach has curtailed uptake. Competitors are now flooding into the market. Chinese platform CastBox announced in June it was launching a tool for podcasts to offer “bonus content”, while in May, startup Luminary Media attracted $40m in funding for a platform offering a “portfolio of premium podcasts”.
There is also a growing trend of entire podcast networks placing much or all of their content behind a paywall, notably Radiotopia, Maximum Fun, and RelayFM. Meanwhile, larger networks are developing premium subscription offerings alongside their ad-supported output, such as, for example, Gimlet’s Memberships and Slate magazine’s Slate Plus. More intriguingly still, we can see tech giants edging towards this space, with (Amazon-owned) Audible producing hit exclusive podcasts such as West Cork, which it has kept firmly behind the paywall. Spotify is also ramping up its podcast production, striking a reported $1m deal with Amy Schumer to create an original podcast. Schumer’s show, 3 Girls, 1 Keith, is freely available (with ads) to non-subscribers, but Spotify’s primary interest lies in driving subscriptions rather than advertising revenue, so don’t be surprised to see podcast content going behind the premium paywall in future.
All of this suggests that paid subscriptions will emerge as an important element of the podcast market over the next few years. Whether these can ultimately replace advertising as the core revenue stream for the medium is an open and fascinating question. Importantly, not all players in the podcast market are primarily interested in maximizing revenue from podcasts themselves. Media organizations such as The New York Times produce many of the most popular podcasts worldwide. They want to promote their brands and wider output and so prize maximum reach, a much less important consideration for entertainment companies such as Audible and Spotify that are more concerned with driving subscriptions to their core products. These divergent interests will encourage a variety of business models to proliferate, regardless of which turns out to be most immediately profitable.
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