The Quest for a Podcast Subscription
And Why Spotify is Positioned for Success
This year has seen a slew of M&A deals in the podcast space. From Spotify’s acquisition of The Ringer and Megaphone, SiriusXM and Stitcher, Apple and Scout FM, and now Amazon is rumored to be in talks with major podcast producer Wondery. The holy grail for these companies? Podcast subscription dollars.
How Podcasts Have Traditionally Monetized
Podcasting has always had a monetization problem for a few reasons. First, podcasts have historically been free and easily accessible. It’s been in most podcast creators’ interests to be on as many platforms as possible to reach the broadest possible audience.
Second, low barriers to entry. While early podcasting required an upfront investment in equipment, today anyone can start a podcast with only their phone. This has led to an explosion in the medium and now there are more than 34 million podcast episodes available. It’s been great for consumers, but it’s also meant there are alternatives should a podcast attempt to charge its listeners. While experiments continue around subscriber-only feeds, getting consumers to pay creators directly for podcasts has been challenging.
With consumers unwilling to pay for podcasts, the only alternative was to rely on advertising to monetize. This worked, just not very well. US podcasting advertising revenues are expected to reach $1 billion in 2020, a highwater mark for the industry but disappointing considering 90 million Americans listen to podcasts every month. These listeners are also younger, more educated, and wealthier than the general US population. Just the kind of demographics that advertisers love.
So, what’s the issue? Data (or the lack thereof). Because of the distributed nature of podcasting, getting data on listeners has been difficult. Even basic things like how many people listened to a whole episode or how many fast-forwarded through the ads. Plus, the all-important demographic data has been absent, leaving podcast creators with few insights into their audience.
This explains why podcast ads are almost always direct response. They prompt listeners to go to a specific website and enter a code for a discount, allowing the advertiser to track performance. This type of advertising really only works for direct to consumer brands with a strong online presence. This is why big brand marketers like Coca-Cola and Budweiser are seldom found in podcastland. Without better ways to track impressions and return for their ads, traditional brands cannot justify funneling money into podcasts.
Another emerging monetization method has been licensing for film and TV. Driven by this strategy’s success for properties like Dr. Death and Dirty John, Wondery has centered itself around generating IP that can be adapted for TV. Now, major media companies like Netflix and NBCUniversal are looking to fund promising podcasts to have exclusive rights and avoid paying larger licensing fees if they become popular. This also appears to be Apple’s strategy in the podcast space.
Previous Attempts at Subscription
Several companies have attempted to create a podcast subscription, virtually all with disappointing results. Stitcher has arguably been the most successful (or at least, the longest-lasting) so far. The subscription costs $4.99/month or $35/year and includes exclusive access to back catalogs and ad-free versions of certain shows. It’s unclear how this offering will change now that SiriusXM acquired Stitcher. We could see podcast versions of exclusive SiriusXM content like The Howard Stern Show added to the subscription which would be interesting.
The splashiest entrant has been Luminary. The startup billed itself as the “Netflix of Podcasting” and raised $100 million in venture funding. Luminary’s launch in April of 2019 was nothing short of disastrous. While they successfully lured creators like Trevor Noah and Lena Dunham to create exclusive shows, Luminary clearly didn’t understand podcast creators or listeners. They immediately alienated the creator community by adding their shows to Luminary’s “free” tier without permission among other slights. Then, when they failed to attract the top existing podcasts to the platform, Luminary still tried to charge users $7.99/month for ad-free access to its handful of exclusive new shows. It flopped harder than Quibi yet has somehow managed to raise more money since.
Wondery and Slate, two major podcast studios, have also built direct subscriptions around their content. While data for Wondery was limited, Slate’s membership offering (named… you guessed it) Slate Plus, had attracted 60,000 members as of March. Interestingly, Slate, an online magazine and the maker of the popular Slow Burn podcast series, combined Slate Plus with a new paywall for the site, bundling exclusive podcasts and access to its magazine content into one subscription.
Enter Spotify
Starting with 320 million monthly active users and 144 million paid subscribers from its music business is certainly a leg up. These consumers rely on Spotify for a significant portion of their listening, so it’s not a giant leap to turn to the service for podcasts too. The company has proven this by growing the number of users listening to podcasts and the amount of time they’re doing so on Spotify.
Spotify’s acquisition of Megaphone will enable it to build the preeminent podcast advertising network. The company already has more data on its users than any startup could hope to match. Now through Megaphone, it will be able to offer better monetization opportunities for creators across any podcast app, but mostly Spotify’s. Creators will naturally gravitate to Spotify over time for the best monetization.
Growing podcast listening and the advertising market is just building on what already exists. Now, Spotify is looking to succeed where others have failed by creating a subscription offering. The company recently surveyed users about a standalone podcast subscription that would cost $3-8 and include a mix of ad-free shows and exclusive content. This is pretty similar to what other companies have tried, only Spotify has a more impressive roster than they did.
Between Gimlet, The Ringer, and Parcast, Spotify now owns some of the top shows with existing audiences. Not just celebrities starting random podcasts. Even better, it has Joe Rogan. Spotify forked over more than $100 million to get exclusive rights to the top podcast, The Joe Rogan Experience. Ad-free episodes and exclusive content for that show alone would likely convert a healthy amount of subscribers.
Also, Spotify’s ownership of Anchor, the top platform for new podcast creators, will give it access to the top up-and-coming podcasts. If a show is bound to be a hit, Spotify will know before anyone else and acquire it or sign an exclusive deal. They’ll be able to funnel all the top new independent podcasts into their subscription too.
Of course, where the real value lies is not a podcast or music subscription by itself, but a combination of both. By bundling music and podcasting, Spotify can deepen its relationship with users and better compete with Apple Music. If your favorite podcasts are ad-free and exclusive to Spotify, the chances that you’ll switch decline. And if you were getting music from Spotify but podcasts elsewhere, or vice versa, you’ll likely want to combine both on Spotify’s service.
It doesn’t appear that anyone is poised to challenge Spotify. Amazon may make one or two acquisitions to draw interest for Audible and Amazon Music, but it’s unlikely they’ll make a real push. They certainly won’t invest the resources that Spotify has to build a vertically integrated podcast business.
Apple appears to have no real desire to enter the space either, despite having the most popular podcast app. Improving podcasting means improving creators’ access to listener data, which goes against the privacy mantra that Apple has adopted. Once by far the largest podcast app, Apple seems content to bleed share indefinitely.
The rest of the podcast competitors have nowhere near the scale that Spotify has. So, the only thing potentially stopping Spotify from taking over the market seems to be execution. They’ve done a brilliant job of putting the pieces together. Now they have to cross their fingers that this time, a podcast subscription will work.