You’ve got scripting, interviewing, recording and editing down to a science. Thousands of listeners are eagerly awaiting the next episode of your show. You’ve put years of blood, sweat and tears into building a successful podcast.
There’s just one nagging question that keeps you up at night: How is this going to pay your rent?
The good news? You’ve done the hard part: It’s harder to create something so good that people choose to consume it regularly than it is to persuade a percentage of them to pay for it.
The bad news? There’s no one tried and true method of podcast monetization. After doing a bit of research and talking to a few friends with successful podcasts of their own, you’ve narrowed it down to two possibilities: you can either start putting ads on your show, or you can paywall it.
What should you do?
The problem with podcast ads
Ads are what most podcasters default to when they start thinking of ways to make money. Most other podcasts have ads, the thinking goes, so why shouldn’t mine?
Advertisers are certainly interested in podcasts, too, and they’re willing to pay big bucks to get in on the action — to the tune of $1 billion by 2021.
Broadly speaking, podcast listeners tend to be educated and rich, which makes them an attractive audience. And ads read out loud by hosts have proven to be a particularly effective way of getting listeners’ attention — often outperforming the kinds of produced spots you hear on radio.
Ads work well for advertisers. But for podcasters? Not so much. Here’s why:
1. They’re time-consuming
Marc Maron might sound breezy and casual in that Stamps.com ad, but that’s only because you didn’t hear the five other takes before he nailed the delivery.
Booking, scripting, recording and editing podcast ads takes time — time that you’d probably rather spend creating your own content. That might not be a problem for big shows that can afford to hire a staffer to take care of all that extra work, but for most shows it means extra work for you, the podcaster.
2. They’re an unreliable source of income
Compared to other digital channels, podcast analytics are primitive, so measuring the ROI of podcast ads is an inexact, unreliable science (at best).
If one of your sponsors feels like they’re not getting their money’s worth, there’s not much you can show them metrics-wise to convince them to stay. Because most podcasts rely on a handful of advertisers to survive, convincing them to stick around can also mean the difference between life and death.
3. Your audience probably doesn’t like them
Finally, although they’re more bearable than traditional ads, many people don’t like listening to podcast ads either, and will skip over them if they have the option.
To recap: Putting ads on your podcast is time consuming, distracting, and the revenue they generate is unpredictable.
This is a problem, because most podcasts are looking for something that isn’t distracting, won’t alienate listeners, and will generate predictable revenue.
What you’re looking for are subscribers.
Why the freemium model works
Freemium and subscription content is already making billions of dollars today — not in podcasts, but in software and free-to-play games.
Based on our work at DoubleUp, we know podcasters can enjoy similar success with the freemium model for three reasons:
1. It generates predictable income
Many software as a service (SaaS) companies today make money by releasing a product for free and then charging a small subset of users a subscription fee for extras (additional features, more users, support, etc.) The free-to-play video game industry relies on a similar model (a small % of users pay for extra content), sometimes favouring micro-payments over subscription fees.
These companies make this model work by staying on top of a few key metrics, most notably:
- Churn, which measures how quickly you’re losing customers, and;
- Customer Lifetime Value (LTV), which is how much you can expect to earn from your average customer before they churn out.
Understanding churn and LTV makes forecasting the health and growth of your business a lot easier, and it’s what allows many SaaS and games businesses to generate a stream of predictable revenue. If podcasters can start thinking about their revenue in the same way, they could too.
2. It doesn’t distract from your core product
When you sell freemium content, you’re not creating a whole new product or thing. Instead, you’re spending more time doing what you set out to do — podcasting — rather than spending that time dealing with booking and managing sponsors, sales, and ad reads.
It’s easy to find ways to monetize content your production is already throwing off, like unedited audio (extended cuts), episodes that didn’t make it to air (bonus episodes), show archives, transcripts, notes, AMA access to the host and guests — and really anything else your audience wants to hear more of.
3. Your audience wants you to do it
Podcasts might actually be more suitable for the freemium model than software products simply because of how much more engaged podcast audiences are than other audiences.
“Podcast listeners are among the most engaged and loyal audiences ever,” as Rebekah Bek from Ahrefs puts it;
“Podcast hosts speak directly into our ears for over 30 minutes at a time, and many listeners build a strong affinity with the content and show host. Makes sense.”
Like SaaS products, most successful podcasts generally have a smaller, more engaged user base that is usually willing to pay to:
- (a) support a creator they have established a strong relationship with, and:
- (b) get access to exclusive content or member benefits.
Also unlike in SaaS, where software features are quickly commoditized and copied by competitors, podcasts are also hard to copy. You can’t clone a podcast host, which makes them a lot more defensible as a ‘product’.
Take, for example Peter Attia; a leading expert in the applied science of longevity, who’s show The Drive launched last year, and quickly grew to become one of the top-rated and fastest-growing health podcasts.
We worked with Peter to help turn The Drive into a profitable digital subscription product. Peter goes above and beyond for his subscribers: Alongside detailed show notes and discounts on products he believes in, subscribers get a private podcast feed delivering bonus AMA episodes, and a separate members-only podcast highlighting the best questions, topics, and tactics discussed on The Drive (powered by our product, Supercast).
Peter listened to what his audience wanted, and has executed on a winning formula to build a product they love. The best part? He gets to spend 100% of his podcasting time focusing on making The Drive awesome, and precisely zero time thinking about how to sell someone else’s product.
Another podcast success story is Lance Armstrong, who’s successfully monetized his podcast THEMOVE with sponsorships and subscriptions.
Lance’s WEDŪ Season Pass is an annual subscription offering cycling and endurance fans premium membership benefits including early-access to podcast content, live Q&As, and other behind-the-scenes content at iconic races including The Tour de France and Ironman World Championships.
Between advertising, merchandise and subscriptions, THEMOVE generated around $1 million during the Tour de France in each of the past two years.
So how many listeners do I need to make the freemium model work?
More than 10,000
If you’re just starting out and averaging less than 10,000 downloads per episode, it’s probably too early to start thinking about monetizing with a premium subscription (also remember, downloads don’t = listeners). Instead, focus on creating a great podcast and building a loyal audience, so that when you do monetize you’ll have passionate listeners ready to support you.
Fewer than 1,000,000
Freemium content obviously isn’t the only way to make money if you’re already a podcast mega star with millions of listeners and advertisers already beating a path to your door.
Take the case of Tim Ferris, who experimented with a listener-supported subscription earlier this year. After launching a simple landing page with a few donation tiers (and not much else) he reduced his prices and upgraded the package to include a monthly AMA. Shortly after, he ended the experiment, and explained why in this blog post:
“It turns out that most of my listeners have a strong preference for an ad-supported model compared to other options,” he admitted.
This makes total sense: Tim built his career on recommending products, routines, hacks, and tactics; he’s in a position to be selective about ad reads, and tends to feature products he likes, giving his ads real authenticity.
If that’s the position you’re in — superstar podcaster who can accept and reject advertisers at will — then the freemium model could be a great way to unlock additional revenue from your show, but it’s unlikely to make as much money alone as ads on its own.
They need to be repeat listeners, too
As I mentioned earlier, podcast analytics suck, so knowing exactly how many regular listeners you have is tricky. Getting direct subscriber counts would help a lot, but most podcast apps don’t release that data at the moment.
Whatever you do, you need to make sure that those 10,000 downloads per episode represent a healthy, engaged audience of listeners that consistently come back for more. If your show normally does 5,000 downloads per month, but spiked to 10,000 last month because Bill Gates retweeted an episode, that might not necessarily mean you’ve reached the 10,000 listener mark quite yet.
So how much money are we talking here, exactly?
We’ve seen established influencers monetize between 3–7% of their audience directly via subscriptions and listener support.
For comparison, a 2% audience conversion rate is normal for free-to-play video games, which generated a mindblowing $88 billion in 2018 and have quickly grown to account for nearly 80% of all spending on digital games.
Based on that ratio, we can roughly extrapolate how much revenue your podcast might earn, given various audience sizes:
Of course, how many of your listeners will actually turn into paying subscribers will depend on more than just how many of them there are. Your particular audience demographic (income, age, engagement level, spending habits, access to corporate credit cards, etc.) are something to consider.
A better way to look at the potential of the subscription model for your podcast might be to zoom way out and look at how podcasters are doing it in China, which in many ways has a more developed audio content ecosystem than the English speaking world.
While the North American podcast industry earned $479 million in annual revenue in 2018, China’s earned over $7 billion (23x!). The difference? Chinese podcasters have already moved to the listener-supported model.
As a16z partner Connie Chan explains in a recent talk, ads are less popular in China’s “mobile first, mobile only” system in general, because ads are “a lot more annoying on a small screen.”
Instead, Chinese podcasters get their most loyal listeners to pay for content. Last year, for example, a Peking University professor quit his day job and immediately attracted 250,000 subscribers to his online lectures, bringing in almost $8m in twelve months.¹
I’m sold, but do I have to pick between ads or a subscription?
If China’s industry is any indication, there’s a lot of untapped value in the North American podcasting market, and listener-supported models are a first (and easily achievable) step to monetizing some of that value.
Ads work well for podcasters that have already amassed large audiences, and there’s clearly a lot of money in podcast advertising. But, for a large number of podcasters, freemium subscriptions have the potential to be the most natural fit for the podcast-listener relationship.²
The best part? You don’t have to pick one: Podcast advertising and subscriptions are not mutually exclusive.
If ads work for your show (and your audience), a subscription is the perfect complement: Launching an ad-free feed gives your most passionate listeners an easy way to support you (and get something for their money). It’s perhaps the easiest way to unlock additional revenue from your podcast, and kickstart a premium subscription product you can build on over time.
So, how do I launch a subscription podcast and build predictable revenue from my show?
Technically speaking, until recently it was a massive headache. That’s why we built Supercast to make it easy for podcasters to adopt subscriptions.
Of course, having the right tool for the job is only one part of the equation. I’ll write about the subscription monetization strategy and tactics you can apply to your podcast in another post, including:
- How to set up a private podcast feed
- Different kinds of premium podcast content you can produce easily
- How to track subscriber engagement and project your revenue growth
P.S. Are you a podcaster who needs help figuring out how to grow or monetize your show? Let me know — my agency DoubleUp would love to help.
¹ In comparison, America’s most popular podcast ever, Serial, made about $500k in ad revenue in its first year.
² Still not convinced? My partner Andrew wrote more about why subscription podcasting is the next great business model.