The Future of Audio Media, Revisited
Amid the rise of Clubhouse and Spotify’s aggressive moves to monetize podcasts, digital audio is at an interesting point in its quest for monetization at scale
Looking back on the past 12 months, the audio industry leaned further into streaming and subscription as the key monetization channels thanks to the pandemic. The Recording Industry Association of America recently published its 2020 report on the current state of the U.S. music industry, which found that streaming had another huge year with 15.1 million new paid subscriptions — a record number of new subscriptions created in a single year. As COVID-19 disruptions forced many people to spend more time at home and less time consuming audio in-car, the shift of audio consumption from radio to mobile streaming also accelerated. Listening on a mobile device now accounts for 30% of all time spent listening to audio by those age 13 and above in the U.S., an increase of 67% since 2014, according to the latest Share of Ear report from Edison Research.
As mobile continues to overtake traditional radio as the main channel of consumption, digital-native formats are growing in listenership and posing new challenges for brands and media owners. When I wrote about The Future of Audio Media in April 2019, I floated the idea of music streaming being increasingly positioned as a loss leader for larger ecosystem plays, questioned the viability of monetizing podcasts via paid subscription instead of scaled advertising, and laid out some future growth drivers for digital audio. Now, nearly two years later, most of my arguments remain valid and defensible; Yet in recent months, new developments in the audio media pace point to some interesting directions that brand marketers should heed.
Better Podcast Monetization Through Scale
Last month, Spotify hosted an investor event where it unleashed a slew of new ad products that illuminated its long-term strategy to conquer the digital audio space. Most notably, it launched Spotify Audience Network, which will combine all of its music and podcast ad inventory and allow brand marketers to run targeted digital audio ads at scale, similar to how buying banner ads or search ads on Facebook and Google works. This ad network is the culmination of many products that Spotify has been building and acquiring for years. For instance, the Streaming Ad Insertion (SAI) technology, which Spotify got from its recent acquisition of Megaphone, will help Spotify scale its ad network beyond its own original podcast content.
This is a significant development for podcasts. For the past decade, a combination of lack of mass reach and a centralized, standardized ad network has prevented podcasts from breaking out as a must-have advertising channel for most Fortune 500 advertisers. This niche-to-mass media bottleneck is a hurdle that the podcasting industry must overcome in order to keep growing, and that is precisely what Spotify aims to solve.
To ensure that there will be enough podcast content to scale this new ad network, Spotify also debuted new tools for creators to make interactive podcasts and announced it will be launching in 85 new global markets. Besides, Spotify also announced it will be testing paid podcast subscriptions this spring to further diversify its revenue streams. Although the bulk of its podcast revenue will still likely come from ads for the foreseeable future, it certainly doesn’t hurt for Spotify to invest in exclusive original content to differentiate its offering and drive consumer interests.
As with any new medium, the audience reach of podcasts has far outpaced its monetization, and Spotify is in a unique position to do what Apple has neglected to do so far — to properly monetize the space by developing new ad tools and platforms to make it easier for the long tail end of podcast creators to monetize their content via automated programmatic ads.
Of course, it is not only Spotify that is looking to scale up. Other players in the industry continue to gobble up podcast upstarts to beef up their ad tech products to remain competitive. iHeartMedia recently acquired podcast tech and measurement company Triton Digital for $230 million, whereas Acast, one of the largest podcast hosting and monetization companies, bought RadioPublic, a podcast technology startup founded by Public Radio Exchange.
While scaling up through SAI and programmatic ads may seem like an effective approach, we should acknowledge that it is operating at the expense of what has made podcast ads so special — the intimacy and credibility of host-read ads will be demolished by dynamically inserted ad breaks. This may end up making the podcast licensing experience more like traditional radio and the ads less effective at connecting with listeners, but it seems like a sacrifice that podcast platforms will have to make in the pursuit of better monetization through scale.
The Rise of Social Audio
Last month, we examined the rise of social audio, led by Clubhouse, and its uncertain path towards monetization. Since then, the space continues to develop rapidly with the rollout of Twitter Spaces, which beat Clubhouse to Android devices and reportedly will be made available to everyone starting next month. Not to mention the incessant chatter about the Clubhouse clone product that Facebook is reportedly working on and where Facebook is planning to launch it, which further drums up interests in the audio space.
Despite the imminent arrival of competing services, Clubhouse is still the market leader in social audio at the moment. It has gone from about 2 million weekly users at the start of the year to 10 million as of last month, despite still being invite-only. In addition to Elon Musk, Oprah Winfrey, Drake, and Chris Rock are among an eclectic mix of celebrities who’ve spoken up on Clubhouse, further drumming up its appeal. Of course, with a growing audience come brand opportunities, but since Clubhouse is still too nascent to develop any ad product, interested brands are forced to take a more guerilla approach to capitalize the hype.
For example, fintech company Square sponsored a room hosted by entrepreneur and investor Noah Lichtenstein, where he and co-hosts handed out cash prizes to attendees via Square-owned p2p payment app Cash App. And top executives from Restaurant Brands International, owner of QSR chains like Burger King and Popeyes, went live on Clubhouse after their latest quarterly financial report for an open Q&A session with the Clubhouse crowd.
Clubhouse is championing a low-effort way to produce audio content. Everything is live on Clubhouse, and the app does not currently enable native recording to create a content catalog for time-shifted listening. While this limits the reach of its content, it also significantly lowers the entry barrier and encourages more people to speak up and voice their opinions. Just like how the story format opened up an ephemeral format to people to share snippets of their life without the stress of curating a picture-perfect permanent record, live social audio allows more people to share their thoughts in a low-pressure, spontaneous format. Plus, the live element enables real-time audience participation that has been missing in all digital audio formats so far, and in a way manages to recapture the old days of calling into radio shows. Content quality is not the goal here; engagement and community-building through real-time interactions are far more vital to the long-term success of social audio.
Ironically, this key distinction that differentiates social audio from other audio formats is also a big obstacle for social audio platforms to monetize. As I noted in my piece on Clubhouse, there is an inherent conflict between scale and content moderation that is true for all UGC platforms, but especially exacerbated for social audio due to its live format:
In order to develop a sustainable business model, Clubhouse needs to expand its communities to scale up; yet, opening up to a wider audience inevitably puts more pressure on content moderation, which could lead to potential brand safety concerns. Although the company has promised to address these issues, it still has a long way to go to solve this central conflict before it can become a brand-friendly environment.
Interestingly, this conflict will also be an issue for podcasts as platforms like Spotify ramp up their aforementioned efforts to monetize the long tail of the podcasts. Still, as a non-live medium made for time-shifted consumption, podcasts are comparatively easier to moderate and curate. For example, Apple has announced it is teaming up with Common Sense Media, a nonprofit that specializes in age-based content reviews, to curate various collections that’ll appear in the Apple Podcasts app in the U.S. If social audio were to be sustainable by itself as a format, then it will need to find a way to address the content moderation issue without sacrificing scale.
Audio Media Evolves with the Creator Economy
The need to scale up podcast monetization and the hurdles of monetizing social audio may seem like two distinct issues, but a deeper look would reveal a shared root in the development of creator economy, where a long tail of content creators becomes the main content supplier. This is evident in both podcast and social audio, as the two digital-native audio formats are inherently suited for user-generated content, but it is happening for music as well. While it is true that record labels still hold a gate-keeping role, TikTok is starting to usher in a more participatory element to music creation and consumption that is rapidly transforming the music industry.
Creator economy has been steadily growing in recent years as new platforms dramatically lowered the barrier for creating and distributing content. Dating back to the early days of the consumer internet, user-generated texts and images are being shared and monetized via blogs and photo-sharing platforms like Flickr. Today, newer platforms like Substack and Instagram supercharge the scale of UGC distribution while leveling the playing field for creators. Last year’s unique circumstances pushed the creator economy to new heights, as an increasing number of people turned to platforms like TikTok, Twitch, and OnlyFans to monetize the content they create and earn supplemental income. Overall, over 50 million people worldwide now consider themselves to be a “creator.”
To thrive in a booming creator economy requires platforms to new monetization methods, and that is no exception for the audio space. Trying to fit the ad-supported model into the new audio formats would run the risk of suppressing or sidestepping the fundamentally different ways these UGC-dominant formats operate. Podcast is fundamentally different from a radio talk show, and social audio is fundamentally different from podcasts. Instead of going by the assumption of traditional audio media and imposing an ad-based model on all formats, it is important to consider other types of monetization that are emerging out of the creator economy, such as direct subscriptions to creators, tipping for content, and micro-transaction for a la carte access to content.
Twitter’s recent announcement of Super Follow, a way for people to pay for tweets and directly support their favorite Twitter users, is an encouraging sign that new monetization methods are being explored. One could reasonably envision a future where VIP access toward Twitter Spaces could be covered by Super Follow, along with tweets and fleets, to make Twitter into a multi-media creation platform for creators to monetize their output.
Similarly, it is interesting to consider more constructive ways of monetizing digital-native audio formats through ads. As we explored in our Outlook 2021 report, as consumers increasingly move away from public squares and into more private digital environments, this reinvention of social context online will only help brands and advertisers, as we’re able to use data about the context — rather than the individual — to target our messaging. This is also mirrored by Google’s decision to abandon third-party cookies and switch from identity-based tracking to interest-based cohort targeting fueled by first-party data.
Podcasts and social audio may just be the natural format for context-driven targeting. Most podcasts have a clearly defined category of topic and, thanks to the scale of the creator economy, they cover a wide range of topics and provide a natural context for brands to reach audiences that may be interested in them. For example, the new TED Audio Collective created by the company behind TED talks offers brands a high-touch way to engage with its audiences across its collection of owned podcasts with narrative ads that blend in with its surrounding content.
Social audio takes this to the next level, because it is contextual by default, albeit in a much more fluid matter, and opens a new channel for brands to engage with audiences and join the conversation. If social audio were to be monetized via ads, it wouldn’t necessarily be scaled through an ad network a la Spotify. Learning from how live video streaming sites like Twitch monetize attention, we could see creator-driven endorsement and live-testing may be far more effective methods than conventional ad breaks that risk audience tuning out.