Who Will Win the Podcast Wars?
The Battle for the Future of Audio Distribution
With the recent launch of podcast service Luminary, we’ve witnessed the opening salvo in a much larger war. Today the podcast industry is small, but it is has enormous potential. And like most media, it can only have a few big winners.
Podcasts make just a couple of hundred million dollars a year, but the attention they command is huge and growing fast. Driven by the success of airpods and other wireless headphones, podcast listenership grew almost 30% last year.
Sure the market may be small in terms of ad dollars, but so was the internet a decade ago. As podcasting matures, the $40 billion in the adjacent global radio market might be up for grabs². Companies like Netflix have already provided a successful playbook on how to aggregate media of all types. Just as with video and video games, podcasts can easily be distributed and controlled be a few central players.
Let’s take a look at some of the companies vying to dominate this growing medium.
Apple basically invented podcasts. To the company’s credit, they have avoided the temptation to control their distribution. Today podcasts operate on top of simple RSS feeds. Just as you can type any URL into a web browser, a podcast client can grab any stream from an RSS address.
Despite this benign neglect on Apple’s part, the company still ended up owning the market. The Apple podcast app is the one used by the majority of people³. This means that Apple controls the relationship with end users and thus the most important part of any consumer market.
So far the podcast business has been too small to warrant much attention from the tech giants. However, as Apple looks for new revenue streams in “services”, an Apple podcast play feels inevitable.
Stitcher has a long and storied history. After starting out in internet radio, the company evolved into a podcasting service with a client, hosting, and advertising arm. They were then acquired by ad-network Midroll and rebranded as a new media company. Stitcher/Midroll is itself an arm of the old E.W. Scripps media conglomerate, and for the past few years has been trying to aggregate existing podcasts into a new network.
The Stitcher app is reasonably popular, having around 8 million users in 2016. It has a viable (though controversial) advertising business, a premium subscription offering, and is making a run at that long-tail of small podcasters enabled by new technology. On the Stitcher FAQ page you can read about their new strategy.
“In the near future, we will offer an affiliate program to help content partners make money from the great content they create and distribute on Stitcher.”
As Medium has proved, providing a cut of revenue to an army of small content creators can be a savvy move. Still, how much revenue a company can share is limited by how well it monetizes its users. Other players with more scale might do a better job at this, especially on the ad side.
Sirius is a very profitable company that makes most of its money from two outdated technologies. The Sirius XM service uses satellites instead of the internet for distribution, and its shows are played on car radios instead of smartphones.
The company seems to realize that its golden goose doesn’t have many more eggs to hatch. Last year Sirius acquired Pandora Media but the company has said little about their plans for the streaming service.
With this acquisition it might seem like Sirius has all the pieces needed to launch a successful internet audio product. They have high quality shows (on satellite), a popular client in the Pandora app, and experience running both subscription and advertising businesses.
Still, there aren’t many signs that a revolutionary new service is in the works. Sure there was the launch of Pandora Now, which lets both Pandora and Sirius subscribers access the same music. However, the popular radio shows on Sirius remain available only to satellite subscribers. Like all companies with a profitable legacy business, Sirius will have an incredibly hard time adjusting to a new model, especially one that is less profitable in the short term⁴.
As others have noted, you should never underestimate Amazon. The company has millions of users in their Prime service and a cost advantage inherent to their business model. Anything that helps Amazon sell a pair of shoes can basically be given away for free.
Given the company’s history, Amazon is stronger in audio books than podcasts. Luckily the experience of streaming a novel is quite similar to that of streaming a podcast (in a way that listening to music isn’t). The business of books is quite different from podcasts though. Books have a high cost of production, a legacy publishing industry attached to them, and cannot be interrupted by ads. In their Audible subsidiary, Amazon has the potential to attract book readers to the podcast market in a way that no other company can.
Still, the podcasts available to Audible/Prime members are not must-haves. Not to mention that most people don’t associate Audible with podcasts in the first place. Amazon would have to work hard to market Audible as a podcast app if they really wanted to attack this market.
Others have done a good job of describing Luminary, so I’ll keep it brief. The company raised 100 million dollars in VC money and used it to buy exclusive content from big names in the podcast world (Bill Simmons, Russel Brand, Lena Dunham etc). With this exclusive content, Luminary hopes to get people to pay a monthly subscription fee and to access all podcasts through their Luminary app. This app leverages the open nature of podcast feeds to play existing, free shows available on other players (with a few big exceptions). This kind of strategy could work except for one thing. It hinges on getting users onto a new app with a limited value proposition. As thousands of failed startups will tell you, this is not easy.
One of the newest players in this space is Spotify. They have made multiple moves indicating that they are very serious about the podcast market. This includes buying access to exclusive podcast content in the form of Gimlet Media and Parcast. It also includes acquiring Anchor Media which makes tools for small podcasters. In these acquisitions, we see Spotify attacking both the high and low end of the market. They will be able to provide original content from both professionals and amateurs podcasters.
But by far the biggest asset that Spotify has is their user base. With almost 100 million paying subscribers and another 100 million listening to ads on their free tier, Spotify has a huge number of customers to push services to. And unlike say Apple or Amazon, Spotify needs this revenue badly. The company’s stock is down since its IPO and Spotify seems desperate to rely less on expensive music deals with record labels. In this fight so far, Spotify seems the most aggressive.
Strengths and Weaknesses
Looking at the various competitors in the podcast market, it’s easy to see that each company has its own strengths and weaknesses. While any successful service will need to have certain components, most of the companies listed are strong in only a few of them.
It seems to me that a good podcast product will require:
- A nice podcast client
- Differentiated, must-have content
- A working ad business
- A working subscription business
- A user base to leverage
- Brand strength
Here’s how I think the combatants stack up.
Winners and Losers
The biggest winner in this battle will obviously be the company that captures the market. This company will grab a large percentage of podcast revenue, either by taking a peice of all podcast subscriptions, or by controlling podcast ads.
The second biggest winner will be the people who make podcasts. They should see the demand for their product rise as the podcast market expands and becomes mainstream. Centralized distribution will allow for more dollars to flow into the podcast ecosystem via subscriptions and better ads, and this should trickle down to creators. Gone will be the days of relying on Patreon donations to pay the rent.
The big loser in all of this might be the listening public. As aggregators take over the industry, we will probably see something like the tough tomato effect. Podcasts will inevitably change their shape to better fit the demands of the industry. Those shows about incredibly niche subjects featuring 4-hour interviews will still exist, but I have a feeling they will be less weird and less discoverable. Just as the small blogs of the early internet gave way to the walled gardens of Facebook and the App Store, so too will the nature of podcasts change.
As the medium matures and expands, let’s hope that the tradeoffs are worth it.
2 — the decline in car ownership is only going to accelerate the shift of ad dollars. Attention preceded monetization for internet and mobile advertising. The same is probably true of podcasts.
3 — the exact number is hard to come by, but according to one popular podcast, Apple podcast app users made up over 60% of their listeners. https://www.quora.com/What-is-the-market-share-of-podcast-apps
Before they were aquired by Spotify, Anchor also attributed ~50% of listening to the Apple app — https://medium.com/anchor/how-people-listen-to-podcasts-ba0c57a5f952
4 — Disney had the same problem, but seems to have embraced the internet with the announcement of its Disney Plus service