Simon Owens
Apr 29 · 7 min read
Source: Wikipedia (creative commons)

Apple didn’t invent podcasting, but it’s served as a benevolent overlord for much of the medium’s existence. It added formal support for podcasts in 2005 when it made it possible to search for them within iTunes. In 2012, Apple launched a standalone podcast app that it shipped to every iPhone home screen. In June 2018, Libsyn estimated Apple had about 62 percent market share of podcast listening. Its closest competitor, Spotify, had only 6 percent.

Despite Apple’s early lead in podcasting, it hasn’t expressed much interest in innovating or monetizing in the space. Its podcast app remains mostly unchanged from year to year, and it only recently fulfilled podcasters’ longstanding request for a more comprehensive analytics dashboard.

But most podcast publishers don’t complain too much about the lack of innovation; they’re all too aware of what happens when a major tech platform gets too obsessed with content monetization. The last thing they want is for Apple’s podcast app to become another Facebook, choking off reach with an inscrutable algorithm, all in an effort to get publishers to pay up if they want to reach their own subscribers.

In fact, many podcasters take pride in the fact that podcasting remains an open ecosystem. Podcasts are distributed through RSS, and anyone can invent a podcast app that pulls in virtually every podcast ever created. And for the past decade, just about all the podcast apps on the market have tried to compete with Apple by offering differentiated features, with the idea being that a podcast listener would choose an app because it offered a superior user experience. Though app-exclusive content existed — Stitcher Premium and Audible Channels come to mind — most podcast apps haven’t pursued original content as a means for user acquisition.

That’s all about to change, and and I believe it’s only a matter of time before Apple begins developings its own original, app-exclusive podcasts.

Recently, we’ve seen two companies make substantial bets on original content: Spotify and Luminary. Though Spotify has been experimenting with podcasts for years, even signing some exclusive windowing deals with publishers, its platform remained invite-only for podcasters, meaning the vast majority of shows weren’t available on it. Any serious podcast listener wouldn’t have dreamed of designating Spotify as their main podcast player.

That all changed in late 2018 when Spotify opened up its platform to all podcasts. This came just as it started dropping millions of dollars to fund original content production. It paid $1 million to Amy Schumer to develop an exclusive show. It followed that by signing Joe Budden, the “Howard Stern of hip-hop,” to an exclusive partnership. Its biggest moves in the space, however, came this year when it spent hundreds of millions of dollars buying three companies: Anchor, a podcast hosting company; Gimlet, a podcast network led by Planet Money co-founder Alex Blumberg; and Parcast, a podcast network that produces crime, mystery, and science fiction shows. In an interview, Gimlet’s Blumberg acknowledged that, while existing Gimlet shows would continue distributing to all podcast apps, Gimlet will likely create exclusive content for Spotify. Many predict Parcast will do the same.

Why is Spotify investing so much in podcasting? Well, for one, it’ll help reduce the financial burden of what it pays out to music labels. Though the math is a bit complicated, some have estimated that 70 cents of every dollar Spotify generates goes right back out the door to music rights holders. These are locked-in marginal costs that Spotify can’t scale its way out of.

Podcasts, on the other hand, represent fixed costs. If Gimlet launches an exclusive show for Spotify, it costs the same to produce the show regardless of whether it’s streamed by 1 million users or 5 million users. The more Spotify can push its users toward listening to non-music content, the less it has to pay out to music labels.

Exclusive podcasts can also help Spotify in its user acquisition. Currently, virtually all music streaming apps have the same exact library. I can access the same songs whether I subscribe to Apple Music, Spotify, Pandora, or Amazon Music. However, Apple has some advantages that it’s leveraged to surpass Spotify in U.S. paid users. For one, it’s placed the Apple Music app on the iPhone home screen, removing the friction of downloading the app. Spotify faces even more headwinds on iOS simply because Apple extracts a 30 percent tax on all purchases made within apps downloaded through the App Store; this has forced Spotify to route potential subscribers to its website so it doesn’t have to pay this expensive tax. And then there’s the Apple Homepod, which only provides seamless integration with Apple Music; Spotify users need to jump through extra hoops to play their music on the device.

This is precisely why Spotify’s podcast play is so important; Spotify can’t offer exclusive music to its users, but it can offer exclusive podcast content. And there’s evidence that this sort of differentiation works. Deloitte’s annual Digital Media Trends survey found that 57 percent of consumers said they subscribed to streaming services “to access original content.”

Of course, that survey referred to video streaming, but audio platforms have also seen success employing similar strategies to Spotify’s. SiriusXM is probably the best example. In 2004, an embattled Howard Stern, tired of fighting off the FEC, signed a five-year deal to appear on Sirius, which at that point was still a separate company from XM, its main competitor. “In late 2004, Sirius had 800,000 subscribers,” wrote one analyst. “After signing Stern, in just over a year, it had 3.3 million. And by 2008, Sirius had 8.3 million subscribers.” Another analysis projected that Stern drove an additional $120 million in revenue for Sirius on top of what he was paid by the company. So a single radio personality providing exclusive talk content to a platform was able to drive $220 million in annual revenue.

There may be a similar opportunity for Spotify to lock in existing users and lure more customers onto its platform. According to Edison Research, podcasting only drove 3.9 percent of Americans’ audio listening time, whereas streaming services like Spotify accounted for 15 percent of audio listening. Spotify CEO Daniel Ek has said that users who listened to podcasts spent twice as much time on Spotify, and it’s seen sharp increases in overall podcast listening on the app. The annual Infinite Dial report estimated that 53 percent of Spotify users listen to podcasts. That same report found that only 32 percent of Americans regularly listen to podcasts, but that that number is quickly growing. As more people dabble in podcasts each year, they might be more inclined to go with an all-in-one service like Spotify that includes both music and podcasts rather than seeking out a standalone podcast app.

And that’s why I’m predicting that Apple has no choice but to eventually launch original podcasts of its own.

You might be thinking: “If Apple hasn’t shown much interest in monetizing podcasts in the past, why should it care if it loses market share to Spotify?” I’d answer that question with two words: Apple Music.

With the recent news that iPhone sales growth has stalled, the company has been increasingly touting its “services” category, which generated $10.9 billion in revenue in the first quarter of 2019, up 19 percent from a year prior. A key component of its services strategy? Apple Music, which just this month surpassed Spotify in paying U.S. users. Apple Music’s 50 million global users generate somewhere to the tune of $6 billion a year for the company.

Given that Apple Music and Spotify have almost identical music libraries, it’s highly unlikely that a user will pay to subscribe to both, and with Spotify offering exclusive, premium podcast content, it may be just the right level of differentiation to convince a user to choose it over Apple. If, in the next year, Spotify starts seeing accelerated user growth at the expense of Apple Music, then Apple executives will have no choice but to greenlight a production budget for original podcasts.

It’s not like Apple shies away from original content. After all, it just spent $1 billion on deals to produce programming for its video streaming service. It would only have to spend a fraction of that to match Spotify’s podcast programming.

The only question is what’s to become of the Apple Podcast app? Will it remain a standalone feature, or will it be rolled into Apple Music? Apple Music has actually produced some original talk programming under the banner of its Beats 1 radio station, which allows some artists to host their own shows. If Apple wants to increase Apple Music’s value proposition, it seems that original podcasts will need to be rolled into the paid subscription.

Either way, podcasting’s days as an open ecosystem are, unfortunately, coming to an end. This month we learned that several popular free podcasts were keeping their shows off Luminary’s app, despite the fact that it would be pulling the podcasts from their respective RSS feeds, just as every other podcast player does. As I tweeted at the time:

This entire debacle could trigger an IP rights war where suddenly every podcast app needs to pay to play, and then most of the highest quality podcasts are consolidated on the apps that have the most money. Then there’s less competition overall in the space.

Then before you know it, the most powerful apps consolidate their power and become another Facebook — introducing an algorithmic feed that chokes off reach for podcasters who don’t have the money to pay for placement. They’ll claim it’s for the good of the user, but it isn’t.

Perhaps I’m being too pessimistic, but as more and more money enters the podcasting space, then it’s only natural for large platforms to stake their claim, often by maximizing distribution and siphoning away revenue from smaller players. For any podcast publisher who stood by and watched as Amazon upended the books industry and Facebook redirected advertising revenue away from news organizations, watching multi-billion dollar companies descend on podcasts must spur at least some discomfort, if not outright terror.

Simon Owens is a tech and media journalist living in Washington, DC. Follow him on Twitter, Facebook, or LinkedIn. Email him at simonowens@gmail.com. For a full bio, go here.

The Business of Content

The podcast about how publishers create, distribute, and monetize digital content.

Simon Owens

Written by

Tech and media journalist. Email me: simonowens@gmail.com

The Business of Content

The podcast about how publishers create, distribute, and monetize digital content.

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