Podcasts: origin, business and beyond

I have been spending quite a lot of time listening to podcasts lately. I got curious and looked into their origin, how they work, why they are popular and where they are heading as a business. Breaking them down in this opinionated analysis. You will know everything (almost) about podcasts at the end of six minutes.

Under the hood

Podcasts are audio files broadcasted over the internet for users to download and hear at their convenience. They are accessible through devices that can connect to the internet. Your mobile phone, laptop, PC can become podcast streaming devices. How does it actually work? Podcast creators record the audio in MP3 format and upload it into a cloud hosting service. They also create a Rich Site Summary (RSS) feed for the hosting location. RSS feed is a computer understandable code that tracks updates in a location of the internet such as the podcast cloud portal. Applications like Apple Podcasts, Spotify and PocketCasts track the RSS feed. These applications are called pod-catchers. If a user has subscribed to a podcast in a pod-catcher, new episodes will be downloaded or notified when they are available.

How podcasts work
A free and open podcast system

A Guardian journalist, Ben Hammersley, was writing an article in 2004 to explain the new trend in media broadcasting. He accidentally invented the word podcast by combining “iPod” and “broadcasting”. He is credited for creating the term. But, iPod did not support podcasts until 2005. Usage of iPod in the name was enough to convince Steve Jobs to build the feature into iTunes.

Steve Jobs announcing podcasts for iTunes in 2005 WWDC

Integrating podcasts into iTunes was a game changer. Users can subscribe to their favourite podcasts in a single place and listen across their devices. Today, Apple Podcasts is the most popular pod-catcher with over 800,000 podcasts in the platform.

Why are podcasts popular?

Media companies compete for the time in the user’s day. The time a user spends in a media platform, allows them to run ads or charge a subscription to make money. Prime time, typically 07:00 PM to 11:00 PM, is already dominated by popular media. It’s difficult to acquire time outside this slot because everyone is busy with their job and daily chores. If only there is a way to consume media while doing the routine tasks.

If someone is watching TV, they are consuming the program with their eyes and ears. More senses involved in following something, lesser the scope for multitasking. Radio is still popular due to the multitasking aspect. A coffee shop owner, taxi cab driver or a construction worker can listen to radio without significant disturbance to their work. A song or voice in the background will elevate the vibe of the environment. But, one needs to have a radio receiver device to listen to the broadcast. The radio programs are also pre-scheduled and the user has no control.

Podcasts have taken the best utility of radio and solved almost all of its pain points. With podcasts, every device with internet connection can become a listening gadget. Driving to work, waiting in traffic, morning jog, cooking in the kitchen are all ideal time slots for listening to podcasts. Another key difference between radio and podcasts is that it’s more personal. Users can find and follow podcasts in niche topics of their interest. Podcasts have given the control to the listeners.

For creators, it is easier to create podcasts than any other format of media. A microphone or even a smartphone voice recorder app is sufficient to get started with podcasting. Voice only mode of communication provides a virtual mask for creators to express themselves freely.

Podcasts as a lead generating medium

Many companies offer podcasts for their own benefits. I listen to This Is Product Management where the host brings product leaders from different companies who talk about their experience in managing products. The podcast is owned by a customer feedback platform company, Alpha. “Implement what you learned from the podcast”, says Alpha.

Robinhood’s Snacks podcast is a popular, daily financial news story offering. What is the most common identifier among the daily financial story listeners? They are likely to be stock investors. And, Robinhood is a stock brokerage firm. These podcasts are self sustainable, lead generation tools for their parent companies. Traditional media companies such as BBC, NPR, ABC, Disney also offer podcasts to drive traffic to their business. Some companies use their podcasts to build reputation.

Podcast as a business

Any activity should be able to make money to be called a business. How do podcasts make money?

Podcasts primarily make money by running advertisements. In a typical podcast, there will be an introduction to bait the listener and then, “Before going into the topic, a quick word from our sponsor XYZ”. The main problem of advertising in podcasts is you cannot measure “Click-through rate”. Podcast creators only know how many times their files are downloaded from the cloud. Companies are careful on their advertising spend, they need to know the return on the investment.

A coupon code style advertisement is a quick fix to the problem. “XYZ.com/podcast-name”, became the norm in the advertisements. Users are incentivised to visit a website under a given URL with a promise of discount. Another challenge here is the user may skip the entire advertisement part. The playback metrics are unreliable.

This problem arises due to the design of podcast publishing. The podcast owners do not control the applications that are used to listen to their content. The free, open, decentralised architecture became a hurdle to run advertisements.

Another way to earn money is to charge the listeners. Platforms like Patreon allows multi-tier subscription models to create live stream, shout-outs and exclusive content to the listeners. But, people are used to listening to podcasts for free. Subscription model for audio content isn’t mature or scalable yet.

Podcast analytics

Advertisers are in a dilemma whether they are overpaying for podcast ads. Without metrics, it’s not easy to answer the question. In the last five years, ideas are emerging to fix this problem. Backtracks, calls itself “the world’s most advanced podcast analytics and hosting platform”, has developed an open source analytics standard to be integrated on the server, website or mobile podcast applications to run analytics.

Podcast architecture with Backtracks SDK
Podcast architecture with Backtracks SDK for analytics

The podcast analytics Software Development Kit (SDK) allows the podcast creator, advertisers to uniquely measure the impact of every episode and campaign. They can now know which part of the episode is played, how many people listened through the entire episode and more. It helps the creator to objectively measure their brand and advertisers can reliably spend on their marketing campaigns.

A closed opportunity

Podcasts were created in the distributive framework. The monetisation challenge pushed for innovation in the domain. Podcast analytics is a success but taking control of audio files is still a prolonged challenge in the distributive system. A closed model can solve this problem efficiently.

Imagine a platform where the creators upload the audio files. The platform manages the listening application with its registered users. It will have complete control of the usage metrics and can even change the advertisement from time to time. Just like YouTube. Now, who in the audio medium is as big as YouTube? 🤔

Spotify, it is.

I wrote about Spotify’s thin margin in the competitive music industry in the “tip jar business model”.

Spotify pays $0.00437 per stream to the owner of the music rights. That will take over 300,000 streams to earn a minimum living wage. Spotify is paying out 75% of the revenue, it is the best they can do with their business model.

the “tip jar business model”.

Spotify’s current business model is not working well for the company or the majority of its small creators. Spotify can build a podcast platform where subscribers listen to exclusive content. It will be another channel of revenue for Spotify without the rights problem. If it grows big, they can bundle subscriptions across music and podcast platforms.

Spotify's closed podcast system
Spotify’s closed podcast system

Spotify saw this coming and made multiple acquisitions of podcast platforms namely Anchor, Gimlet and The Ringer. It announced Streaming Ad Insertion (SAI) technology, in January this year, that enables it to dynamically insert ads in real time based on who is listening to the podcast. Stitcher Radio is another podcast and radio broadcasting platform that tries to centralise monetisation in podcasts. It owns Midroll where advertisers are matched with popular podcast creators.

Closing thoughts

Podcasts have been thriving for the last twenty years in the decentralized environment. Platforms like Spotify and Stitcher are trying to create a closed system. It compromises the freedom and openness that made podcasts successful in the first place. There are challenges in on-boarding existing podcasts as exclusive Spotify offerings. Spotify can try to become a better pod-catcher with its SAI technology and other innovations. But it is caught in a position to create its own high quality, exclusive podcast content. Where have we heard about a company that is put in a position to create original content to thrive sustainably? 🤔

That’s right. Spotify is aspiring to be the Netflix for podcasts.

Update:

Few days after publishing this post, Spotify has bought Joe Rogan’s podcast as an exclusive in a deal worth more than $100 million. Spotify’s stock soared 8% after the announcement (~$5 billion).


Hope you learned something new. I write on business and technology topics. Consider subscribing to my blog to receive upcoming posts directly to your mailbox. I promise to publish useful content 🙂

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Thumbnail Photo by Sam Rios on Unsplash

One thought on “Podcasts: origin, business and beyond

  1. Great post, I found it very informative! I wonder if most people know how long podcasts have been around. I know I wasn’t until about a year ago.

    Like

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