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).


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Thumbnail Photo by Sam Rios on Unsplash

The ‘tip jar’ business model— explained

The creative industry that consists of people who make arts, crafts, music, design, fashion, film is one of the oldest known businesses that has transformed and adapted to the changes in the economy. During ancient times, a creative person worked in the court of a lordship to write literature, compose songs, make artworks about their prowess — things that made the lord happy. The lords supported their works with generous grants of money that helped them continue creating content for a living. Affluent aristocrats, religious leaders supported creative persons to help them spread their ideas. These circumstances have changed a lot with the invention of the printing machine, mass commercialization of creative business, and the internet. The most recent trend in the creative industry is the tip jar business model that has given the liberty back to the creative minds, making the twenty-first century — the best time to be alive as an artist.

Tip jar business model is a metaphor for new age internet businesses where creators make money from direct contributions of their patrons.
 Photo by
Matthew LeJune

Before the 1400s, a musician was only known to the people in the city he or she lived. It is tough to transcribe music notes by hand. One must visit the musician in person or make them travel across cities to enjoy the music, as is the case with artists. The invention of the printing press changed that. The printing press helped music notes to be copied multiple times and distributed to other cities. Creativity spread across the boundaries of land and water.

Aristocrats in other towns bought the printed notes, hired musicians and instruments to play the music. It was the only way to enjoy classical music at that time, an expensive affair, only a few elites could afford. The evolution of printing machines also gave birth to a new art form, comics. Comics democratized the illustration art with satire, caricature and inventions like speech bubbles. The speech bubble empowered the artworks to ‘talk’, an ability that was missing all along.

Record labels along with radio broadcasting emerged in the early 1900s, disrupting the music industry. Record label businesses made agreements with artists to produce, advertise, and distribute music content. The terms of agreements determined how much the artists will earn on the music, but they did not own the content. This arrangement made musicians very popular across continents. The record labels sold rights to radio broadcasters which for the first time brought middle and low-income people to listen to opera and big band music.

Meanwhile, the record label industry was consolidated with very few companies holding much of the market. Few unhappy musicians ventured out to create independent label companies that gave more freedom to the artists. As more people started listening to music, the diversity of the content produced also expanded.

The internet took over the music industry by storm in the late 1990s. Piracy became a massive issue as people preferred downloading songs for free than paying for records and cassette tapes. Law enforcement intervened to stop peer-to-peer file-sharing services like Napster. Apple created iTunes that allowed the users to download individual songs for a fee. iTunes became massively popular since the alternative is to buy the entire album cassette. Music lovers further benefited with the arrival of YouTube and subscription-based streaming services. For $10 a month, Spotify offers over 35 million songs on demand.

All is well for the audience, but what about the creators?

Today, the more prominent, famous artists are doing well with sponsorships, endorsements, advertisement deals. However, it’s challenging to make money as an upcoming artist on the internet. 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. YouTube that runs advertisements on the videos, designed its platform to favour popular, influential channels. If you are a YouTuber with a dedicated following of (less than) 10,000 people, who always look for what you make, it’s impossible to make money.

Projected YouTube earnings for 10,000 monthly views.
 Credits: Influencer Marketing Hub

Further, in centralized platforms like YouTube, creators should adhere to the algorithms to make themselves visible among the crowd. Writing clickbait titles, coming up with a flashy thumbnail, creating content on viral topics are steps to run a successful YouTube channel. Choosing the product endorsement path, a luxury for upcoming creators, will further put them in the backseat as they now must make content that is suitable for brand placements. If you are an amateur podcast creator, without many subscribers, attempting to make a living on YouTube or other related platforms will most probably make you broke, drive insane or both.

Other categories of creative industries underwent a similar transition. Physical books were taken up by publishing houses who owned the book and paid a royalty to the authors. Like the music industry, self-publishing is also skewed by outliers. Artworks were taken up by museums and auction houses. Artists depend on these institutions to make money. For an upcoming author or painter, it’s challenging to make money in a mainstream way.

When the New York Times (NYT) observed most of the advertising revenue going to Google and Facebook, they decided to change their digital revenue model. In 2011, NYT launched its first paywall on its website and started subscription plans. It was the time when paid revenue models on the internet were written off against the advertising models. Experts argued that advertising is the only way to make money because people are not used to paying for content they access online (for free).

But NYT’s subscription model became a massive success while advertising revenue continued to fall over the years. NYT bundled its subscriptions depending on the needs of the reader. Their crosswords alone have reached 400000 subscribers. NYT also engaged with subscribers allowing them to ask questions to the panel of experts on different topics. It enabled the news publication to forge a relationship with their readers. As of February 2020, NYT has 5.2 million paid subscribers, of which 3.5 million are digital-only. This story became the bedrock for the tip jar business model.

NYT’s success is attributed to fundamentally two things. First, users will pay for something that makes their lives better in some way. We can see this materialize in the success of e-learning platforms. Secondly, continuous engagement with the subscribers is necessary to convert them into a loyal following. Modern platforms such as Patreon, Substack are using these principles to help upcoming artists, writers to make a meaningful living without worrying about the advertising revenue.

“They are going to be paid…and they are going to be valued.”, says Jack Conte, founder of Patreon.

Artists create a Patreon page to publish their work. Patrons (subscribers) offer recurring payments from as low as one dollar every month to view the content. Artists also offer multi-tier subscriptions (like NYT bundle) for patrons to choose. A first-tier subscription (say $2) will allow them to view the content, whereas higher tier subscriptions (say $20) will deliver handwritten notes, merchandise from the creator. Substack enables writers to publish newsletters for their subscribers in the hope of converting some of them into paying members. Readers can learn new things in their area of interest. It even offers a guide to the writer to build his or her audience before asking them to pay.

A Patreon membership page

These platforms establish, for the first time, an influential audience to creator connection. The audience, paying money directly to the creator, feel good for supporting their work. The crowdsourcing platforms, suitable for ambitious one-time projects, often do not meet the goal. Tip jar platforms allow the creator to build a stable audience from the ground up. The micro-payments (as low as $1) does not add a lot of burden to the audience. Creators can focus on doing the things they love without worrying about the advertisers or uncertainty of income. The platforms also create a safe space for creators free from online trolls and bullies.

The platforms enable creators of a specific niche, to build their fans. A comic about humans living with androids or a feminist anime might not appeal to a mainstream audience, but with the help of platforms like Patreon, they will be able to make decent money. Patreon takes anywhere between 8% and 12% of the money creators make while Substack takes a standard 10% cut. Five thousand patrons with $1 a month pledge or five hundred readers with $10 commitment, it can easily cover the cost of living in any major city in the world.

Creators who are successful in Patreon say it takes an incredible amount of time from their life. Since most of that time is spent on doing more of what they love to do, it’s an excellent deal for committed, passionate artists. Running tip jar model business is not easy, and it is most certainly not ideal for a non-serious, side business. But, before going for their big break, artists can keep doing what they love or even convert it into a full-time job. It’s only possible due to the tip jar business model powered with technology.

Every business model has its risks. Firstly, the tip jar business model will face the threat of plagiarism. Anyone who subscribes can repost the creator’s content on the internet. The platforms should be prepared to address the issue. Even though tip jar platforms are less centralised as compared to YouTube, they still make and enforce rules. Patreon banned far-right provocateurs from its platform. It might push them to seek other platforms (or create their own). But, the tip jar model is here to stay.

Legendary artists like Beethoven, Vincent van Gogh, Edgar Allan Poe struggled financially. Most of the successful artists depended on kings, aristocrats, media houses, record labels and advertisers for their living. Gone were the days when an aspiring artist needed to settle for a ‘real paying’ job.

If an artist’s craft makes a difference in somebody’s life, they will be paid, and they will be valued. Now is truly the best time to be alive not just as an artist but as a human.


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