By Nick Strann & John Lustyan | @nstrann | @jlustyan | 7 min read
For those watching the digital audio space… it’s been one hell of a week. Starting last Monday, we’ve seen Facebook enter the market with podcasts (in some form or another) and a Clubhouse clone, Apple announce a UX redesign + rollout of subscription podcast functionality, and Spotify clap back with subscription functionality of its own. Throw in the acquisition of 99% Invisible by Sirius XM and you’ve got enough for strategists, operators and pundits alike to decry the great coming of Podcasting 3.0TM.
Much of the 3.0 hype stems from the potential for subscription podcasts to capture a long pined after (but to date highly elusive) willingness to pay in Podcasting. Whether or not listeners are actually going to add yet another subscription (or 5) to their monthly media bill? Well that remains to be seen. Yet if we assume that these new feature sets will indeed garner traction then this emergent revenue opportunity will have a significant impact on players across the entire digital audio market. It’s clear to see why the aforementioned platforms are rolling out new creator monetization tools, so let’s instead look at some specific ecosystem companies of note and chart where they may go from here.
The Situation – Until this past week, Patreon has been the de-facto solution for small to mid-size podcast creators looking to establish paid relationships with their listeners. It’s a business that Patreon needs to defend going forward as podcast creators account for nearly 15% of total payouts managed by the platform (second only to “Video” creators at 27%). To add to that point, while creator revenue is booming ($1B in 2020), new creator sign-ups have significantly slowed making retention all the more critical. That said, while Apple and Spotify could compete with Patreon over future subs, existing Patreon subscribers (“patrons”) have no real incentive to switch. Apple Podcasts still allows custom RSS feeds (for now at least) and Spotify just added similar functionality. On the creator side, Patreon remains competitive in terms of pricing (5-12% vs. Apple’s Year 1 at 30% and Spotify’s future 5%) and, more importantly, provides direct access to listeners and their information (which neither Apple nor Spotify will do).
The Path Forward – Hands down, Patreon remains the most creator friendly option and its established traction with the podcast community presents a compelling opportunity. Fresh off a $155M (valuation of $4B) Series F raise earlier this month, they have the necessary deep pockets to more aggressively defend and grow their position in podcasting / the creator economy at large. Looking inwards, the more Patreon can let creators focus on creating by building an ever-more robust product experience and feature set geared towards on the rest of a creator’s workload (finance, admin, customer service, patron engagement, etc.), the stickier the relationship and higher the switching costs. Luring Julian Gutman (formerly the Head of Product for Instagram’s Home Experience) in Q1 will no doubt accelerate the development needed to stay competitive. Looking externally, Patreon should go on the biz dev offensive – seeking to integrate its creator stack into those podcast platforms who may have been caught somewhat flat footed by Apple and Spotify’s moves (think Pandora, iHeart, or Google).
The New York Times, Vox Media, and Other Legacy Media Brands
The Situation – Traditional media operators have faced the who-owns-the-customer dilemma time and time again (Big Media’s frenemy relationship with Apple News is a recent example of this.) Thus, while NPR, the Washington Post, the LA Times, and a few other notable orgs have opted in, podcast stalwarts Vox and the New York Times are conspicuously absent – likely waiting to see Apple and Spotify’s products in action and weighing whether or not they can build subscription audio functionality on their own.
The Path Forward – Last July, we predicted that the NY Times would bundle in some form of subscription audio into its core digital package after its acquisition of Serial Productions. That prediction has yet to materialize, but we still believe that an O&O audio app from the NY Times will be revealed in the near future. Their success in engraining podcast content into the (forgive the pun) Daily lives of listeners, track record of launching subscription apps (NYT Crossword and NYT Cooking), and the premium equity of the NYT and Serial brands make that opportunity highly viable, if not inevitable. Vox and other media orgs, however, are going to face an uphill battle trying to go it alone and the streamlined / established use case of Apple’s payment solution appears to be the best bet for driving incremental revenue. Marrying the ad-friendly businesses they’ve built up with ad-free or other paywalled exclusives will be a balancing act, and we expect them to go from watching to testing + learning in short order.
The Situation – Of all Apple’s launch partners, the inclusion of Luminary (the self-proclaimed “Netflix for Podcasts” who’s once touted $160M raised is now comparable to the value of the entire company) perhaps stands out the most. Our first instinct is to proclaim this as Luminary’s official declaration of defeat, as they try to demonstrate the value of the “premium” content in their sub-scale, pay-walled garden to mainstream listeners. The big question thus becomes just how much of Luminary’s content will be available on Apple Podcasts – making a few completed series available means something very different from shifting the entire library (and business model) over. Either way, by throwing its hat in the ring with Apple, Luminary is drastically pivoting away from its failed experiment and trading customer proximity for short term revenue, all while hoping for a much-needed brand lift with the everyday podcast listener.
The Path Forward – Frankly, this feels like just another step towards the grave for Luminary. Nonetheless, a windowing of content (Luminary’s platform -> Apple Subscription -> Ad Supported Broad Distribution) is certainly a bet worth making. When faced with a similar situation, we saw Quibi unwilling to pivot in the face of failed product market fit, and while a shift in release strategy is likely much too little, far too late, could it help Luminary extend runway long enough to rebirth? ….No. But we are confident some great content will emerge from its precious coffers.
Pinna & Kids Podcasts In General
The Situation – Another interesting Apple launch partner to call out, Pinna is an on-demand audio entertainment service that produces “podcasts, audiobooks and music compilations […] expertly developed and carefully curated for kids 3-12.” Similar to Luminary, Pinna operates its own audio platform, although the Kidsafe environment on this platform has proven differentiated and consumer-aligned enough to entice those parents who initially subscribe to a Pinna show through Apple. That said, with John’s Disney and Dreamworks background, we’ve been obsessed with the coming tide of kid’s audio and see this as a seminal moment. Readily available subscription functionality throughout the podcast ecosystem could address the financial barrier to entry that has held back production of Kids podcast content (COPPA regulations limit advertising revenue) which in turn could enable a new wave of competitive Kids podcast producers, consumers and revenue potential.
The Path Forward – Kids content largely succeeds on curation and communication of value with parents so leveraging the editorial machines of Apple and Spotify to drive brand awareness makes a lot of sense. It appears companies like Pinna may tightly tailor small subscription bundles specific to the Apple platform and it’s great to go where the audience is / where one-tap purchasing is as natural as breathing, but we’ve seen the allure of marketplace dynamics as a double edge sword play out almost always play out to the benefit of the marketplace (just ask any CP brand about their Amazon business). Further, the threat of being displaced by the Spotify Kids app or a lookalike just became very real, and Pinna will need to double down on content, brand, and product differentiation to survive. And we’d recommend doing it soon. Our hunch is that Spotify juices its content library with a notable kid’s brand collab (akin to Audible x Sesame Street) and larger kids content strategy in the coming months.
Audible & The Audiobooks Ecosystem
The Situation – On the one hand, establishing a willingness to pay for audio content is a rising tide that lifts all digital audio boats. On the other, Apple and Spotify pushing into title-by-title subscription territory competes directly with Audible’s value proposition and firmly established place in a listener’s wallet. While this dynamic that could be bad for Audible, it would prove to be much needed point of leverage for publishers, authors, and everyone else in the audiobook ecosystem who have grown frustrated with Audible’s immense market power (Audible controls somewhere between 85-95% of all digital audiobooks sales in the US according to Bookstat).
The Path Forward – This could be the push that Amazon needs to begin consolidating Audible into Amazon Music and the broader Amazon Prime offering. Doing so would not only give Amazon Music a leg up in its fight for market share but Amazon Prime users are already accustomed to a channels approach on Prime Video – potentially streamlining the path to podcasting willingness to pay. On the author / publisher side, I’d aim to keep any deal making with Audible or Amazon to a two-year (three-year max) term limit. There is enough rumored competitive pressure just around the corner that could either (a) give you negotiating leverage in future negotiations, or (b) make another distribution platform potentially more lucrative.