Perspectives: Opinions from our network of advisors, investors, operators and analysts on the risks and opportunities they see.

It has been a rough freshman week for podcasting’s first $100 million VC darling.

Luminary, the buzzy new startup heralded as “the Netflix of podcasts,” launched on April 23. With substantial capital backing and widespread industry awareness thanks to a popular New York Times profile, the fledgling podcast seemed primed to present an alternative for the quickly maturing podcast industry.

But the company quickly cannibalized much of that positive energy.

It all began with a since-deleted tweet of a bunny holding a sign that read “Podcasts don’t need ads.” This, understandably, caused an eruption of criticism from an industry primarily held up by independent creators dependent on advertising revenue. As Luminary co-founder and former New Enterprise Associates Principal Matt Sacks told The Verge, “The bunny put a foot in our mouth.”

A week after its launch, Luminary is still trying to get that not-so-lucky rabbit’s foot out. Since its debut, Luminary has struggled to make it through a single day without combating fires it could have avoided by being more transparent with the larger podcasting community.

While the recent entrance of power players, wave of acquisitions and widening revenue opportunities make it clear the industry is prime for a new player like Luminary, it may find itself turned into an example of the failures that capital-heavy companies encounter when they challenge creator-driven industries without proper precautions.

Conflicting Models
Luminary operates two seemingly conflicting businesses: a free podcast listening app and a paid subscription service offering premium original content.

That freemium model is what makes Luminary an easy target for questioning. Luminary utilizes public RSS feeds of hundreds of thousands of podcasts to draw listeners to the free service, in the hopes of persuading them to hand over $7.99 per month for Luminary’s exclusive ad-free content.

Aggregating RSS feeds is not an unusual model. In fact, there are plenty of companies that offer a similar product, including Castbox, Overcast and the recently launched Swoot. The difference is that no others have had a market share that mattered enough for the industry to revolt. And industry giants like Apple and Spotify have not (yet) made such blatant moves to charge for content that is free elsewhere.

What is unusual is for a company of Luminary’s scale to use content owned by other people as a conversion tool for a paid product, especially when podcasters were not made aware that their shows would be featured on the free tier in the first place.

Luminary could have made good by making it easy for shows to earn money through distribution on its app, but it was later revealed that Luminary was routing podcasts through proxy servers, which strip creators of their ability to view accurate analytics used to gain advertisers. The company was also altering show notes, which often include monetization avenues such as merchandise or donation links.

These activities, coupled with Luminary’s somewhat callous attitude and contradictory business model, has spurred a mass exodus of content: The Joe Rogan Experience, Endeavor Audio, Barstool Sports, iHeartRadio, WaitWhat, PodcastOne. Even Stitcher, a podcasting staple responsible for a large chunk of the overall industry’s advertising sales via its ad network Midroll Media, requested that its Stitcher Originals and Earwolf shows be removed. Most shows and companies that have departed noted that they had not agreed to have their content distributed on Luminary.

All series in the Spotify universe (which includes Spotify, Parcast and Gimlet Media properties), as well as The New York Times’ popular The Daily, were never available. At the time, their absence appeared to be, as The Verge’s Ashley Carman said, “The first shot fired in the inevitable premium podcast war.” However, it now appears to be more of a licensing issue than a competitive reaction.

According to Hot Pod, Spotify and its recently acquired company Anchor were only approached with licensing agreements four days prior to Luminary’s launch, prompting them to request their content not be listed on the platform.

Shows pulling themselves from the platform is not necessarily the problem. The real threat to Luminary is the message this sends to listeners. Listeners will ultimately be the source of Luminary’s money, and if Luminary angers the industry’s most powerful producers and studios, their fans will write the young company off as well.

Luminary’s issues are a growing pain of the quickly maturing podcast market. As the industry transitions from a gangly outsized hobby to a full-fledged media industry capable of commanding millions of dollars, money is pouring in and opening opportunities not previously available. But, because this industry is built on the backs of amateurs who have bootstrapped it to what it is today, it still has kinks to work out. There is room for newcomers like Luminary, but the reaction to Luminary has proved that they’ll need tread carefully and find a way to coexist.

Go Big or Go Home
Perhaps the last thing consumers need right now is yet another subscription service, but going the route of a true premium subscription offering might have been a better option for Luminary – especially if it had focused on talent and licensing from the start.

Though a fresh face, Luminary managed to assemble an Avengers-esque lineup of talent ranging from traditional celebrities like Trevor Noah, Lena Dunham and Conan O’Brien to renowned podcasters like WNYC’s Manoush Zomorodi, Guy Raz of NPR fame and Slow Burn creator Leon Neyfakh. Considering the arms race of talent currently taking place in the media landscape overall — the true power of which is evident in the ongoing battlebetween the Writers Guild of America and the Association of Talent Agents — Luminary should have depended on its roster to flaunt the service.

To a true podcast fan, the caliber of talent Luminary assembled is interesting enough to warrant interest at the very least. I personally was interested in subscribing without realizing that a free tier was even an option, and there are plenty of other people who are much more ingrained in this world that would have done the same.

Luminary is currently working on a slate of about 40 original series, for which it individually paid upfront anywhere from $700,000 to $1.5 million. Given Luminary’s $100 million funding total, even on the high end, Luminary would have still had some $40 million to play with elsewhere. It could have used that money to more intensely market the talent it spent so much capital on in the first place. It dipped its toe into this segment with bright yellow billboards in Manhattan’s busy Soho neighborhood and decals plastered across the sides of Los Angeles city buses. But it could have done much more to truly prove that Luminary’s original content was a must for any podcast fan, such as more robust digital campaigns or partnerships with existing podcasts from Luminary creators to reach established fanbases.

In that vein, it could have also used that capital to better collaborate with top podcasters through licensing agreements that would have allowed Luminary to run popular existing shows without ads on a premium tier. By entering into agreements with top producers, Luminary might have been able to avoid outrage from creators, form meaningful relationships with power players in the industry and perhaps even create a model that has yet to find mass popularity in podcasting.

As the industry matures and companies fight to find shows that attract listeners, a trend toward licensing agreements common in television and music will likely become the norm.

What’s next for Luminary is in the hands of listeners. If they choose to switch from Apple Podcasts or Spotify to tune in to their favorite shows on Luminary, the startup might be able to persuade listeners to commit to pay for exclusive original content. However, Luminary has bigger bridges to mend with the industry at large if it wants to build a sustainable model that can continually replenish itself with fresh content and best serve both the podcast fan and producer.

In short, take Luminary as a cautionary tale. This is likely just the first battle in the podcast wars as well-funded rookies enter the arena to challenge established traditionally independent podcasters for their hard-earned dollars.

The post Luminary’s Launch Serves as a Warning to Future Podcast Challengers appeared first on Karma Impact.

Perspectives: Opinions from our network of advisors, investors, operators and analysts on the risks and opportunities they see.

So far, 2019 has seen the audio industry abuzz with acquisition deals, new funding rounds, and snazzy new feature launches. As the music-streaming industry evolves, what’s in store for musicians?

In this interview with Chad Huffman, director of broadcast at Megatrax, a top royalty-free library for film, radio, television, and advertising productions, Karma Network Contributing Editor Michael Moran explores the effects of Spotify’s February acquisition of Gimlet Media and Anchor, as well as SoundCloud’s release of a self-distribution feature for paid members.

Michael Moran: What has the industry response been to Spotify’s recent acquisitions of Gimlet Media and Anchor? What do these deals mean for the audio sector?

Chad Huffman: I think it’s a really positive move. For Spotify, I think it’s a very strategic move [and] kind of dual-sided. Partnering with Anchor, I think, is really great for their monetization. To own the company that’s placing all the ads [is]only going to increase their profits. And to be able to offer that type of monetization to podcasters, where Anchor’s [strength has] traditionally been, and I imagine transferring that to musicians and bands in some way, that’s a fantastic model to keep it all in-house.

With both Gimlet and Anchor on board, and of course the Spotify platform, it’s really creating a whole ecosphere where it keeps you entrenched in Spotify.

You know, I was listening to Crimetown, one of Gimlet’s big podcasts. The second season is a Spotify exclusive. It got me off of the Apple platform and back onto Spotify, which I hadn’t paid much attention to over the last couple of years. I’ve mostly stuck to Apple. But because of their exclusivity with that particular podcast, it brought me, as a listener, over there.

And then of course the interaction starts [with]he music on Crimetown and the way they produce that podcast. As a music fan, you get very invested in the way it feels and sounds.They’re producing a playlist [music that inspired their] second season. And it’s like, “Oh man, cool! I am going to listen to that playlist!” And so now as an active listener, I’m staying on the Spotify platform. I’m getting advertisements pitched to me. I think it’s a fantastic idea.

Michael Moran: What are some risks for Spotify in its expansion into podcasting? Is it possible that podcasting won’t sit well with a traditionally music-focused Spotify audience?

Huffman: I don’t think it should be too big of a concern. I mean, [of] the numbers I looked at, about 52% of podcasts are listened to on Apple, and Spotify already owns about 19% or 20%. So you’ve got roughly 30% of the other spots that you can draw from.

You know, podcast listeners are active listeners, meaning you’re really engaged in the story, whereas when you listen to music, you can put it on in the background while you’re cooking, or hosting a party, or whatever.

And so I think that it’s only going to create engagement. It’ll get you to the Spotify platform with good content. Again, them getting Gimlet is really key to this because Gimlet is well-known for their stories. [They]are intriguing [and] really well-produced, and music is heavily involved in what they’re doing and how they present their podcasts. It’s definitely aimed [at keeping] listeners on the platform. That’s nothing but a good thing for them.

Michael Moran: Let’s switch for a second to SoundCloud’s recent release of its self-distribution feature. How does that affect music industry business models, and the musicians themselves?

Huffman: From an artist standpoint, the self-distribution on SoundCloud is not entirely different, I don’t think, than the way it sounds like you and I used to release our music, right? Save up some money, [record] an album, and go and try [to] hustle it out yourself. Self-distribution on SoundCloud is very much the same thing. It’s just a different delivery method. When you’re an up-and-coming band and nobody knows about you, how does this help? It allows you to get it out and exist on the various platforms, but that still doesn’t drive traffic to your album or to your songs.

So for all these companies —Apple Music, Spotify, and everybody else — content is king. Having all this stuff is key. But, you know, from an artist standpoint, it’s not about the content being king. It’s about good content being king. Ad it’s about how you’ve managed to stand out.

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On Our Radar: Deals we are paying attention to for their impact on industry.

Media company Entertainment One (eOne), acquired Audio Network, a British music licensing service and publisher of film, TV, advertising, and digital content, for a about $215 million in cash and stock.

The merger will add more than 150,000 music tracks to Toronto-based Entertainment One’s existing music catalog and 1,000 composers, songwriters and emerging artists to its talent roster.

Audio Network’s top management, including founder and Chairman Andrew Sunnucks and Chief Executive Robb Smith, will remain with the company. Audio Network has nine offices offering traditional record label services to film, TV and other media.

Audio Network generates revenue from subscription fees for access to its catalog and publishing royalties.

The combination of eOne’s front-end commercial artist catalog and Audio Network’s extensive production music library creates “a one-stop solution for business customers seeking high-quality music,” eOne CEO Darren Throop, said in a statement.

In addition to its music catalog, eOne’s business also includes television, a family programming unit, a partnership in Steven Spielberg’s Amblin Partners and similar relationships with other production companies. Upcoming features include Scary Stories to Tell in the Dark and Diane Keaton’s new movie Poms.

Frances Katz is a freelance writer focusing on media, culture and technology. Her work has appeared in The Atlantic, The Week, The Washington Post, USA Today and other publications. She lives in Atlanta.

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On Our Radar: Deals we are paying attention to for their impact on industry.

Tuesday was a good day for the recording industry and music streaming services, which are fast becoming the standard way people pay for music. The International Federation of the Phonographic Industry (IFPI) released its annual report showing global music sales were up for the fourth straight year in 2018, and nearly half of all record label revenue came from streaming services.

Total music revenue for the year was $19.1 billion, up 9.7% from 2017. That rate of growth is the fastest since 1997, when IFPI first began watching the industry. It was also the highest revenue total since 2007.

IFPI’s 2019 report also tells the story of the widespread popularity of music streaming, which overtook digital downloads as the predominant way labels distributed music and listeners consumed it not that long ago. Now, instead of downloading music, many users pay a subscription fee to access as much music as they’d like from services such as Spotify or Apple Music.

Paid streaming services were responsible for 37% of total recorded music revenue, while ad-based services accounted for an additional 10% and digital downloads 12%.

Purchases of physical copies of music were down to just one-fourth of all revenues. By the end of the year, it is projected that buying access to music rather than buying physical hard copy recorded music will be the dominant way fans will purchase music.

In the industry publication Music Business Worldwide, Frances Moore, chief executive of IFPI, said the arrival of streaming music has opened up the global marketplace for music. IFPI reports that China, South Korea, and Brazil have all climbed to spots in the global top ten list of music markets. Artists from emerging markets also have more opportunities than ever to bring their music to a worldwide audience, evidenced by South Korean band BTS being a top global artist last year alongside Drake and Ed Sheeran.

Frances Katz is a freelance writer focusing on media, culture and technology. Her work has appeared in The Atlantic, The Week, The Washington Post, USA Today and other publications. She lives in Atlanta.

The post Streaming Services Lead Record Labels to Best Year Ever appeared first on Karma Impact.

On Our Radar: Deals we are paying attention to for their impact on industry.

Cybersecurity risks multiply by the day. Then it’s no surprise that companies combating those risks are racing to keep up.

Enter CyberRisk Alliance.

In its second acquisition in five weeks, CyberRisk Alliance, a B2B cybersecurity risk management and information firm founded last year, announced on April 1 an investment in the CyberSecurity Collaboration Forum.

The dollar amount was not disclosed.

In February, the company also bought the conference and trade show company InfoSec World. Behind CyberRisk Alliance is media veteran Doug Manoni, who launched the alliance with private equity firm Growth Catalyst Partners.

Manoni told Folio magazine last year that he wants CyberRisk Alliance to serve as a holding company that will build or acquire other products such as “digital media, data and research, events, marketing services, peer networks, training and certification programs and “security awareness services”— essentially resources to help practitioners train their employees.

Investing in the forum is in line with the Chicago-based alliance’s strategy to provide information, events, digital marketing services and other resources to educate businesses about cybersecurity and information risk management, in that the forum builds community and networking among professionals and creates business opportunities.

The forum sponsors regional invitation-only events that unites C-suite, risk management, compliance and privacy officers with security professionals for conversations about best practices and protecting company assets from breaches and other threats. This year, it has scheduled 13 events in major U.S. cities — a number it hopes to double in 2020.

“There’s heightened awareness, and there’s great demand for information resources, training and a myriad of specialized services,” Manoni told Folio last year. “These conditions have manifested themselves into this rapid proliferation of technology and other product innovation, which require significant traditional and advanced marketing services.”

Frances Katz is a freelance writer focusing on media, culture and technology. Her work has appeared in The Atlantic, The Week, The Washington Post, USA Today and other publications. She lives in Atlanta.

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On Our Radar: Deals we are paying attention to for their impact on industry.

Driven by a maturing and fast-growing audio advertising market, M&A activity in the podcasting space continues apace.

The latest example is the audio streaming platform Spotify’s plan to acquire the podcasting content factory Parcast, announced on March 26. It’s the third network Spotify has hoovered up this year. The deal is in line with Spotify’s quest to become the “Netflix of podcasting,” using the $500 million it has set aside for acquisitions.

Neither Spotify nor Parcast revealed the deal’s terms. Spotify said in a release that the deal is expected to close in the second quarter of this year.

Earlier this year, Spotify closed on acquisitions of Parcast competitor Gimlet Media and the podcast services firm Anchor.

Parcast’s true crime and other thematic series, launched in 2016 with the goal of making podcasts that sound like “audio movies,” have often topped Apple’s podcast charts and been a draw to advertisers. Driven by such creative innovations, the podcast advertising space – though still a trickle in the overall advertising market – is growing quickly and expected to reach $659 million by 2020, up from $169 million in 2016. (See Karma Network’s Industry Report on Podcasting for more details).

Parcast’s way of doing business is novel. Its founder, Max Cutler, eschewed the investigative reportage of other true crime outlets, such as Serial, Audible and the many franchises on television (Dateline NBC and America’s Most Wanted). Instead, with a team of over 50 writers, voice artists and editors, Parcast has built a large following for programming that was scripted and often based on well-known well-covered events. A recent program on the 1983 Cold War shoot-down of Korean Airlines (KAL) 007 by Soviet fighter planes is one example.

Spotify has said that Parcast’s original content production would keep growing: the streaming platform noted that in addition to the 18 serialized programs Parcast now produces , it plans to launch another 20 this year. Cutler, Parcast’s 28-year-old founder, said in a news release that his network’s popularity with women in particular made it an attractive acquisition.

“In three years, we have created a production house that has grown exponentially and hit a chord with mystery and true-crime fans, especially women,” said Cutler, “across all 50 states and around the world.”

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On Our Radar: Deals we are paying attention to for their impact on industry.

The latest round of funding means unveiling new products and global expansion for the Santa Monica-based online music licensing platform Songtradr.

The company has completed a $12 million Series B round earlier this month, led by Australian entrepreneur and Wise Tech Global CEO Richard White, raising a total of $21.5 million to date.

Songtradr founder and CEO Paul Wiltshire told Karma Network the latest round will be allocated to “expansion of development team, acceleration of product offering and selective acquisitions.”

Already an extensive music licensing platform with more than 400,000 artists from over 190 countries, the company is aiming to expand its global reach.

“We’re committed to simplifying the process of music licensing for creators and licensees across the globe with a platform that unlocks the potential of any artist and provides the most comprehensive, data-driven music offering,” Wiltshire said.

Last month, Songtradr acquired Big Sync Music, a London-based agency that provides licensing rights to mega-brands like Samsung, BMW and Unicef. Unilever Ventures, a co-founder of Big Sync, became a minority shareholder in Songtradr as a result of the transaction.

“Our recent acquisition of Big Sync has strengthened our global footprint and provided a base for further expansion in Europe and Asia,” Wiltshire said.

While most of the Songtradr’s team is based in the U.S., it already has expanded to the U.K., Asia and Africa.

Music industry analyst Mark Mulligan of MIDiA Research, a U.K.-based media and technology analysis company, told Karma Network Songtradr is well-positioned for growth.

“Songtradr has the advantage of being a well-established player with a wide range of services, most important of which is an extensive catalogue of original, independent music which it makes available to license without the hassle of protracted clearances for permission to use,” he said. “This helps ensure that Songtradr customers can get the music they want, quickly.”

The company itself sees little competition.

“We are the only two-sided marketplace in the space so we do not know of any direct competitor, any perceived competitors are our potential partners,” Wiltshire says. “Songtradr is a technology that facilitates the frictionless licensing of music rights and we have designed the platform to be compatible with all music rights owners.”

Data-Driven Approach to Music

Songtradr’s analytics-driven approach is what sets it apart from the consumer and investor perspective as well.

“We are using data to make music licensing an intelligent and informed process. Historically, this has been predominantly subjective and costly, not attuned to rapidly emerging trends and cultural nuances,” Wiltshire notes. “Brands in particular seek more relevance with their consumers and music is a key driver of experience. Songtradr’s unique data aggregation capabilities, rendered from being a two-sided marketplace, enables us to provide music highly correlated to a brands’ consumer base, matched at a hyper-local level, if required.”

Songradr’s low entry fees are a part of its platform’s appeal. The monthly artist fee is $7.99, the licenses start at about $20 and almost every kind of music appears to be represented in their database.

A music license grants permission to synchronize a composition with visual media such as film, television, video games, advertisements, web videos and even background music in shops and restaurants.

Songtradr lets music supervisors and other creative decision makers choose music directly from any of the musicians and songwriters who have uploaded music to the platform. Artists pay a nominal monthly membership fee to upload an unlimited amount of music to Songtradr. Music supervisors, filmmakers and others who log into the service can request music according to their specifications or search Songtradr’s database for appropriate works.

Mulligan says Songtradr has an advantage in the increasingly competitive music licensing space with players hoping to bring efficiencies to an otherwise complex and inefficient industry sector.

Music licensing has become a significant revenue stream for independent musicians and songwriters. As streaming services continue to increase their content offerings, the need for original music is also growing. Prospects for the music licensing space look promising according to Mulligan.

“The global music sync market was worth $1.3 billion in 2018, up from $1.2 billion in 2017,” he says. “The sync market is vibrant and growing at a solid rate, spurred by the rise of new classes of sync customers such as streaming video platforms like Netflix and creators on YouTube. The next few years will see similar rates of growth, with the market continuing to grow at a steady rate.”

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● Podcast advertising is growing. Revenues are projected to reach $659 million by 2020, compared with $169 million in 2016.
● Measurement difficulties have slowed industry growth — but analytics are improving.
● The audio advertising market will transform from a startup-friendly market to one characterized by high barriers to entry and fewer — but larger — funding rounds.
● The utility of data for advertising has prompted consolidation across content creation, production, and distribution.
● Larger companies, including Apple and Spotify, are poised to make a serious entrance into podcasting and audio advertising.
● Listener engagement may be diluted as advertising increases.

The Big Picture

After almost two decades of dismissing podcasts as a fad, advertisers are finally catching on. Podcast advertising is surging, with revenue in the United States projected to reach $659 million in 2020, almost four times what it was in 2016, PricewaterhouseCoopers estimates. [readmore]

That prediction may underestimate the market’s potential. After all, television advertising hit $70 billion in 2017, while radio ad spending was $16.4 billion.

The podcast marketplace is evolving rapidly.

New podcasts are launched daily by corporate brands, investment firms, media companies, and individuals. Existing platforms, including Spotify, and Apple Podcasts; producers such as National Public Radio and the New York Times; and podcast networks and advertising agencies are competing to define what roles they will play.

As new ways to track listeners are being developed and venture capital investment is increasing, all these players are in fierce competition for advertising dollars.

The Competitive Landscape

There is good reason to believe that the market will continue on its path of evolution and growth.

Some businesses have launched their own podcast series, most recently LinkedIn unveiled its own podcast series. Marriott as well produces a travel podcast and Bank of America has a personal finance one. Talent agencies are monitoringpodcasts to discover new stars and find opportunities for existing talent. William Morris Endeavor even started an audio-focused branch in September 2018.

Big technology platforms are getting involved as well. Spotify, which traditionally focused on music, is emphasizing its role as a podcast provider. It’s putting serious money behind efforts to produce and exclusively own podcasts. In May 2018, Spotify signed comedian Amy Schumer to a $1 million deal to host a podcast exclusively through Spotify. Spotify also has exclusive distribution deals with Vice News and rapper Joe Budden.

Apple began providing expanded analytics in December 2017 that enable publishers to better understand listener activity. This data gives advertisers an increased degree of certainty regarding impression delivery, but it’s only a small amount of the information that Apple owns. The company has controlled the majority of podcast listens for over a decade, which puts it in an enviable position should it enter the audio advertising market.

Google also has set the stage for a potential entry into audio advertising. The tech giant’s DoubleClick platform allows marketers to access audio inventories through its platform.

As the podcast advertising industry is becoming more organized and streamlined, it lays the groundwork for a substantial growth in advertising revenues.

Podcast Listeners: Young, Tech-Savvy Spenders

Podcast consumers are attractive to advertisers because they are young, tech savvy and high spending. And there are more of them each year. Regular consumption of podcasts is growing, as is consumer awareness of podcasts. Moreover, neither looks likely to peak anytime soon.

Podcast listeners also are an engaged demographic, because they opt in to specific podcasts. That’s a stark contrast to consumers of broadcast television and radio, who often happen upon content and frequently switch to other options Typical podcast listeners consume 80-90% of each podcast they start and consume an average of six hours of content per week.

Because they are an engaged audience, listeners find podcast advertising considerably less intrusive than television or digital advertising, according to a comScore study commissioned by Wondery. Host-read advertisements function as endorsements and fit naturally within a recorded show, unlike a pop-up digital ad or a video ad.

Also, podcast advertising provides an entry point into the $70 billion mobile advertising market. As of 2018, 76% of monthly listeners most often consumed podcasts through a smartphone or another portable device, per Edison Research and Triton Digital’s report “The Podcast Consumer 2018.”

Measuring Success

Compared to internet or television advertising, podcast advertising is a relatively unsophisticated market.

Marketers have difficulty demonstrating the efficacy of podcast advertising to skeptical businesses because of a lack of engagement data. Podcast advertising agencies and networks have been forced to cite anecdotally high engagement rates and past examples of successful direct-to-consumer podcast ad campaigns.

Also, buying advertising can be difficult. Some podcasts operate independently and others route their advertising operations through a network. Advertising opportunities are not standard across networks or even across major audio delivery platforms.

Even podcast networks, which represent groups of podcasts, rarely control sufficient reach to allow large advertisers to efficiently buy in the same way that is possible in television or internet advertising.

The advertisements themselves are fairly basic, too. While host-read scripts are appealing to some advertisers, large companies worried about protecting their brand image shy away from them because they don’t have time to vet individual scripts.

Most importantly, though, measurement analytics are lacking. Podcasts are downloaded through RSS feeds that limit the amount of data that advertisers can access. Advertisers cannot know if a listener fast-forwarded through their ad or whether a podcast file including their advertisement was listened to or merely downloaded.

Moreover, even simple download counts are unreliable. For instance, Apple relays podcasts in short segments, which increases the download count. Spotify, on the other hand, caches podcasts, sometimes serving a single download to several listeners.

Also, some podcast publishers report a new request after a five-minute delay as an independent download, while others count only requests as new after two hours or an entire day.

Until podcast analytics and advertising becomes standardized enough that they can function as a line item in a general media plan, large brands’ advertising dollars will not enter the industry.

Recent innovations have led to some progress. In December 2017, the New York-based Interactive Advertising Bureau created industry measurement guidelines that the industry slowly has since adopted. And in December 2018, NPR launched Remote Audio Data protocols intended to standardize analytics across listening applications.

The general movement toward standardization is clear.

The Financial Landscape

We can expect two key financial trends to deepen.

1. Small startup opportunities will grow more limited.

The increase in exclusively-distributed content will restrict opportunities for smaller startups to test new technologies, analytics, and advertising systems. A new podcast delivery platform, for example, may have much more difficulty acquiring popular content to distribute in 2019 than it would have had in 2016.

Restrictions on publicly available content are not the only thing that will limit startup opportunities.

Until now it has been possible to create, in isolation, a better podcast network, a better targeting system for audio advertising, or a better advertising marketplace for podcasts.

New networks and delivery systems have cropped up since the mid-2000s. These relatively small and independent podcast producers and networks were in the market for new monetization and representation opportunities.

As the industry consolidates, new business opportunities will shift away from the creation of new platforms and toward platform improvement and service provision. In that way, the financial landscape for audio content and advertising will become similar to that for video content and advertising.

New entrants will need to be well-capitalized and extensively experienced to succeed, making it hard for a small startup to survive.

2. Industry consolidation will continue and will be characterized by larger deal sizes.

Now that large platforms such as Spotify are producing exclusive content and offering a full range of podcasting services, smaller firms will find it more difficult to gain traction.

Industry players acting solely as hosting networks or solely as monetization platforms risk being caught flat-footed.

In an effort to become a dominant player in a growing industry, more audio businesses may choose to spend large amounts to acquire exclusive content or related podcasting companies to expand their service offerings. Audio advertising technology providers and audio content creation platforms may prove to be attractive acquisition targets for listening platforms, or vice-versa.

This dynamic will push the podcast advertising industry toward larger deals and more private equity involvement.

Risks

Claims by some industry analysts that now is “the optimal time to invest in podcast advertising” should be viewed with caution.

A maturing market such as podcast advertising is subject to more disruption, coordination problems, and high barriers to entry.

Interested entrepreneurs and investors must be aware of three risks:

1. High Barriers to Entry

In order to create a compelling podcast advertising product, entrepreneurs must work within and between creative agencies, brand representatives, podcast producers, and hosting networks. That balancing act is difficult.

To match advertisers and podcasts, businesses need highly developed analytics. Those don’t come cheap. Large consumer data sets can be prohibitively expensive.

Another costly barrier is scale. A hosting network, advertising marketplace, or advertising technology firm needs a strong number of participating podcasts in order to appeal to advertisers, develop accurate analytics, and grow a reputation in the industry. Acquiring content, though, is expensive and difficult.

Accordingly, the era of small-scale venture-funded audio advertising startups may be closing, opening a new era of corporate and private-equity sponsored consolidation.

Larger advertising networks can better cater to large brand needs. While Casper, SquareSpace, and other early entrants to podcast advertising were content to advertise to an imprecisely defined demographic through an uncertain medium, the same cannot be said for larger brands such as Ford, IBM, and McDonalds.

Smaller podcasts simply don’t have the reach to attract large brands and new networks are unlikely to have sufficient offerings to allow high-quality demographic targeting.

Also, some podcast hosts, concerned about protecting their own images, don’t want to accept certain advertisements; agencies have had trouble placing tobacco advertisements, for example. This added layer of complexity puts the squeeze on small and medium podcast networks, where host reluctance can cut a network’s advertising reach.

Accordingly, new entrants to podcast advertisement may have serious difficulty establishing a minimum viable product.

This dynamic shouldn’t worry just potential new entrants; established audio advertising firms have reason to fret as well. Few industry firms have better distribution scale, better technical ability, or more capital than Apple or Spotify, two players that may soon establish themselves as full-service destinations for audio advertising.

If they enter the market, less-sophisticated actors will have great difficulty matching their data and analytics capabilities. Apple Podcasts, which commands over half of podcast listens, will be a perennial business threat. Spotify has already begun to sell ads on its new exclusive podcasts. With new data and experience, Spotify could construct analytics and audience targeting products that would transform the audio advertising marketplace.

2. A Coming CPM Crunch

Podcast advertising is characterized by high engagement and high CPMs. Though this may seem to create a perfect environment for investment, new businesses that rely on continued high CPMs for viability will be unpleasantly surprised.

The characteristics of podcast advertising that have kept CPMs high will evaporate as brand dollars enter the marketplace. Podcast advertising developed under a unique set of conditions.

Host-selected advertisements served as a built-in targeting mechanism and host-read ads functioned – for free – as effective endorsements. If corporate advertisers, motivated by brand image concerns, insist on avoiding risky host-read ads in favor of programmed ones, CPMs will drop as engagement sinks.

Likewise, more ads will cause podcast listeners to lose enthusiasm. Listeners may fast-forward through advertisements or install audio ad-blocking software. A premium advertisement-free audio content subscription service is possible as well.

Ad effectiveness dropping as podcasting matures as should come as no shock to advertising veterans. The click-through rate for the first digital ads was almost 40%, a rate that has plummeted by a factor of more than 100. Whether or not engagement rates of podcast advertising sink by 90% or by 99% may make all the difference.

3. Technological Risk

With the rise of 5G, mobile connectivity, and urban wi-fi availability, the technological infrastructure of podcast delivery may be reshaped in the medium to long term. This would profoundly reshape the market, closing many current opportunities and opening new ones.

The post Industry Report: Podcast Advertising appeared first on Karma Impact.

● Podcast advertising is growing. Revenues are projected to reach $659 million by 2020, compared with $169 million in 2016.
● Measurement difficulties have slowed industry growth — but analytics are improving.
● The audio advertising market will transform from a startup-friendly market to one characterized by high barriers to entry and fewer — but larger — funding rounds.
● The utility of data for advertising has prompted consolidation across content creation, production, and distribution.
● Larger companies, including Apple and Spotify, are poised to make a serious entrance into podcasting and audio advertising.
● Listener engagement may be diluted as advertising increases.

The Big Picture

After almost two decades of dismissing podcasts as a fad, advertisers are finally catching on. Podcast advertising is surging, with revenue in the United States projected to reach $659 million in 2020, almost four times what it was in 2016, PricewaterhouseCoopers estimates.

That prediction may underestimate the market’s potential. After all, television advertising hit $70 billion in 2017, while radio ad spending was $16.4 billion.

The podcast marketplace is evolving rapidly.

New podcasts are launched daily by corporate brands, investment firms, media companies, and individuals. Existing platforms, including Spotify, and Apple Podcasts; producers such as National Public Radio and the New York Times; and podcast networks and advertising agencies are competing to define what roles they will play.

As new ways to track listeners are being developed and venture capital investment is increasing, all these players are in fierce competition for advertising dollars.

The Competitive Landscape

There is good reason to believe that the market will continue on its path of evolution and growth.

Some businesses have launched their own podcast series, most recently LinkedIn unveiled its own podcast series. Marriott as well produces a travel podcast and Bank of America has a personal finance one. Talent agencies are monitoring podcasts to discover new stars and find opportunities for existing talent. William Morris Endeavor even started an audio-focused branch in September 2018.

Big technology platforms are getting involved as well. Spotify, which traditionally focused on music, is emphasizing its role as a podcast provider. It’s putting serious money behind efforts to produce and exclusively own podcasts. In May 2018, Spotify signed comedian Amy Schumer to a $1 million deal to host a podcast exclusively through Spotify. Spotify also has exclusive distribution deals with Vice News and rapper Joe Budden.

Apple began providing expanded analytics in December 2017 that enable publishers to better understand listener activity. This data gives advertisers an increased degree of certainty regarding impression delivery, but it’s only a small amount of the information that Apple owns. The company has controlled the majority of podcast listens for over a decade, which puts it in an enviable position should it enter the audio advertising market.

Google also has set the stage for a potential entry into audio advertising. The tech giant’s DoubleClick platform allows marketers to access audio inventories through its platform.

As the podcast advertising industry is becoming more organized and streamlined, it lays the groundwork for a substantial growth in advertising revenues.

Podcast Listeners: Young, Tech-Savvy Spenders

Podcast consumers are attractive to advertisers because they are young, tech savvy and high spending. And there are more of them each year. Regular consumption of podcasts is growing, as is consumer awareness of podcasts. Moreover, neither looks likely to peak anytime soon.

Podcast listeners also are an engaged demographic, because they opt in to specific podcasts. That’s a stark contrast to consumers of broadcast television and radio, who often happen upon content and frequently switch to other options Typical podcast listeners consume 80-90% of each podcast they start and consume an average of six hours of content per week.

Because they are an engaged audience, listeners find podcast advertising considerably less intrusive than television or digital advertising, according to a comScore study commissioned by Wondery. Host-read advertisements function as endorsements and fit naturally within a recorded show, unlike a pop-up digital ad or a video ad.

Also, podcast advertising provides an entry point into the $70 billionmobile advertising market. As of 2018, 76% of monthly listeners most often consumed podcasts through a smartphone or another portable device, per Edison Research and Triton Digital’s report “The Podcast Consumer 2018.”

Measuring Success

Compared to internet or television advertising, podcast advertising is a relatively unsophisticated market.

Marketers have difficulty demonstrating the efficacy of podcast advertising to skeptical businesses because of a lack of engagement data. Podcast advertising agencies and networks have been forced to cite anecdotally high engagement rates and past examples of successful direct-to-consumer podcast ad campaigns.

Also, buying advertising can be difficult. Some podcasts operate independently and others route their advertising operations through a network. Advertising opportunities are not standard across networks or even across major audio delivery platforms.

Even podcast networks, which represent groups of podcasts, rarely control sufficient reach to allow large advertisers to efficiently buy in the same way that is possible in television or internet advertising.

The advertisements themselves are fairly basic, too. While host-read scripts are appealing to some advertisers, large companies worried about protecting their brand image shy away from them because they don’t have time to vet individual scripts.

Most importantly, though, measurement analytics are lacking. Podcasts are downloaded through RSS feeds that limit the amount of data that advertisers can access. Advertisers cannot know if a listener fast-forwarded through their ad or whether a podcast file including their advertisement was listened to or merely downloaded.

Moreover, even simple download counts are unreliable. For instance, Apple relays podcasts in short segments, which increases the download count. Spotify, on the other hand, caches podcasts, sometimes serving a single download to several listeners.

Also, some podcast publishers report a new request after a five-minute delay as an independent download, while others count only requests as new after two hours or an entire day.

Until podcast analytics and advertising becomes standardized enough that they can function as a line item in a general media plan, large brands’ advertising dollars will not enter the industry.

Recent innovations have led to some progress. In December 2017, the New York-based Interactive Advertising Bureau created industry measurement guidelines that the industry slowly has since adopted. And in December 2018, NPR launched Remote Audio Data protocols intended to standardize analytics across listening applications.

The general movement toward standardization is clear.

The Financial Landscape

We can expect two key financial trends to deepen.

1. Small startup opportunities will grow more limited.

The increase in exclusively-distributed content will restrict opportunities for smaller startups to test new technologies, analytics, and advertising systems. A new podcast delivery platform, for example, may have much more difficulty acquiring popular content to distribute in 2019 than it would have had in 2016.

Restrictions on publicly available content are not the only thing that will limit startup opportunities.

Until now it has been possible to create, in isolation, a better podcast network, a better targeting system for audio advertising, or a better advertising marketplace for podcasts.

New networks and delivery systems have cropped up since the mid-2000s. These relatively small and independent podcast producers and networks were in the market for new monetization and representation opportunities.

As the industry consolidates, new business opportunities will shift away from the creation of new platforms and toward platform improvement and service provision. In that way, the financial landscape for audio content and advertising will become similar to that for video content and advertising.

New entrants will need to be well-capitalized and extensively experienced to succeed, making it hard for a small startup to survive.

2. Industry consolidation will continue and will be characterized by larger deal sizes.

Now that large platforms such as Spotify are producing exclusive content and offering a full range of podcasting services, smaller firms will find it more difficult to gain traction.

Industry players acting solely as hosting networks or solely as monetization platforms risk being caught flat-footed.

In an effort to become a dominant player in a growing industry, more audio businesses may choose to spend large amounts to acquire exclusive content or related podcasting companies to expand their service offerings. Audio advertising technology providers and audio content creation platforms may prove to be attractive acquisition targets for listening platforms, or vice-versa.

This dynamic will push the podcast advertising industry toward larger deals and more private equity involvement.

Risks

Claims by some industry analysts that now is “the optimal time to invest in podcast advertising” should be viewed with caution.

A maturing market such as podcast advertising is subject to more disruption, coordination problems, and high barriers to entry.

Interested entrepreneurs and investors must be aware of three risks:

1. High Barriers to Entry

In order to create a compelling podcast advertising product, entrepreneurs must work within and between creative agencies, brand representatives, podcast producers, and hosting networks. That balancing act is difficult.

To match advertisers and podcasts, businesses need highly developed analytics. Those don’t come cheap. Large consumer data sets can be prohibitively expensive.

Another costly barrier is scale. A hosting network, advertising marketplace, or advertising technology firm needs a strong number of participating podcasts in order to appeal to advertisers, develop accurate analytics, and grow a reputation in the industry. Acquiring content, though, is expensive and difficult.

Accordingly, the era of small-scale venture-funded audio advertising startups may be closing, opening a new era of corporate and private-equity sponsored consolidation.

Larger advertising networks can better cater to large brand needs. While Casper, SquareSpace, and other early entrants to podcast advertising were content to advertise to an imprecisely defined demographic through an uncertain medium, the same cannot be said for larger brands such as Ford, IBM, and McDonalds.

Smaller podcasts simply don’t have the reach to attract large brands and new networks are unlikely to have sufficient offerings to allow high-quality demographic targeting.

Also, some podcast hosts, concerned about protecting their own images, don’t want to accept certain advertisements; agencies have had trouble placing tobacco advertisements, for example. This added layer of complexity puts the squeeze on small and medium podcast networks, where host reluctance can cut a network’s advertising reach.

Accordingly, new entrants to podcast advertisement may have serious difficulty establishing a minimum viable product.

This dynamic shouldn’t worry just potential new entrants; established audio advertising firms have reason to fret as well. Few industry firms have better distribution scale, better technical ability, or more capital than Apple or Spotify, two players that may soon establish themselves as full-service destinations for audio advertising.

If they enter the market, less-sophisticated actors will have great difficulty matching their data and analytics capabilities. Apple Podcasts, which commands over half of podcast listens, will be a perennial business threat. Spotify has already begun to sell ads on its new exclusive podcasts. With new data and experience, Spotify could construct analytics and audience targeting products that would transform the audio advertising marketplace.

2. A Coming CPM Crunch

Podcast advertising is characterized by high engagement and high CPMs. Though this may seem to create a perfect environment for investment, new businesses that rely on continued high CPMs for viability will be unpleasantly surprised.

The characteristics of podcast advertising that have kept CPMs high will evaporate as brand dollars enter the marketplace. Podcast advertising developed under a unique set of conditions.

Host-selected advertisements served as a built-in targeting mechanism and host-read ads functioned – for free – as effective endorsements. If corporate advertisers, motivated by brand image concerns, insist on avoiding risky host-read ads in favor of programmed ones, CPMs will drop as engagement sinks.

Likewise, more ads will cause podcast listeners to lose enthusiasm. Listeners may fast-forward through advertisements or install audio ad-blocking software. A premium advertisement-free audio content subscription service is possible as well.

Ad effectiveness dropping as podcasting matures as should come as no shock to advertising veterans. The click-through rate for the first digital ads was almost 40%, a rate that has plummeted by a factor of more than 100. Whether or not engagement rates of podcast advertising sink by 90% or by 99% may make all the difference.

3. Technological Risk

With the rise of 5G, mobile connectivity, and urban wi-fi availability, the technological infrastructure of podcast delivery may be reshaped in the medium to long term. This would profoundly reshape the market, closing many current opportunities and opening new ones.

The post Industry Report: Podcast Advertising appeared first on Karma Impact.

On Our Radar: Deals we are paying attention to for their impact on industry.

Since the New Oxford American Dictionary named “podcast” its word of the year in 2005, podcasts have become big business.

Media outlets, such as National Public Radio and the New York Times, now boast an array of podcasts designed to suit each listener’s specific needs, while an increasing number of celebrities, from Amy Schumer to Dax Shephard, have followed Marc Maron’s lead by adding their voices to the nearly 600,000 programs available to listeners.

Last year, Apple announced that its podcasts reached record numbers—50 billion streams and downloads, according to Fast Company.

The new app Luminary also aims to shift the playing field. “We want to become synonymous with podcasting in the same way Netflix has become synonymous with streaming,” co-founder and chief executive Matt Sacks told the New York Times.

But the jury is still out on whether this model with catch on with consumers and how the rest of the industry will react.

“It is exciting to see a young company and relative newcomer to the world of podcasts achieve such landmark success in capital raising this early in its lifecycle,” says Jeremie Bacon, CEO of Imagineer Technology Group, in an interview with Karma Network. “As an avid podcast listener myself, I’m looking forward to seeing how this strategy plays out and whether or not industry leaders like Gimlet Media, under Spotify’s banner, will need to find a way to respond.”

Where most podcasts feature ads, Luminary instead operates as a subscription service. For $8 a month, listeners can access ad-free original content. The app boasts 40 shows thus far, including programs from comedians Conan O’Brien and Hannibal Buress, journalist Malcolm Gladwell, and media brand WNYC. TED Talk even contributes a more risqué podcast than their popular “Ted Talks Daily” called “Sincerely, X.” It promises listeners more adult content focused on “finding ideas in the hidden stories around us.”

The subscription-based model and original content curation are what set Luminary apart.

Finding, cultivating, and sustaining relationship with investors keep podcast creators busy.

Luminary bypasses that hurdle so they can focus on exclusively producing high-end content. “For podcasting to grow, creators must be able to take risks on more conceptual ideas, and the Luminary model provides that comfort,” Adam Davidson told the Times. He’ll be helming a new podcast for the app called “Passion Economy,” which explores stories about passion at a time when most pursue practicality. Luminary has received over $100 million in funding from the New Enterprise Associates (NEA).

Podcast ads drive the vast majority of revenue. In 2017, those figures rose by 86% to $314 million, and revenue is projected to surpass $650 million by 2020, according to IAB and PwC Research. Luminary will offer a free version—with ads—to listeners who don’t want to sign up for yet another subscription service when more and more companies are moving to that model.

With Spotify and Vox investing heavily in the medium, the field may seem to be filling up, but Sacks believes there’s plenty of room. “Just like in the premium television space, there is more than enough room for multiple offerings to thrive,” he said.

The post Can Luminary Become the Netflix of Podcasts? appeared first on Karma Impact.