Podcasts – The New Wave of Digital Consumption

From music streaming to video on demand, we live in a media consumption renaissance. As audiences continue to search for more novel and more innovative forms of entertainment, podcasts have risen to the forefront of consumer and business interest. In February 2019, Spotify acquired podcast firms Gimlet and Anchor for $340 million. Two months later, the company spent another $56 million to acquire podcast network Parcast. With a catalogue of more than 500,000 podcast titles, Spotify has seen its podcast user-base grow by over 50% since the start of 2019. The U.S. alone expects the total number of listeners to grow at an annual rate of 16% to 132 million by 2022. When did podcasts become such a global phenomenon and what makes them so appealing to individuals and firms? 

While consumers have shown undeniable interest in podcasts over the last decade, the true intrigue lies in the allure of the medium. Publications have put forth a variety of explanations for the popularity of podcasts, ranging from the intimacy of the audio format to the compelling story narratives the medium supports. The plethora of niche content available in podcast form means that the media form appeals to a wide range of audiences. According to Statista, 74% of U.S. podcast listeners cited "learning new things" as their primary reason for listening to podcasts, evidenced by the popularity of educational podcasts such as “Freakonomics”, “Radiolab”, and “99% Invisible”. However, scripted fiction such as “Welcome to Night Vale” and non-fiction like “This American Life” have also gained recognition for their riveting narratives. Each podcast boasts a unique experience for its audience.  

One may argue that podcasts present a no better vehicle to relate content than videos, movies, or music. However, podcasts combine video storytelling with the practicality and ease of use of audio streaming. One of the most popular podcasts of all time, “Serial”, has been downloaded over 175 million times and follows the case of Hae Min Lee’s murder. Its structure mirrors Netflix’s episodic documentary “Making a Murderer” as episode delves into a different aspect of a court case. The content of the two shows also share similarities in that they both revolve around investigative journalism and themes of wrongful conviction with insufficient evidence. Evidently, the structure and content of podcasts are nothing revolutionary. Therefore, podcasts must offer a distinctive value – convenience. The medium's ability to facilitate multitasking more efficiently than other comparable forms of media makes it popular amongst listeners. One can listen to “Serial” while driving or exercising, no visual engagement required. These points suggest that contrary to popular belief, the allure of podcasts does not lie in the composition of the content, but rather in its accessibility.  

Podcasts capture listeners with their captivating storylines and ease of use, but what explains firms’ surging interest in the medium? The first reason relates to the business opportunities that have risen as a result of consumer demand. While music and podcasts appear similar, the motivating factors and the circumstances under which they are consumed differ. Listeners tune in to podcasts to learn and discover, whereas music generates an emotional experience. Rather than serving as substitutes, music and podcasts complement one another. For a media service provider like Spotify, the addition of podcasts to its portfolio attracts new customers without cannibalizing the sales of the music segment. Instead, building a podcast-hosting platform strengthens the customer value proposition and increases the likelihood of converting listeners to premium users. In Spotify’s most recent quarterly release, the company attributed its second highest operating profit to an “exponential growth in podcast hours streamed.” The certainty of revenues and profit resulting from podcasts presents a favorable investment opportunity.  

The second and perhaps less obvious reason for providing podcast services lies in the high profit margins achievable through the platform’s business model. Third-party podcasters upload content for free and receive no royalties in order to gain exposure, which reduces the provider’s content cost. The novelty and popularity of original content also draw in sponsors and advertisers, particularly small companies looking for affordable advertising methods to expand to reach of their businesses. Furthermore, similarity between podcasts and the existing product lines means the extension of the core business can be implemented on a relatively low budget. Lastly, highly scalable activities such as marketing and distribution provide large cost synergies once the podcasting segment is fully in operation. Taken together, cost savings and revenue synergies facilitated by the podcasting business model ensure that podcasting margins meaningfully exceed the margins from label-controlled music. 

Podcasts have ushered in a new way to experience digital content. For consumers, podcasts provide a dynamic means of entertainment. For firms, podcasts enhance business performance by improving profit and profit margins. To parallel the meteoric rise in demand for podcasts, existing providers are increasing their stakes while newcomers prepare for entry. Currently, Apple, Spotify, Google, iHeartRadio, and SoundCloud dominate the field. HBO Max plans to enter podcasting with the launch of its new program in May 2020. While the industry has gained momentum in the recent years, it is interesting to consider the extent to which the trend will continue before reversing in direction.  

The significant growth of the industry in recent years forecasts a rush of incoming providers. As more players saturate the field, podcast providers may encounter the same struggles currently facing online home-streaming service providers with regard to proprietary content and price. The rising popularity of podcasts may also motivate content creators to demand higher royalty fees. In addition, Consumers may no longer derive the same level of satisfaction from listening to podcasts as the novelty fades. Whether the market conditions of home media streamers will replicate in the podcasting industry is difficult to guess. Based on current industry dynamics, it appears that overconcentration and price wars will be a discussion of the distant future. For now, podcasts have yet to reach their full potential as both businesses and consumers continue to benefit from this dynamic product of the digital age.