The (Surprisingly Profitable) Rise Of Podcast Networks

In the third episode of StartUp, the podcast about starting a podcast business, host and aspiring entrepreneur Alex Blumberg has a breakdown.

"I spent three fucking thousand dollars today," he complains to his wife. "As I'm about to quit my job! I'm just one guy with this stupid little plan, and there's a gazillion people out there with better plans that are going to make more money."

In StartUp, which launched in early September, Blumberg (of Planet Money and This American Life fame) is documenting his experience starting a new business, a not-yet-launched podcast network. Amid the various new business freak-outs, one interesting detail emerges: Blumberg and his StartUp cofounder, Matt Lieber, rarely actually doubt the viability of the podcast network built on highly produced, journalistic storytelling. "We're making a bet that there is a massive market opportunity here," said a confident Lieber, who left a career in consulting for Blumberg's brainchild.

The StartUp guys aren't alone in thinking there's "massive" money to be made in podcasting of this ilk. In the last six months, three podcast networks have popped up, from established public radio players: Infinite Guest from American Public Media, SoundWorks from PRI, and Radiotopia from PRX. Meanwhile WNYC has added more podcasts to its roster of shows, which includes the beloved, and very popular, Radiolab. This American Life, the radio show, is now spawning a podcast called Serial. Online print media has also gotten the message: Slate has doubled its podcast output in the last two years.

And podcasts of all types have been on the up and up: According to the Washington Post, podcast downloads passed 1 billion mark last year and monthly podcast listeners number 75 million per month.

Although none of the old-school radio players would exactly put it this way, they view podcasts as the future, or at least an important part of it. Each mentioned using podcasts to reach new, younger, and more diverse audiences. "People under the age of 30 don't own radios," noted WNYC's CEO and president Laura Walker.

Unlike Blumberg, however, broadcasters aren't throwing their entire lot into podcasting. A huge percentage of Americans still listen to the radio at least once a week. The dial is still a huge part of their strategies. Indeed many of the podcasts from traditional players also have corresponding radio programs, a trend that some public radio folk can flow the other way. (One example of this is Dinner Party Download, a digital show launched by two Marketplace reporters which is now heard on terrestrial radio in addition to being streamed.)

Blumberg, who could have hitched his idea to any one of his former employers, has a more absolute and ambitious view. "All the listening is going to shift from the broadcast tower to the smartphone," he said. Now, around 20% of Americans listen to podcasts once a month. Traditional radio reaches 240 million people each week. Blumberg sees huge growth opportunities.

And with the inevitable change in habits, programming will evolve, too. "The rules are different—the listening habits are different, the economics are different. When you have a direct relationship with your listener you can do really cool interesting things," he added. With a podcast-first network, Blumberg can create content tailored to the intimate experience of podcasting, without having to think about the constraints of radio.

From The Podfather To Ira Glass

Podcasts have been around for 10 years—the medium and its adoring fans aren't new. (Fun fact: Adam Curry, the lion-maned former MTV VJ was nicknamed the "podfather" for his contributions to developing the medium.) What is new is the renewed interest in podcasts as a lucrative business, and with that, the consolidation into formalized networks. Around three years ago, both the New York Times and the Boston Globe gave up on most of their audio programming citing a lack of interest and revenue.

Now, Blumberg and Lieber are betting their careers on podcasts. What happened? Money and technology, but mostly money.

"Podcast ads work really well," said Adam Sachs, CEO of Midroll Media, the parent company of the podcast network Earwolf and the podcast ad-sales network Midroll.

Podcast ads are unique. Unlike advertising on almost any other medium, people like the interruption, mid-program, to learn about Squarespace and Stamps.com. Often, hosts read the ads in the tone and style of the show. The NerdWallet spot on StartUp, for example, sounds like a mini podcast within a podcast—Blumberg interviews CEO Tim Chen documentary-style. Roman Mars, host of 99% Invisible (part of the Radiotopia network), has used his kids to spice up ads for TinyLetter. (Federal rules limiting what public broadcasters can say during advertisements make it more difficult for radio hosts to get creative with their commercials.)

"People really pay attention to the ads," Slate's podcasting guru Andy Bowers says. That's partly because they have to: The hosts are often right in your ear, and there's no quick way to change the station, like on a radio. Even scrolling past an ad takes more effort than it's worth. What if you skip ahead too far?

But more than that, listeners like and trust hosts. Their paid promotional messages sound more like a friend's recommendation than a sponsorship. "That passive endorsement is really powerful," says Sachs.

That situation has the potential to get ethically murky. Imagine if writers wrote sponsored content inside of articles. Blumberg insists he "gets creative," while making the distinction between ad and content "clear," both announcing the ad and playing special ad music.

But that slippery slope is a profitable one—especially as "engagement" rather than sheer volume becomes an increasingly powerful audience metric. Podcast ads generate ridiculous levels of engagement. Internal Midroll surveys of 300,000 listeners found that 63% of people bought something a host had peddled on his show. Because of that leverage, Midroll "charges a lot, actually" for podcast ads, said Sachs. And so does Slate, reportedly. Four of Midroll's shows will bring in over a million dollars this year.*

But uber-loyal podcast audiences offer more than ad dollars. Broadcasters have discovered dedicated readers will pay for more intimate experiences with their favorite hosts. Slate holds lucrative events around its popular Gabfest podcasts. Blumberg first realized the promise of podcasts after a Planet Money Kickstarter for a T-shirt made $600,000; Roman Mars has crowdfunded every single one of his 99% Invisible seasons.

As more shows prove the magic of podcasts to generate actual money, audiences continue to grow. In the last year alone, the amount of people listening to podcasts has gone up 25%. And people who podcast, podcast hard, listening to an average of six podcasts a week.

That's partly because of the surge in smartphones: Finding and listening to audio has never been easier. Podcast frontiersman undertook the clunky process of getting an audio file from iTunes to an iPod (RIP). Listeners had to subscribe to the program, download new episodes, and finally, plug an MP3 player into a computer to sync each week. Now, 58% of Americans own a smartphone, which has multiple podcasting apps that automate that process.

With more people listening than ever, and real money to be made in a media landscape with disappearing ad dollars, of course radio veterans are flocking to podcasts. "There have been a number of successful podcasts that have generated fans and made money—everyone wants to see if they can take a crack," Steve Nelson, the program director for Infinite Guest, American Public Media's brand new podcast network, said.

The consolidation of shows into networks is an attempt to further leverage this trend. Established players like APM and PRX have rebranded to draw audiences to new shows through cross-promotion and discovery. In the confusing world of radio acronyms and distribution deals, most people don't know what programs come from where. With podcast networks broadcasters hope people will seek out Radiotopia or the unnamed Blumberg organization, just as they flock to AMC and HBO for high-quality programming.

Creating a network also has financial benefits, enabling bulk ad sales packages. Earwolf, which works with 100 advertisers, represents 130 podcasts, for example. "The fact that we have this exclusive ecosystem gives us a lot of power," said Sachs. Networks can also provide institutional and financial support to hosts. Sachs credits his network's success with the ability to "treat talent like talent" and for Earwolf to handle production, promotion, discovery, and anything outside of the creative process.

Early Days Yet

Experts caution, though, that we are in the early, gold-rush days of podcasting. The audience growth could plateau—podcasting isn't for everyone—and advertising metrics are still very crude. "MP3 files are basically dumb," Slate's Bowers explained. The file format doesn't allow for much tracking beyond downloads, the current industry standard. That doesn't give sponsors much information about how many people listened to their spots. Most ads come in at the middle of a segment. A lot of people who download might not ever get to the message, or even listen to the show.

"I suspect if we had perfect information about how many people listen to the whole thing, we would all be surprised," said Bowers. (Free startup idea: a smarter podcasting file format.) Another possible invention (and free startup idea) that could complicate the current cushy advertiser situation: a better player that lets people skip around between segments. With something like that, both producers and advertisers would have a better idea of what listeners like—for better and worse. "Right now it's a lot of gut instinct," added Bowers.

So far, though, the gut instincts are working, and Blumberg is going with it. Blumberg and Lieber have already started producing a few shows with a planned late fall/early winter launch. They will fit into the narrative journalism genre, much like the popular This American Life and Planet Money programs. In the future, they hope to explore different formats, like a scripted series, making a True Detective or Mad Men of radio, say. Their general theory is: quality at scale. "If you look at what's winning in digital, it's quality," said Lieber. "If we grow the audience, I'm not at all worried about how you make money here."

*This post originally stated four of Earwolf's shows will bring in over a million in revenue this year.