What are the Best Business Models for Podcasts?




What are the Best Business Models for Podcasts?

Podcaster Tim Ferriss (host of The Tim Ferriss Show) embarked on a bold experiment. He wanted to build a closer relationship with his listeners, and offer them a way to directly support his work. After much thought, Ferriss settled on a freemium model: while his podcast would remain free to all listeners, anyone who wished to support him with a flexible subscription would get access to monthly live Q&As, among other perks.

It was a big shift. Up until that point The Tim Ferriss Show had been supported by sponsors: companies of all shapes and sizes paid up to $50,000 USD per episode for ads before, during, or after the main content. A jump to an ad-free, listener-supported model would be a significant shakeup… but Ferriss had always been known for his willingness to experiment. Thus, fingers crossed, he announced a six-month trial of his new listener-supported business model.

It was an experiment that lasted barely longer than a week.

The response from his listeners was overwhelming, and mostly one-sided. While many were very happy to support him with a financial contribution (at least one listener to the tune of $1,000 USD a month), they also made it clear that they liked listening to ads. Listeners wrote dozens of emails noting that they enjoyed hearing his recommendations, and were delighted to let an advertiser pay for the podcast rather than having the onus put on the listener.

While these results took Ferriss by surprise, perhaps they shouldn’t have done. Almost all of the biggest podcasts in the North American market are supported by ads. It’s the business model which underpins household names like This American Life, My Favorite Murder, Welcome to Nightvale, and hundreds (if not thousands) of others. All of these shows depends on sponsors for the majority of their revenue.

But sponsors aren’t the only way to make a podcast work. There are many viable models for podcasting, some of which can be seen working beautifully in territories outside the US. We’ll take a closer look at several of the most popular podcasting business models below, while asking one simple question: which one is the best?



AD SUPPORTED VS DIRECT SALES

Ad-Supported

This is a popular model for podcasting across the US, the UK, and most other English-speaking territories. Many household names in podcasting derive the vast majority of their revenue from ads and sponsorship deals. My Favorite Murder, for example, derives a significant portion of its income from ads (indeed, this podcast is one of many that are even more dependent on ad revenue than usual due to cancelled live shows in the wake of the COVID-19 pandemic).

In most cases the way it works is relatively simple: the podcast host creates the core content, and offers advertising slots before, during, or after their show. In some cases adverts will be pre-recorded, but – trading on the fact that podcasts often speak to a very engaged audience – many hosts record adverts themselves, giving their product endorsements a personal touch.

The numbers show that podcast advertising is impressively effective. A study by Nielsen revealed that 57% of podcast ads tested outperformed pre-roll video ads when it came to lifting purchase intent, with respondents overwhelmingly rating podcast ads as authentic and well-integrated. Additionally respondents enthusiastically agreed that they didn’t mind listening to podcast ads, as they understood that the ads provided a much-needed source of revenue for their favorite shows.



This, more than anything else, explains why an ad-supported model dominates in English-speaking markets. It’s a model that consumers understand, and which mirrors other more ubiquitous mediums (television, for example, where frequent commercial breaks pay for broadcast content). And, more than that, it’s a model which consumers like.

Direct Sales

Elsewhere in the world, however, other podcasting business models have come to prominence, including direct sales. This is a model in which listeners pay a one-off fee to download a tranche of audio content (an episode, a series, a collection of audiobooks), or pay a monthly fee for access to a great content library which might include hundreds of episodes.

China – a territory with a podcast market size of $7 billion USD (the size of the podcast market in the US is just over $1 billionn USD) – has a robust direct sales market. Paying for access to audio content is the norm, with ad-supported podcasts relatively rare.

One of the biggest players in this market is Ximalaya FM. Founded as a tiny start-up in 2012, the platform now boasts more than 400 million active listeners, and an audio “ecosystem” that includes an impressive range of audiobooks, chat shows, educational content, children’s entertainment, and more.

It’s worth noting the breadth of content available behind Ximalaya’s paywall. While in the US the podcast and audiobook markets are separate entities, the same is not true in China. Here, popular mobile platforms have driven the consumption of audio content in general: podcasts, online radio stations, audio books, language learning courses, and musical entertainment are all served up through Ximalaya, and are often all counted under the banner of “podcasting.”

The fact that the Chinese podcasting industry includes content that is discrete in other countries undoubtedly accounts for some of the disparity between territories. But even shows such as Stories across the Globe (a popular Chinese show that would definitively be categorized as a podcast in any country) often have different values. There’s a general focus on educational content and self-improvement – things which aspirational Chinese citizens are usually willing to pay for.

The popularity of Ximalaya FM can also partly be attributed to timing. The founding of the company coincided with a rapid increase in smartphone ownership in China (smartphone ownership has been shown to drive podcast listening) creating the perfect environment for the platform to thrive, and debut a paid content library just a few years down the line.

Ximalaya’s growth (and, by extension, the normalization of the direct sales business model) was further driven by the all-inclusive nature of the app. In China, particularly, a one-stop shop which takes care of hosting, advertising, sales, and marketing is extremely creator-friendly. Any host trying to do all these things on their own would need to jump through some considerable legislative hoops to get the necessary permissions.

All these reasons and more explain why direct sales work well in China, and perhaps help to explain why they’ve been slow to rise in other territories. That doesn’t mean that the US and UK will never welcome direct sales, however. The success of premium content streaming platforms like Netflix and Spotify gives some hope that direct sales revenue models can work outside of China.

Companies such as Luminary are championing new business models… with mixed results. Luminary faced backlash in 2018 over their launch campaign claim that “podcasts don’t need ads.” It remains to be seen whether the direct sales model might thrive in the English-speaking world as it has in China.



OTHER BUSINESS MODELS

It’s worth noting that, while many podcasts do operate primarily on an ad-supported or direct sales basis, there are also several other viable business models for the monetization of podcasts. Many shows have several income streams. For example, ads might be combined with live show revenue, or direct sales with merchandise sales or donations.

Listener-Supported

Listener-supported podcasts are less common. Indeed there aren’t any geographic territories where they are the norm. They do, however, exist, and thrive. Many depend on Patreon to manage subscriptions and perks for their donors, while others operate as a fan club, with members getting access to premium content and archived episodes.

In contrast with podcasts which use direct sales, listener-supported podcasts generally operate on a freemium basis, allowing listeners to provide flexible, optional support. Most listeners aren’t forced to pay up at the point of download for content, but choose to do so to access more of it.

The Second Captains (the most popular podcast in Ireland in 2014) is supported by its listeners. While weekly shows are available for free, anyone who signs up and pays a monthly fee gets extra, ad-free content and a host of other perks (including merchandise and priority tickets to live shows). In the words of Ciaran Murphy, host and co-founder, “We see it as a contract between us and the listener.” The hosts get enough support to create the shows they want, and listeners get quality, ad-free content on a regular basis.

Although a listener-supported model isn’t always practical, for a successful podcast with the right audience it can provide the perfect balance between growth potential and regular income.


4 views0 comments

Recent Posts

See All