Money Where Your Mouth Is: Podcasting Biz Gains Momentum in Israel and Abroad

Industry insider says trick is to 'bring in large numbers of "quality" listeners, then reach advertisers and brands'

Democratic 2020 presidential candidate Beto O'Rourke presents a vinyl record gift to "Political Party Live" podcast hosts in Cedar Rapids, Iowa, U.S., March 15, 2019.
REUTERS/Ben Brewer

The launch of the podcast service Luminary on April 23 was supposed to be a big event. The New York-based startup that has raised $100 million created buzz and high expectations with the tagline “a new way to listen to and discover podcasts.” Saying it wanted to be “the Netflix of podcast,” Luminary promised a wide variety of free podcasts alongside star-studded original content, for a monthly subscription fee.

A few days after the launch, the wheels started to come off. Some of the most popular podcasts removed their shows from the platform, making Luminary much less attractive. Not surprisingly, a number of these are owned by a competitor – Spotify, the Swedish music streaming service, which recently spent hundreds of millions of dollars to acquire podcasting companies in a bid to become a major player in the field.

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Until a few years ago, acquisitions, big money, fierce competition, marquee names and battles over exclusivity were not part of the podcasting lexicon. The field was seen as a niche medium that drew small but loyal audiences. Now, though, it is evolving into an industry, with mergers, big money and giant companies that are willing to spend freely. Even in Israel, which lags far behind in the field, podcasts are gaining momentum, drawing more listeners and with them, major advertisers. The big questions are still open, starting with: Is there money to be made in podcasting?

The Maryland murder that started it all

A podcast is an audio program that can be streamed or downloaded from the internet on demand and listened to on any computer or media device. The subjects are varied, and include history, economics, technology, science and culture. Formats include interview, solo host and panels. There are investigative journalism podcasts, as well as fiction and nonfiction storytelling – just like in television series.

Podcasting began around a decade ago, with a surge in popularity over the past few years. Many people credit the big boom to the first season of “Serial,” which debuted in 2014 and investigated a murder in Maryland in 1999. It is still one of the most downloaded podcasts ever, and it set off an avalanche of new entries in the medium.

According to a recent study by the New Jersey-based Edison Research, 90 million Americans listen to a podcast every month, representing around 32 percent of Americans aged 12 and over. In 2013, the figure was 12 percent.

In Israel, too, podcasts were slow to take off. The pioneer was presumably “Osim Historia” (“Making History”) by Ran Levi, who is now a co-host of the English-language science, technology and history podcast “Curious Minds.” It was followed by “Geekonomy,” another popular series, that features interviews with people in a broad range of fields. Public broadcaster Kan, which produces several podcasts, helped spread the concept in Israel, and today it seems that every self-respecting media outlet (including Haaretz and TheMarker) has at least one podcast.

“In the past year and a half we’ve seen an amazing rise in the number of listeners,” says Levi. No precise figures are available, but he estimates that between 5 percent and 7 percent of Israelis – hundreds of thousands of people – listen to podcasts regularly. The most popular episodes boast tens of thousands of downloads. Some episodes of “Making History,” for example, have from 70,000 to 80,000 downloads.

Podcasts were once the product of individuals with a story they wanted to tell the world. There was no thought of profit, and listeners and crowdfunding helped cover costs. It was a bit like the first bloggers: All you needed to make a podcast was basic recording equipment, a computer and good content. That era is long gone, and the most successful podcasts abroad are now made by big media organizations with deep pockets. In Israel, too, the field has outgrown the garage-studio stage. Many podcasts belong to media groups and companies that create podcasts and sell advertising.

Spotify’s ambitions

Many people see enormous economic potential in podcasts, so it’s not surprising that a growing number of media companies want to join in. The trend is exemplified by recent moves by Spotify, the most popular music streaming service in the world, with 217 million users, including 100 million paying subscribers.

In February, Spotify paid $200 million for the New York-based podcast studio Gimlet Media, whose popular podcasts include “StartUp,” “Reply All” and “Homecoming” (which recently was adapted for a TV series starring Julia Roberts). At the same time, Spotify paid $140 million for Anchor FM, whose app lets users create and distribute their podcasts, and $56 million for the podcasting studio Parcast. The buying spree isn’t over. Spotify has said that by the end of 2019 it plans to spend up to $100 million more on similar acquisitions.

Spotify says it’s already the second biggest podcast platform in the world, after Apple Podcasts. The company also produces podcasts, including those of comedian Amy Schumer. But its ambition doesn’t stop there. It seeks to increase its investment in original programming, some of which to be distributed exclusively over its platform in order to distinguish itself from the competition and attract new subscribers – using the same formula as Netflix.

In addition to original content, Spotify will want to offer independent podcasters the opportunity to make and distribute new series and even to make money from them (similar to YouTube), in hopes of becoming the preferred platform for makers of new podcasts. The company will also seek to improve the user experience, with personalized discovery and recommendation options, just as it does today with music, to get listeners to choose it over competing podcast services.

In most of the world, advertising is almost the only way to generate revenue from podcasts. According to the accounting and consulting firm PwC, also known as PricewaterhouseCoopers, in 2014 global revenue from ads on podcasts was just $45 million. That is expected to grow to $900 million in 2019 and $1.6 billion in 2022.

While even these forecasts are only a fraction of the $45 billion global radio ad market in 2019, podcasting ad revenue is growing much more rapidly than radio, at an estimated 30 percent annually until 2022, compared to 1.9 percent for radio. In Israel, the numbers are much more modest, with podcast ad revenue projected to reach 1 million shekel ($276,506) this year for the first time. The overwhelming majority of Israeli podcasters are amateurs. A few accept ads and earn money from them, but not enough to live on. The trend has not yet gone mainstream, as it has in the United States, and you won’t find Israeli entertainers or celebrities with podcasts. “It’s trickling in but the U.S. market is always four years ahead of us in nearly everything,” Levi says.

Still, the local industry is maturing. The most successful and professional Israeli podcast network is Levi’s Osim Historia (named for his own successful podcast), which today produces 13 podcasts on a variety of topics.

Some two-thirds of the ads on podcasts are read by the host at the beginning or in the course of the episode. “Host-read ads are effective because they sound like personal endorsements of the advertised product or service,” says Dror Ganot, the founder and CEO of the digital audio advertising company ADIO Radio Online. “The listeners respect it because they recognize that the podcaster has to make a living.”

Podcasts also use dynamic ad insertion, a technology in which ads are automatically added to episodes as they are downloaded. Podcast ads are narrowly targeted to the audience, which is typically highly loyal, engaged and interested in specific types of goods and services. “People are receptive to ads in areas that interest them. It costs four to five times more to advertise on podcasts than on Facebook and Google, and the level of engagement reflects this,” Levi says.

Host-read ads can cost thousands of shekels per spot, and the average ad campaign for five or six episodes can run from 30,000 to 50,000 shekels. “It used to be that you’d go to a potential advertiser or ad firm, and they didn’t even know what a podcast was. Now they’re the ones who are coming to us,” Levi says, adding: “Advertisers love it when podcast ads give good value for money, with ads targeting an inherent community. [These] ads also have a ‘long tail,’ they remain in circulation for a long time, because people continue to listen to old episodes.”

Apple and Google are still on the fence

Despite the revenue potential of ads and branded podcasts, as with other content platforms such as online journalism, many believe the best economic model is not necessarily free content together with ads, but rather a subscription format. But it can be difficult to wean users from the free-content model.

Luminary’s fate could go a long way toward dictating the business model of podcasting over the next several years. The app it launched in April is based on a dual business model, with a free service that offers access to publicly available, ad-supported podcasts, and an ad-free version with exclusive podcasts that costs $7.99 a month.

The company has already lined up original, premium shows featuring big names including Trevor Noah (“The Daily Show”), Lena Dunham (“Girls”) and comedian Conan O’Brien. It even picked up a musical podcast created by John Cameron Mitchell, with a cast that includes Patti LuPone, Glenn Close, Cynthia Erivo, Marion Cotillard and Laurie Anderson.A few days after the app was launched in the United States, Britain, Canada and Australia, Luminary and its anti-free model faced criticism from users, podcasters and competitors. The app went live with a very limited number of programs. Missing was the content of its three recent acquisitions, including Gimlet Media’s “Reply All,” as well as the popular New York Times podcast “The Daily” and many other well-known shows. The Times and other podcast producers were not thrilled about Luminary, which wants to compete with them, taking advantage of their free content in order to attract people to their “locked garden” platform and charge them.

The company also annoyed producers by failing to give them precise user numbers and by removing links to show notes, the text accompanying individual episodes, which are often important for fundraising, merchandise sales and other audience revenue for producers.

There are other podcast platforms that offer exclusive premium content to paying subscribers, such as Castro and Stitcher. The latter, for example, has a podcast based on Wolverine, the Marvel Comics character associated most closely with the X-Men. In additions, some independent producers charge for single episodes.

But the subscription model is still in early days for podcasts, and many people are skeptical about it. “There are hundreds of thousands of free podcasts available, why would people pay? It will have to be very special content,” Levi says. It’s worth mentioning in this regard that in China, for example, many podcasts charge a few dollars a month to listen. One popular podcast, with 250,000 million listeners, generates $8 million a year.

Can independent podcasters support themselves through the medium? That’s not always the goal. “For many podcasters, the goal can be the brand and personal advancement and getting a platform that would otherwise be impossible,” says Ido Kenan, co-founder of the podcasti.co podcast production company. Those who do want to earn a living, as in every area of content, have to be able to stand out, to create a community and to attract listeners, sometimes by spending money to advertise the podcast itself, for example on Facebook and Google.

“There are tons of podcasts. The name of the game is to stay in the game and produce a lot of episodes, to invest significant resources in creating a large and loyal audience, to bring in large numbers of ‘quality’ listeners and then to reach advertisers and brands,” Ganot says.

Apple and Google are still sitting on the fence when it comes to podcasts. They offer streaming apps but not tools that podcasters can use to monetize their operations (by offering subscriptions or charging listeners), as they do to app developers.

There’s no way to know whether podcasting will continue to grow at its current rate and whether it will ever reach the dimensions of other mediums, such as video. Some people warn of a podcasting bubble. In the past few months a number of companies, including Buzzfeed and Audible, closed or significantly reduced their podcast production units. The number of podcasts is only increasing; who has time to listen to them all?