Podcast Business Model

Podcasting – what was a ‘niche pursuit’ several years ago is becoming Big Business.

If you are either running – or thinking about running – a podcast, there is money to be made. But the broader landscape requires some Business Model Vision to analyze, so let’s dive in and look at the major players shaping the Podcast industry.

Podcast is the New Radio

$200 Million. That was roughly the price tag that Spotify paid Joe Rogan for exclusive rights to his podcast in 2020. The deal sounded so outrageous then, but does it now? (well yes, but no too…)

Podcast is the new radio and those airwaves are going to be worth a lot of money to serve up Audio Ads. That’s on the platform end.

On the podcaster (creator) end, there are 4 primary to make money from a podcast, and many podcasts combine multiple models as we will see further down:

  • Sponsorships – (where companies sponsor the podcast) – Sponsorship is the #1 way for podcasters to make money. Once a Sponsorship deal is signed, Ads are usually read in the designated slots, as shown below
  • Own It: Direct Support – (sell your own products or services/expertise) – Direct Support includes gaining direct audience support in the form of donations, subscriptions (for premium content), and selling your own product or service
  • Advertising – is where Ads appear either before, during, or after the podcast. Some podcasters sell Ads manually, others are connected via Agencies, and in some cases platforms layer in their own Ads
  • Affiliate Sales – Affiliate sales is where a custom link is generated that takes listeners to another website to purchase a product/service, whereby the podcaster earns a set commission (% or fixed fee) on each sale
Podcast Revenue Opportunities

Ads for both Sponsorship and Advertising generally fall into these 3 categories:

  • Pre-Roll Podcast Ads – usually 15 – 30s at the intro
  • Mid-Roll Podcast Ads – usually 30 – 60s during the podcast at various points
  • Post-Roll Podcast Ads – usually 15 – 30s at the end of the podcast

While Sponsorship is currently the dominant strategy for Podcasting, major podcasting platforms – Apple and Spotify – are positioning themselves for a surge in the Audio Ads market.

Beyond just more Ads reaching more ears via podcasts, what else can we expect from the podcast industry going forward? The answer is, a lot.

Because audio has a lot more to offer in the future world of media than we think. There are various market forecasts painting Podcast’s current market size of between $10 – 15B, with a future CAGR (Cumulative Annual Growth Rate) of 25 – 30% that will enable it to surpass $100B market size by 2030.

Podcast Market Size Forecast 2022 - 2030
Search 'podcast industry market size'

In simple terms, we will go 10X over the next 7-8 years, easily.

  • What is going to drive that growth?
  • And most importantly, where are the real opportunities?

Podcasting is part of the ongoing ‘culture war’ that we see, where ideas circulate and points of view collide, not dissimilar to what we see happening on Twitter. And so as the battle rages on in politics, sports, business, fashion, and all the other hot-button cultural topics on the various podcasting platforms, more people are pulled in, just like Pirate Radio.

Podcast Value Chain

As we will see below, the market is not so complex at the top end – with 3 dominant platforms and a series of other smaller competitors – but in the middle, where agencies/marketplaces sit between the podcasters and the advertisers/sponsors who are trying to find new, innovative ways to reach audiences online.

Spotify and Audio Ads

In these types of exploratory views on various frontier markets such as Podcasts, it is best to look at the early market leaders and stratify from there.

Spotify is the leader in the Streaming market, but they have also oriented their future strategy on being ‘Audio First’ and are opening up the Audio Ads stream:

  • Spotify – 31% of global market share
  • Apple Music – 15% of global market share
  • Amazon Music – 13% of global market share
  • Tencent Music – 13% of global market share
  • YouTube Music – 8% of global market share

Spotify’s primary business model is subscriptions for streaming services:

This is a company with more than 450M users globally (as of Q4 2022) and 4+ million podcasts, according to Spotify itself.

For some context as to why Spotify (Ticker: SPOT) would be engaging in BMi to shift their business model towards Audio Ads, let’s take a look at their stock price so far in 2022: down 67% YTD (Year to Date). The top line looks okay, but the bottom line has taken a hit.

Source: Motley Fool

Tech has been absolutely blown out of the water in 2022, but some company’s worse than others. Spotify is in the ‘worse than others’ category:

“It’s also discouraging to learn that during that time frame [Q3 ’21 > Q3 ’22], Spotify fell from million euros in net income, to a startling 166-million-euro net loss.”

Investor Place

Spotify’s Pivot Towards Podcasting

To make a long story short, the minute Spotify finally started making money (after years and years of losses), the market started to tank and simultaneously revealed big holes in both Spotify’s business model and core strategy.

The main bright spot – if you are looking longer term – is that a big part of that burn in money has been on Spotify’s podcasting network. They have invested heavily in podcasting, across various categories including:

  • Exclusive podcasting deals with prominent podcasters, including politicians, celebrities, cultural influencers (like Joe Rogan) and other type of content like ‘Call Her Daddy’ #PowerLaws
  • Acquisitions of podcasting companies Gimlet, Anchor, Parcast, The Ringer, and Megaphone
  • Sales and Marketing to increase brand awareness of ‘Audio Ads

Spotify has 273 Million ‘Ad Supported’ MAUs (Monthly Active Users), but only €385 Million in Revenue in the most recent quarter from that same group. Spotify offers up CTA (Call To Action) Ads on their combined platform to non-subscribers while they listen to music. Podcasting expands that vertical.

Podcasting is the horse that Spotify is going to bet on long-term.

Spotify has built out an entire educational infrastructure to help brands and small businesses learn about Audio Ads. The growth curve for Spotify in Audio Ads is exponential – ‘U.S. digital audio advertising‘ revenue is a subset of the Podcast market as a whole, a subset that is expected to roughly 3X in the next 3 years, in line with Spotify’s own projections.

According to eMarketer, annual U.S. digital audio advertising revenue is poised to grow to nearly $8 billion—and of that, $2.7 billion for podcast advertising alone—by 2025.

eMarketer
Source: Statista

In addition to the growth curve, Podcasting has much higher margin potential that then core business, which would – in theory – contribute towards profitability in the future:

Ek then noted that Spotify’s podcast vertical is “still largely in investment mode and not yet profitable,” but he believes the market has a “40%-50% gross margin potential.”

Tech Crunch

The bright side of the massive investment and strategic actions is that Spotify overtook Apple as the dominant podcasting platform in 2021, and looks set to extend that lead into 2025 and beyond.

Apple Podcasts & YouTube

Apple is in 2nd position in the pure audio podcasting space.

Depending how you look at it (video vs. audio), YouTube (owned by Google) is neck and neck with Spotify in the market. Here is a look at one piece of research from the U.S. that has YouTube at #1 in terms of audience share.

Source: RouteNote

Either way, The Rule of 3s in markets holds true in podcasting, with the top platforms holding about 64% of market share as of Q2 ’22. The rest of the audience is scattered across a series of other smaller and more niche podcast platforms – although with 36% still up for grabs, this market is not yet settled.

How Does Apple Make Money Off Podcasts?

Apple takes a 30% cut of podcaster’s revenues in the 1st year – a subscription model – after which point it drops to 15%. There are three possible account types tied to this model:

  • Free – a podcast is free to listen to
  • Freemium – a podcast is free to listen to, but there are premium benefits that need to be subscribed to
  • Paid – need to pay the podcast creator the subscription fee to listen

They do not currently offer Ads to podcasters as an additional revenue stream, but as we have surmised in other posts on Apple, this is likely to change very soon. Below is an example of how their Ads appear in the App Store.

App Store Ads

As part of Apple’s strategic shift towards Ads – a business worth about $4B right nowthey will likely place CTA (Call To Action) Display Ads in the Apple Podcasts app, similar to those shown above in the App Store. Spotify currently has these types of CTA Ads for their ‘Ad Supported’ users.

How Does YouTube Make Money Off Podcasts?

The glaring difference between YouTube and the other players is that YouTube is a video player and the other two are audio-only platforms. Research indicates that it is about a 50/50 split (55% vs. 45% technically) on YouTube between those who watch the video and listen to the audio, and those who only listen to the audio.

YouTube makes money off of advertisements. They also have a similar strategy to Spotify where they offer a ‘Music Premium’ subscription where users can ‘listen’ to YouTube without any Ads.

Podcasters who post video/audio off their podcast on YouTube make money based on a % of revenue. Currently, that amounts to a 55% cut of revenue.

Uniquely, YouTube actually shares a % of subscription revenue from ‘Music Premium’ with those creators who earn views/listens from subscribers (ie. if a podcast is popular with Premium users who don’t see Ads, the podcaster will still earn money).

Other Podcast Platforms on the Market

Beyond Spotify and Apple Podcasts, there are dozens of other native mobile apps that are popular for consuming podcasts, making up that other 36% of market share that is still up for grabs outside of the Top 3.

Each platform will have its own feature set, and in most cases, a loyal community of listeners that turn these apps into viable businesses despite not being in the Top 3.

A few examples include:

  • Overcast – freemium model with a $9.99 per year Premium fee
  • Castro – freemium model, $2.99 per month, then $18.99 per year
  • Downcast – one time fee of $2.99 on iOS and $4.99 on Android
  • Himalaya – $11.99 per month, $69.99 per year – more focused on courses and stories
  • Stitcher – freemium model, the $4.99 per month or $34.99 per year – more focused on shows

While each of the above has a tiny market share compared to the giants, the market is still very much in its early stages, and one of the above niches or strategies may be optimal as the market evolves. Furthermore, the creators of the world are always looking for new incentive model and structures to make it easier to monetize their work, as we discuss more below.

The Podcaster’s Business Model

Despite the glitzy and glamorous headlines such as Joe Rogan and others signing massive podcast deals with exclusive rights, podcasting is not a license to print money out of the gates.

How much money can podcasters make? To be frank, most make $0. In fact, many podcasts have negative cash flow because they spend money buying equipment and paying hosting fees before they earn a single dollar. 

Castos

Notwithstanding any prerequisite investments in equipment and any platform fees for hosting or otherwise, podcasting is an investment in a brand in many cases that can take years to develop if it is not done with some kind of pre-existing community or customer base.

As we will see in the Mockup Canvas and some of the example data below, podcasting is a tough business to get going, but once it reaches a certain threshold, it can generate a lot of revenue.

Podcaster Business Model Canvas Mockup

View FULL PDF

Sponsorship Revenue Stream

Sponsorship is a model where a podcaster and a given brand agree to a contract to produce a set of exclusive Ads in the pre-, mid-, or post-roll of the podcast episodes.

There are multiple platforms that exist specifically to help podcasters find sponsors. Examples include:

  • AdvertiseCast
  • Podcorn
  • TrueNative Media

How much you earn from a sponsor depends on the number of downloads your episodes earn. Sponsors pay on a cost per mille basis (mille is Latin for “thousand”). Rates range from $18 to $50 CPM, though hugely popular podcasts can pull in a lot more.

Castos

Market rates in general determine who gets sponsorship and for how much, as podcasts need to reach a certain threshold of downloads per episode before they can gain sponsorship (on the balance).

Podcast Value Chain

Once we get into the part of the market where analysis, metrics, and tracking is done on podcasts for the purpose of advertising/sponsorship, the market becomes extremely complex and fragmented.

Advertising Revenue Stream

Sponsorship is a form of Advertising, but here specifically we are talking about ‘Ads’ as we would see them on other Digital Ad platforms.

There are one-off Ads in the pre-, mid-, and post- roll.

When you first start pitching advertising, we recommend asking for $15 for pre- and post-roll ads and $20 for mid-roll ads.

Castos

Spotify’s Audio Ads platform enables brands to offer CTA (Click Through Advertising) during podcast listening. But podcasters do not get a cut of this revenue.

Spotify Audio Ad
Source: Spotify

Direct Selling – Premium Content

The most likely way to make real money as a podcaster in the early stages is through the Direct Selling route. This is limited to, but does not include:

  • Selling products like courses or cross-selling expertise in the form of consulting
  • Building a community-driven subscriber base on platforms like Patreon
  • Upselling premium content as part of each podcast episode

We often see new, popular podcasts connected to a Patreon. If you look on sites like Graphtreon to see what podcasts are trending, or most popular, you will see a lot of polarizing and controversial topics.

Search 'Graphtreon' or 'Popular Patreon Podcasts' to see more

An example of fairly benign Patreon connected to a podcast is ‘Story Learning Spanish,‘ an innovative way to practice and learn Spanish.

Patreon Account

Affiliate Marketing

Affiliate marketing involves selling products or services of brands/services that are typically connected to the theme of the product and earn a commission per sale.

Affiliate commissions can vary greatly depending on the vertical, but a 10-20% range is a typical starting point, or a flat fee. They are mainly used by podcasters as an adjacent – not a primary – revenue stream.

Audible (owned by Amazon) has a ‘Creator Affiliate’ program where Affiliates earn $15 per conversion, for example.

Audible Creator Affiliate Program
Source: Audible

Combo Revenue Model for a New Podcaster

Despite Sponsorship being the most common revenue model for podcasters, the revenue model used by up-and-coming, high-growth podcasters tends to be a combination of multiple different revenue streams bundled into one.

Podcaster Revenue Streams

Using data from a hypothetical set of assumptions from Castos below, we can see how certain revenue models play out depending on the # of downloads per episode.

Podcast Creator Revenue Model with Assumptions
Source: Castos

Based on these assumptions if you have 1,000 downloads per episode, sponsors aren’t interested in your show yet, but you can still make some money. 

Castos
  • 100/month in Patreon support
  • $150/month in affiliate sales
  • $495/month in course sales
  • Total = $745/month

If you have 5,000 downloads per episode, you’ll start to land sponsorships. You’ll be able to charge about $20 CPM for ads.

Castos
  • $1,200/month in ads
  • $500/month in Patreon support
  • $750/month in affiliate sales
  • $2,475/month in course sales
  • Total = $4,925/month

If you have 10,000 downloads per episode, people will really start to notice your show. You’ll be able to charge about $50 CPM for ads.

Castos
  • $6,000/month in ads
  • $1,000/month in Patreon support
  • $1,500/month in affiliate sales
  • $4,950/month in course sales
  • Total = $13,450/month

Revenue models often evolve as the podcast grows.

It is interesting to see how the drivers of revenue growth change at each level:

  • Direct Support models offer the best opportunity for revenue early on
  • As Ads & Sponsorship become viable, they offer a great supplemental revenue stream to Direct Support
  • As the podcast grows to a certain threshold, Ads can become the dominant revenue stream

A new podcaster can use the Canvas Mockup + Assumptions above to create a model that has a base case set of cashflow projections mapped out against the expected costs, both upfront and ongoing. Once a podcast is up and running, the next step is to consider how to promote or market a podcast, which is an entirely different subject matter.

Overall, podcasting isn’t for everyone, but there will certainly be big opportunities as we head into the future.

A New Revenue Stream for Creators and Publishers

Across platforms and disciplines – whether it is:

(Sufficient) Monetization is difficult for creators.

What makes podcasting compelling is that there is a more natural extension for a lot of adjacent activities that creators are already doing to which creating a podcast would seem like a no-brainer. As shown above, if you have something to sell, podcasting can become a New Channel to push:

  • Courses – expanding the market for certain levels of expertise
  • Content – such as books, premium audio resources, etc.
  • Consulting – share the market insights, monetize the implementation

Because podcasting has multiple revenue models and can create a combo revenue model, it can offer new sources of income to those who are experienced in other creative disciplines.

The infrastructure to launch, produce, monetize, and analyze any given podcast has increased exponentially in the last couple of years. Without that underlying infrastructure, none of the explosive projected growth would be possible.

Podcasting is a creative endeavor that can bring many new voices and stories online in the years ahead. There are always innovative new solutions being created in the market to lower barriers to entry, such as rentable podcasting recording studies (by the hour), or even bundling podcasting studios into coworking spaces.

Search: 'renting a podcast studio' or 'podcast studio near me'

Listen Live or Listen Later – How Does Podcasting Compare to other Media?

On the audience side, podcasts enable listeners to ‘listen later.’ Unlike TV or Radio, not everything has to happen live.

In 2021, Nielsen showed data that shed light on the concept of the “Light Listener,’ someone who listens to between 1 – 3 podcasts per month.

Today, almost half (49%) of U.S. podcast listeners are light users who are presumably new to the medium: people who listen anywhere from one to three times a month.

Nielsen
Source: Nielsen

One of the main advantages to podcasts compared to other media is that they don’t have to be live, they can maintain their relevancy far into the future. The ‘Light Listener’ can gain a lot of insight or entertainment from just 1 – 3 episodes per month.

Podcast platforms also offer features to enrich the ‘podcasting experience’ for the listener, which can include (depending on the platform):

  • transcripts of what was talked about
  • ramp-up listening speed (up to 2X)
  • clip sharing – to enable sharing with friends, family, colleagues
Podcast Tips : Friends Don't Let Friends Listen To Podcast Apps on Default Settings

Some of these features are unique to the less dominant platforms such as Overcast, which is why the market being ‘early stage’ remains relevant. As podcasting’s relevance to the overall media landscape expands in scope, certain features may become essential to reaching a larger audience.

When we think about everything discussed over the course of this (very long) post, we can see that the lines between a ‘podcast’ and other media start to blur:

  • many people listen to/watch podcasts on YouTube (video)
  • some of the most popular podcasts resemble Books (publishing)
  • news publishers use podcasts to push longer form content (news)
  • entrepreneurs + investors use podcasts to expand their networks (business media)
  • experts + influencers use podcasts to create new courses (education)

Thus the very definition of ‘podcasting’ will probably expand as we go into the future. Furthermore, search engines will probably index more and more podcasting content as ‘News’ or around certain search queries that correspond to the above. Podcasts are at the minimum a great educational resource that are highly accessible. Many of the top podcasts are free and endeavor to inspire and educate, rather than monetize.

Overall, Podcast is starting to take shape to become a ‘New Radio’ but with several key differences. There are multiple players – podcasters, agencies, platforms – in the value chain who are looking to cash in on a wave of creative and innovative audio content hitting the market. Consumers should be the big winners in the end, as new voices and ideas ‘reach the airwaves’ and inspire others, creating a vicious cycle of high-quality audio content in all of its various permutations.

Top 3 – Learn More

BMi – Spotify Audio Ads

Digital Music Business Model Vision

Business Model Toolkit