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Spotify and Pandora are looking to expand beyond the music broadcast and into the world of podcasting because they aim to capture more consumer listening time and eventually increase their profit margins.
Podcasting is a small but growing medium that attracts committed young listeners. But producers and distributors have not yet found a solid model for making money.
Spotify and Pandora say they are well positioned to do this, partly by tackling one of the biggest challenges in the media: it remains difficult for listeners to discover new podcasts.
"When you go for a musical discovery, it's like being in the stone age," said Pandora Media Inc.'s managing director, Roger Lynch. "We think we can expand our audience by getting people to listen to a certain podcast and keeping them on the platform with the music we have," he said.
Over time, profit margins will increase because podcasts cost less than music, Lynch said.
Neither Pandora nor Spotify Technology SA would disclose the details of their nascent podcast businesses, including how much they pay for or earn from programming, or how much time listeners spend on the media.
Each company contributes about three-quarters of its revenues to the sale of music licenses, based on their financial reports, making the profits elusive.
Spotify says it carries 150,000 podcasts; Pandora says that he has hundreds. Analysts estimate that podcasts account for less than 1% of the time listening on one or the other service. According to Edison Research, the monthly audience of podcasts in the United States has more than doubled in the past five years, reaching 73 million.
Although mergers between podcast publishers have intensified in recent years, the sector remains extremely fragmented. Spotify and Pandora are spreading in a market with many distribution players but with no clear money, despite the huge potential audience.
Apple Inc. – with more than 600,000 podcasts available through Apple Podcasts – has dominated the distribution market but does not earn any revenue from them.
The most innovative podcasting apps tend to be small and do not have the money that great streaming services can spend on engineering and discovery, said Stifel analyst John Egbert.
"It's here that Spotify and Pandora come on the scene," he said. "They have very strong capabilities for machine learning and artificial intelligence that are focused on music for a long time." Both companies view podcasts as a natural solution: music is the most popular podcast genre, according to Nielsen.
Although podcasts have been available on Spotify and Pandora for years, they have only become a priority in recent months. To do this, it was necessary to create capabilities to host longer content, fast transfers and prominent podcasts on the platforms.
Both services are experimenting with ways to make money from podcasts, which are generally available for free for consumers and supported by advertising. And both view podcasts as an essential part of their goal of getting listeners away from broadcast radio – an industry that continues to attract hundreds of thousands of listeners each week and to generate advertising revenue from radio broadcasters. about $ 14 billion a year.
"The vast majority of minutes on the radio today are not online yet, so our opportunity is really huge," said Spotify CEO Daniel Ek earlier this month. "In this context, we obviously think that non-musical content is very important."
According to the Interactive Advertising Bureau, advertising revenues from podcasts in the United States increased 86% to $ 313.9 million last year, and are expected to exceed $ 402 million in 2018. As a general rule, host reads sponsorship messages or ads shown during the podcast. Until now, Spotify sells ads only for its original and exclusive podcasts. Pandora plans to extract all or part of the ads from a podcast and replace them with his own.
Eric Ross, an analyst at Cascend Securities, said podcasts were not yet attractive enough to entice users to switch from one platform to another. But in a long-term competitive perspective, they are essential, he said. "You can not lose a customer to anyone else because you do not have podcasts," he said.
Spotify and Pandora are testing different types of advertising contracts with podcasters, exploring fixed fees versus audience-based payment. They also explore exclusive content for a limited or permanent period.
Spotify has reached an agreement for the distribution of an exclusive weekly podcast hosted by rapper Joe Budden and Vice News's first podcast, "Chapo", on Mexican drug pillar Joaquín Guzmán. Spotify's original podcasts include one with Amy Schumer, who will be widely distributed in her first year before becoming exclusive to Spotify, as well as branded podcasts with sponsors.
Analysts say it could take another five years before podcasts have a significant impact on companies' bottom line. For now, it's about attracting and retaining customers.
Last week, Pandora unveiled a preview version of its new podcast offering, supported by what it calls the Podcast Genome Project. Similar to its Music Genome project, which uses hundreds of attributes to sort and recommend music according to user preferences, the cataloging system combines technology and human monitoring to recommend podcast series and individual episodes.
Spotify is also relying on its music recommendation experience.
"What makes Spotify so great is how it contextualizes the right content for the right people," said Courtney Holt, Spotify's studio and video manager, adding that podcast listeners tended to figure among the most engaged customers. "They consume more globally."
Write to Anne Steele at [email protected]
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