How Podcasts Could Boost Profit Margins for Streamers

Podcasts now range from talk-radio style interviews and discussions to serialized storytelling. Subjects span show business, true crime, comedy, science, history, investing and much more.

Streaming music leader Spotify has invested heavily in podcasting content and technology. It recently spent nearly $400 million to buy three companies in the field: Gimlet Media, Anchor and Parcast.

Other players trying to cash in on the market include iHeartMedia, Sirius XM Holdings and venture capital-funded startup Luminary Media.

According to Investor's Business Daily, podcasting is attractive for a number of reasons. For one, the audience skews toward affluent listeners desired by advertisers. Also, the economics are more attractive than music, which carries steep licensing fees.

Further, these services can offer exclusive shows not available elsewhere. Meanwhile, music services usually offer the same song catalogs.

"You're reaching a cream-of-the-crop demographic in terms of who's listening to podcasts," said Russ Crupnick, managing partner of research firm MusicWatch. Some 63% of the medium's listeners are 18 to 44 years old and their incomes are higher than average, he said.

Streaming music services now focus on podcasts not only because it's a growth area, but also because more podcast listening could lead to less music listening, Crupnick said.

The shift could help Spotify reduce its dependence on major record labels and improve its profit margins. Spotify typically pays a record label about 52% of the revenue generated by each stream, or play, of a given song, the New York Times reported.

RBC Capital Markets analyst Mark Mahaney estimates podcasting is a $700 million-a-year industry with a 30% growth outlook. The programming is a natural product extension and strategic fit for Spotify, he said in a report April 29.

Spotify is now tied with Apple as the most popular place to get podcasts, Crupnick said. The Apple app features more than 550,000 shows with over 18.5 million episodes.

New York-based iHeartMedia touted its strength in the medium last Wednesday when it announced the completion of its financial restructuring.

Consumer survey data from Midia Research indicates that 12% of the U.S. population over age 16 listens to podcasts. That equates to 27.6 million listeners. However, research firm eMarketer puts the number of U.S. listeners at more than 73 million, or 22% of the population.

The global podcast industry brought in $911 million in ad revenue in 2018, according to a report by consulting firm PwC. It forecast the market to reach $3.2 billion by 2023.