The Interactive Advertising Bureau’s annual podcast industry revenue study (in partnership with PwC) was released today!
The bottom line is this: the podcast advertising business probably growing faster than any other form of media (yay!)—but it’s important to keep in mind that it’s still downright microscopic compared to other forms of ads. While podcasts did $314 million in revenue last year (up 84% from 2016!), digital advertising as a whole did over $209 billion in 2017 (via recode).
In other words, podcasts make up 0.15% of the overall pie, even when the pie doesn’t include traditional forms of advertising like TV, outdoor, print, etc.
So, what does this mean?
1. Startups / Venture Capital
Well, for one thing, it helps you understand what it means when you see a venture capitalist make a big bet on a podcast company: you can safely assume they’re betting this growth will continue (if not accelerate) well into the future. If the podcast ad industry grows by 80% every year for the next five years, it’ll represent around $6 billion by 2022, which means there’s probably not any one company in the mix that is doing much more than a billion in revenue.
(Important context: As a very general rule of thumb, if a company isn’t on track to make at least one billion in annual revenue within ~5-10 years of the initial investment, it’s unlikely to be a very attractive company for most VCs).
So if you want to see how all the VCs betting on podcasts are feeling, just keep paying attention to the IAB/PwC report that comes out every year. If year-over-year growth isn’t > 80% next year, there’s pretty big problem. (Assuming the business model is ads.)
2. Advertisers
Another interesting thing to watch out for is the types of advertisements that brands are buying from podcasters. Notice how, in this chart, revenue is slowly shifting away from direct response (“enter coupon code FREAK at checkout”) and towards brand advertisements / branded content (“nike - just do it”):
Personally I think the vast majority of the growth in podcast advertising is going to come from the orange and yellow segments of this graph. Here’s why:
The goal of a brand advertisement isn’t to get you to purchase now, it’s to plant a seed in your brain that ties certain needs in your life (“hmm, this car is getting old”) to specific brands that solve those problems (“i remember hearing something about how those new fords are pretty good”). Direct response ads are meant to get you to take action now.
Which type you buy, as a brand, really depends on how your product fits into your customers lives. If your thing is kind of an impulse buy that can be triggered by an advertisement (like replacing your mattress, or signing up for a underwear subscription service) it might make more sense to ask people to buy now. If it’s something more ambient (like soft drinks) it might make more sense to just keep reminding people that you exist.
Which of these feels like a more natural fit for podcasting? I think brand advertisements are. (Let’s face it, when you’re listening to a podcast you’re not in a great position to take immediate action! Especially when compared with using Google or Facebook.)
So why is more money spent on Direct Response ads? Because direct response ads are the only kind of ads that companies can reasonably measure within podcasts. If you’re Squarespace, you know how effective your ad was because you have people going to specific URLs when they sign up. If you’re trying to do a brand advertisement, you don’t really know how many people heard your ad, and you don’t have any ability to target that ad at any specific demographic, so it’s much harder to justify.
I think a lot of the verification and measurement problems will get solved, especially with ad-focused companies like Spotify and Pandora jumping into the distribution mix, and maybe causing Apple starting to pay more attention to these problems. Therefore, I think podcast ads won’t really hit full “product market fit” until brand advertising becomes fully viable. At that point, I wouldn’t be surprised if growth accelerates.
I’ll certainly be keeping an eye on it!