The Rest is Podcasting

Media Business

I took a moment this week to see how others manage their podcasts, specifically the blokes from England, Tom Holland (not that Tom Holland) and Dominic Sandbrook of The Rest Is History.

I’m a fan, so I invested in a subscription. All things are British here, the rates are in pounds, ￡6 is roughly $7.50 US for a monthly subscription. Value for my money - all the episodes are ad free. It got me thinking.

What are the economics behind offering a paid subscription, especially at it compares to ad CPMs?

First Things, First

What does the universe of podcasts look like?

As of their last review, Spotify figures they have somewhere in the neighborhood of five million podcasts on it’s network. Let’s do a breakdown of this number

Average Episode Downloads

From the point of view of the podcast creator, 50% of all podcasts generate very little in terms of audience downloads. So your average podcaster is doing God’s work but probably not making ad revenue. Art for Art’s sake.

Ad revenue works on CPM (Cost Per Mille or Thousand). Advertisers quote and pay in pro rata lots of 1,000 listens or downloads. A $50 CPM means you will get paid $50 for every 1,000 downloads or listens (going forward we’ll just say downloads.) In Theory, if you had a podcast episode in the Top 5% that gets 7,000 downloads per episode, each episode would gross $350 in Ad revenue.

I say gross revenue, because if the ad was served by Spotify as part of their programmatic offerings, you’d share the revenue with them to the tune of a 50% cut. That $350 becomes $175 real quick. If you’re Spotify it’s a great deal cause, It’s good to be the King.

For Spotify, leveraging the 'law of large numbers' and utilizing programmatic advertising techniques such as Dynamic Ad Insertion (DAI) translates into a viable revenue model. This approach allows for the placement of ads across a wide range of content, maximizing revenue potential. Your small level of downloads aggregated by Spotify’s technology presents an opportunity for them as they place ads.

All podcasts have the potential to include advertisements through ad insertions. This means that regardless of the platform on which a podcast is played (such as Apple, Google, Stitcher, or others), advertisements can be inserted into the audio content.

The upper tiers of episode downloads, from 20% to 1% are doing all the work and have the most to gain from advertising, for the creator and a network like Spotify. The smaller download tiers benefit Spotify more so.

Options

But what if you’re a regular podcast creator doing weekly 30 minute episodes with about 3,500 downloads per episode? You might have some options. Enter subscriptions. Now if you could convert some of your downloads to paying customers by giving them ad free podcasts through a subscription. What might that look like.

Let use some simple math and say 3,500 downloads per episode is equal to 3,500 unique listeners per episode. What if you could entice 10% of them to take an ad free version of your podcast for a price of $7.50 a month?

A few things I left out but can be adjusted, the 50% revenue split with the Ad Network, and operating expenses to publish. Which means mileage will very based on how you create podcasts.

In theory getting subscriptions is a smart move if you can do it. If I try to do a slightly baked apples to apples on CPM, the forgoing of Ad revenue for subscribers is a great trade. Based on the above and a bit more math; those 350 subscribers will generate 16,800 downloads a year and provide $31,500 in annual revenue. That equates to a CPM of $1,875 for those subscribers. Nobody is going to pay you a CPM that high for content.

History Often Rhymes But Doesn’t Repeat

So back to The Rest is History Podcast - what could they be doing in revenues using a mixed model? A few things to know and envy. They are part of the Goalhanger Podcast Network. That means they are mostly likely going direct with their advertisers and getting more on the CPM side. Also they are probably only paying for the operating costs of Megaphone on the publishing side and not sharing ad revenue from their direct deals. When you’re big you can do that as a network.

I listened to a recent episode #437 Luther: A World Torn Apart (Part 5) and here is the important information from an ad perspective. It was a little more that a hour episode. The pre-roll (ads at the start) had three different ads, each was anywhere from 25 - 30 seconds. In the middle was a natural break by the hosts and three more ads played before the second half of the show began. The post roll (after the show was completed) had a promo for another podcast on the Goalhanger Network. Let’s count as a total of six ads for a hour long podcast. I won’t count the post roll, since most people don’t hear it. Post rolls usually get heard when listening to multiple shows of the same podcast in succession.

The advertisers for the show were big consumer brands like Home Depot, Samsung and the like. For all total of six ads, we’ll be generous and say they are getting $100-$120 CPM for the combined value of all six spots in an episode.

It’s hard to get Monthly downloads for this specific podcast but we can estimate on known monthly downloads and rankings. The Rest is History sits between two other podcasts in the Spotify Rankings. Let’s, for argument sake, say that monthly downloads has something to do with rankings. History falls between two other podcasts we can get numbers for. Giggly Squad sits above and gets around 40 million downloads a month and Dateline: True Crime Weekly sits at around 30 Million downloads a month.

Let’s split the difference and estimate The Rest is History does 35 million downloads a month and averages 10 episodes a month. That would give us 3.5 million downloads per episode. In a one to one, we’ll give them 3.5 million unique listeners per episode. Let’s also estimate that anywhere from 2-5% could be subscribers of an Ad-free podcast version. That would give us 70-175K subscribers - we’ll use the conservative 2% but this is an illustrative exercise.

Having paid subscribers significantly boosts the podcasting business model, especially at scale. With 20% of revenue stemming from these subscriptions, it's a substantial profit margin that can cover or contribute to operating expenses and talent fees.

The advertising revenue is significant. It's important to remember that in order to generate and retain a greater share of this revenue, investing in both a dedicated sales team and the necessary technology to oversee it is essential.

Remember these are all illustrative examples. I’m basing analysis on data I can publicly gather and estimate. There could be other factors at work inside the deals for both talent and advertising that makes these numbers go up or down. Also, what counts as a “download” with advertisers is a negotiation especially when tracking links or pixels are involved. That does not change the thought process of how you should think about the content opportunity, only its refinement.

The Bottom Line

Incorporating a tier for paid subscribers who receive ad-free content can be a boost for your business model and is definitely worth the thought. Typically, these paid subscriptions also come with additional benefits such as exclusive episodes, access to private chats, and invitations to live webinars, all of which add value for the subscribers and true fans of your content.

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