Where's the Blockbuster of Podcasting?
Introducing Luminary Media
Last week the podcasting world couldn’t stop talking about the public launch announcement from Luminary Media. Luminary was previously in stealth mode, having raised over $40 million in funding back in May of 2018 to create the “Netflix of Podcasting”. When they launched last week, that number jumped to nearly $100 million in funding.
But what does being the Netflix of Podcasting mean and why are companies rushing to become it?
Netflix of podcasting
Every one of these companies is trying to create a subscription service around podcasts that aims to be the one-stop-shop for all things streaming audio. In trying to emulate the Netflix model of all-you-can-eat video programming for one monthly fee, these companies are trying to become as synonymous with podcasting as Netflix is with video streaming.
To become the dominant company they will need to create a service aimed at the general public while also addressing longstanding podcasting gripes around discoverability, monetization, and user experience. Doing this while not eliminating the numerous benefits of the podcasting format will be challenging. Podcasting currently requires navigating a complex world of technologies like RSS and an overwhelming array of choices for content. As such, listeners tend to skew younger and more tech-savvy.
However, all of these companies are missing one key component of becoming the Netflix of Podcasting:
There’s no Blockbuster of Podcasting.
Let me explain.
Netflix ladder strategy
To understand how Netflix came to dominate video streaming you have to go back to how they got their start: mailing DVDs. The most important changes they brought to the DVD market were centered on convenience: no due dates and massive selection. They took something people were accustomed to paying for already and made it better. They continued to execute what Ben Thompson describes as a “ladder-up” strategy (paywall):
Secondly, Netflix remains the textbook example of what I would call a “ladder-up” strategy:
- Netflix started by using content that was freely available (DVDs) to offer a benefit — no due dates and a massive selection — that was orthogonal to the established incumbent (Blockbuster). This built up Netflix’s user base, brand recognition, and pocketbook
- Netflix then leveraged their user base and pocketbook to acquire streaming rights in the service of a model that was, again, orthogonal to incumbents (linear television networks). This expanded Netflix’s user base, transformed their brand, and continued to increase their buying power
- With an increasingly high-profile brand, large user base, and ever deeper pockets, Netflix moved into original programming that was orthogonal to traditional programming buyers: creators had full control and a guarantee that they could create entire seasons at a time, and, in the beginning, the rights to use what they created elsewhere (more on this is a moment)
Each of these intermediary steps was a necessary prerequisite to everything that followed, culminating in yesterday’s announcement: Netflix can credibly offer a service worth paying for in any country on Earth, thanks to all of the IP it itself owns. This is how a company accomplishes what, at the beginning, may seem impossible: a series of steps from here to there that build on each other. Moreover, it is not only an impressive accomplishment, it is also a powerful moat; whoever wishes to compete has to follow the same time-consuming process.
What the excerpt above emphasizes is that Netflix didn’t start where they currently are: they started by taking on an incumbent company in an orthogonal way to compete. They did this by consistently iterating and building its business, constantly improving on the user experience with more convenience (introducing streaming) and selection (including exclusive content).
So, do we need the blockbuster of podcasting first?
Right now, in the US, a significant amount of podcasting revenue comes from advertising. Most listeners don’t directly pay for access to the podcasts that they love. This is critical for understanding the viability of “Netflix for Podcasting” business models because first, those companies have to convince people that podcasts are worth paying for. This is a tall order considering that the incumbent, the Blockbuster, is a large amount of freely available podcasts, usable in a wide variety of apps.
As the number of companies vying for the title of “Netflix of Podcasting” increase, differentiation will be key. This will be a tricky endeavor since every service will be starting with content that is freely available and, thus, commoditized and on every other service from day one. This means that every new “Netflix of Podcasting” will have to also tackle how to differentiate themselves in addition to the other challenges they face.
Bringing it back to Luminary
Luminary knows that differentiation is the key, so they’re taking another page out of the Netflix playbook: original, exclusive content. Luminary Media used some of that $100m to sign deals with an impressive list of podcasters and celebrities:
They will produce Luminary exclusive audio content in the hopes that their star power will draw in subscribers at $8/month. However, they’re not the only ones with that playbook. A look around the audio landscape reveals service exclusive content strategies popping up, from Stitcher (Wolverine: the Long Night) to Spotify (Amy Schumer & The Joe Budden Podcast). In fact, with the recent acquisition of Gimlet media, expect Spotify to go deeper into the exclusive content direction.
So, about that “ladder-up” strategy
According to the latest research by Edison, about half the US population has listened to a podcast and almost a third listen to one a month. However, having the best podcasts in the world won’t matter much if people aren’t listening to podcasts overall. So the biggest question for all of these companies won’t be:
How do I convince the other half of the US they need my exclusive podcasts?
it will be:
How do I convince the other half of the US they need podcasts and they also need my exclusive podcasts?
Here comes the bogeyman: Aggregators
The podcast world is split as to what this means for the industry. Some think that a rising tide lifts all ships while others fear that this is the beginning of the centralization and locking down of the historically open podcasting world.
The reality is somewhere in the middle. There’s no doubt that anything that brings more casual listeners into podcasting means more listeners for everyone. However, content creators should be worried that they could be commoditized within a large aggregator who ultimately owns the listener relationship. This is the very problem other content creators (i.e. YouTube stars & media companies) find themselves in.
Thankfully, the fact that podcasting has an existing, largely decentralized, ecosystem, means there will always be a place for the independent podcast to publish and flourish. So while we may see a “Netflix of Podcasting” in our future, it’s unlikely to move the entire ecosystem into centralized systems.