Building the “Netflix for podcasts”

Conversations have been bubbling recently about idea of a “Netflix” for podcasts. Much of the media is getting tired of advertising-supported content, and we’re seeing increasing movement towards direct consumer-monetization by charging subscriptions (see Memberful and Substack).

Could podcasting grow by charging for premium content?

It’s tough to know; Apple’s stranglehold over podcast distribution has forced the industry to rely almost entirely on making money through advertising. Let’s say we didn’t have to deal with Apple, though. Could a Memberful model work in podcasting?

To bet on the Memberful-of-podcasts, you’d have to believe that paywalled audio content would eventually become the preferred revenue source for certain publishers. The analogy is that while while most written content is free, there’s a significant number of multi-billion dollar publishers that rely largely on subscription revenue.

We can look to the Chinese market for an example of how this might shape up. Himalaya is China’s equivalent of the Apple podcasting app. Himalaya has 400 million users — about 70 percent of the Chinese market. The app enables creators to charge for premium content, and it turns out that a lot of people are willing to pay for it. 25% of Himalaya listeners pay an average of $20–30/year on premium content.

I’ll be the first to admit that it’ll take years for the US podcast market to get to this point. But, remember that the main obstacle in building the Netflix of podcasts isn’t a lack of demand for paid audio content; it’s a lack of supply. Right now, publishers have almost no way to charge for audio. If there was an easy way to charge for audio content, here’s how the market might develop:

1)Existing publishers would create new podcast content for the purpose of paywalling it: Some podcasts currently do this through Patreon, where fans make small monthly contributions in exchange for a perk. Perks often take the form of extra content, like bonus episodes where hosts answer hotline calls.

2) For some premium publishers, podcasts will become a revenue driver instead of a marketing cost: A number of paywalled publishers (The Information, Wall Street Journal, Stratechery) use podcasting primarily as a way to build their brand and acquire customers (and probably just to have some fun). Their podcast content is excellent; it often matches or exceeds the quality as their paid written products. If paywalling became easy, you’ll start to see some of their existing free content move to premium, or new content being created with the purpose of generating revenue.

3) New publishers will emerge and build businesses primarily off of paywalled content: Imagine a bunch of Ben Thompson-like figures emerging and charging for access to their respective industry newsletters or educational content. Experts in areas like self-improvement, foreign languages, meditation, and business would create their own freemium models, where they give away some audio and charge for the rest.

4) Writers will build their own audiobook businesses: Audio-book and audio-drama producers might start to take distribution into their own hands and publish content without the help of middlemen like Audible (for an example, check out Matt Taibbi’s recent decision to publish his latest book via paid newsletter).

Let’s unpack these:

1. Existing publishers would create new podcast content for the purpose of paywalling it:

This is the closest thing to what we’re currently seeing on Patreon (if you’re unfamiliar with it, Patreon allows creators of all types to earn recurring monthly revenue from their supporters in exchange for perks. Perks might include premium content, shoutouts on the show, and swag). Thousands of podcasters use Patreon to reward their most loyal (paying) fans with access to extra or archived content.

Patreon isn’t ideal for a lot of podcasters: it’s not customizable and doesn’t equip creators with many options for branding their content, engaging their listeners, or delivering a premium-feeling experience. The vibe is GoFundMe, not Netflix.

Let’s say you built a tool that made it easy for existing podcasters to paywall bonus podcast content.How big could this market be?

Base case: Let’s say this is a SaaS product that costs $25/month + 5% of transactions and serves 50,000 podcasts (there are about ~500,000 active podcasts, with somewhere between 10–20k new one each month) in the iTunes store. Memberful’s base business tier is $25/month. Let’s say the average listener subscription fee is $5/month and an average of 100 listeners per podcast chooses to subscribe (this number will vary way more in reality depending on the size of the podcast, but roll with me).

• $25/month x 50,000 podcasts x 12 months/year = $15m/year in SaaS revenue
• $5/month x 100 subscribers/podcast x 50,000 podcasts x 12 months/year = $300m generated for podcasts/year; $15m/year in transaction fees

That’s a $30m ARR business if you consider decent penetration among the existing market. More strikingly, it could increase the size of the entire podcasting market by $300m, effectively doubling it. The total size of the podcasting industry was $314m in 2017.

Bull case: Let’s get even more bold and assume these podcasts can get 500 of their listeners each to pay $10/month:

• $10/month x 500 subscribers/podcast x 50,000 podcasts x 12 months/year = $3b generated for podcasts/year; $150m/year in transaction fees

It’s bullish, but given that Netflix alone makes $12b/year in subscription revenue, it’s reasonable to think that there’s several billion dollars in untapped audio spend in America.

The real bet here is that you’ll be able to grow the pie by creating a platform that makes it easy to pay for and deliver premium content. How might that look? Let’s keep going.

2) For some premium publishers, podcasts will become a revenue driver instead of a marketing cost:

This is where it starts to get interesting. If paid podcasts were an option, premium publications will be less likely to offer podcasts for free and increasingly likely to either a) bundle podcasts with existing print/video subscriptions, or b) generate ancillary subscription revenue through podcasts.

Let’s take Stratechery. I have no idea how many subscriptions Ben Thompson sells in a year, but I think it’s reasonable to say it’s around 5,000. At $10 monthly, that’s $600,000 annually.

Now, let’s say you told him he could charge $10 monthly for his (currently free) podcast “Exponent,” which he publishes weekly with James Allworth. I’d guess “Exponent” gets at least 20,000 downloads/episode. Let’s say 5% of that audience valued it enough to pay $10/month for it. How much could Ben Thompson and James Allworth make off “Exponent” podcast subscriptions?

• 5% x 20,000 listeners x $10/month = $10,000/month

That’s likely competitive with or exceeds what they currently make through ad revenue for the podcast. Right now, Ben Thompson and James Allworth don’t have a great option for experimenting with this model. If one existed, maybe they would give it a go.

Another potential case for this model might be The Information’s podcast.

Every publication is searching for new revenue streams. The Information’s primary business model is to charge for information. Perhaps, 2 percent of their written content is free, and 98 percent is paywalled. But, their podcast has to be free because they don’t have an easy way to charge for it. So, they’re forced to think of their podcast as part of their customer acquisition cost.

Here’s how things might change if they could utilize their podcast to generate revenue, instead of a cost center: Maybe they would bundle podcasts into their existing mix. Or, maybe they would create a daily podcast and charge $400 annually to access it. I’m not sure how many people subscribe to The Information, but 10,000 seems like a conservative estimate. If 25% of them paid $400 for a daily audio update, that would generate tremendous value for listeners, and an incremental $1 million in revenue.

3) New publishers will emerge and build businesses primarily off of paywalled content:

The successes of audio-driven self-improvement apps like Calm and Blinkist prove that people are willing to pay for good, useful audio content. The Chinese “podcasting” market is over $7B+ thanks mostly to educational and self-improvement based audio (I put “podcasting” in quotes because the industry looks very different in China, given that Apple doesn’t have the same stranglehold over audio content).

These content services are different from podcasts, but they are a helpful directional indication of how big the market for paid-audio content could be if it was just easier for publishers to make it. Even today, there is a paid-podcast market, but it remains largely unquantified. Hundreds (if not thousands) of podcasters put premium content behind a paywall by using Patreon or by going through immense lengths to build a separate app or distribution mechanism.

Here’s an example: one self-improvement show I spoke with makes $50k-60k annually through advertising and over $200k through premium content. But, they built a separate custom app to deliver premium content.

Lowering the barrier to entry to distributing premium audio content would open up doors for a range of potential publishers who can produce valuable content that’s difficult to monetize through ads. An easy way to premium-ize audio would empower new entrepreneurs looking to make money while teaching listeners how to do everything from meditate to speak Spanish.

4) Writers will build their own audiobook businesses:

Audible has a firm grasp on the $2.1b audiobook market. There’s a lot of reasons that Audible doesn’t have much competition, but one of them is that writers don’t have many options when it comes to self-publishing audiobooks.

A memberful-for-podcasts model would give writers the option to distribute audiobooks on their own terms. Fans could go to the writer’s website, pay for the book, and a private link that lets them download the book and listen to it on their favorite podcasting app.

Giving audiobook creators more flexibility allows them to get creative. Writer Matt Taibbi released his latest book in serial form through a subscription newsletter: For $5/month, readers received book chapters as Taibbi finishes them, in addition to getting access to other recent work. This could work in podcasting, too; listeners could pay for a subscription to The Hunger Games or Harry Potter (or whatever kids are listening to these days) and receive voice-narrated chapters, as they’re released.

Want to send me feedback or help me build the Netflix for podcasts? Email me at amira[at]glow[dot]fm