Have Podcasting Investments Been "Worth It?"

an exploratory journey, with go-gurt

A couple of things have happened recently that I want to tie together: the death of Larry King, and Citi’s recent note to its clients about Spotify’s lack of “material positive inflection” related to their big bet on podcasting. I’m going to tie these two stories together with data (appropriate) Barry Bonds (questionable) and Go-Gurt (disgusting.) Let’s take a trip.

When I was growing up, I used to fall asleep at night with a small radio under my pillow. Some people fall asleep to white noise, others to music, and still more require silence—but I’ve always found talk radio comforting. Growing up in the Downeast hinterlands of Maine, as I did, I had few options in the daytime. But at night, under most conditions, I could pull in Boston’s WBZ on my AM dial. The show I looked forward to the most? The Larry King Show, which aired between midnight and 5:30 am, syndicated by the Mutual Broadcasting Network.

If you had never listened to this show, your memories of Larry King would likely be for his suspenders, his personal life, his awkward interview with Jerry Seinfeld, or the raft of impersonators he inspired with his highly caricaturable personality. Larry’s favorite impersonation of himself is also mine—Norm MacDonald’s rapid-fire non sequiturisms.

But the Larry King I grew up listening to on overnight radio was an interviewer without parallel. To this day, I don’t think there has ever been anyone any better, even the TV version of King. Howard Stern is up there. Rogan has turned out to be pretty good. Today we have some wonderfully engaging interviewers like Terry Gross, Anna Sale, and Alex Blumberg, who are rightfully celebrated for their skill. But it’s a rare skill—almost unicorny—to do it as well as Larry did, night after night.

When you think about “talk radio” today, your consideration set is fairly narrow—I bet you thought of Sports, Politics, or Personal Finance. The Larry King show was about anything you could think of. One night it was about science; the next, philosophy. Or an interview with Morgan Fairchild. And every night, at 3 AM, it was about YOU in a segment called Open Phones America. I wrote about this last week, before Larry passed (pure, sad coincidence.) But mostly, The Larry King show was about curiosity. He asked the questions we would have asked. He got me interested in everything.

Today we don’t put transistor radios under our bed. I’m not even sure if we even use transistors anymore (don’t judge me—my parents sold my Radio Shack Electronics Lab in a yard sale LONG ago.) Instead, we have smartphones. And smartphones are the most wonderful transistor radios ever made, because they literally put every kind of audio in the world into your shirt pocket, and have been the principal drivers behind the growth of at least two forms of audio: streaming and podcasting. The smartphone is so important to the modern rennaissance of spoken word audio that it’s worth looking more precisely at how we use our smartphones to consume talk-based content.

One of the great joys of the Share of Ear® data we collect for clients at Edison Research is the size of the sample, which lets us slice the data up fairly finely and still have great confidence in the data. For example, I recently took at look at the Share of Ear for spoken word audio (everything from news/talk/sports radio, to podcasts, audiobooks, and more) and further divided that by the listening done on mobile phones. Here are the top three spoken word audio sources on smartphones by percentage of time listened:

Percentage of Mobile Phone Spoken Word Audio by Content Type (Q4 2020):

  1. Podcasts: 55%

  2. Audiobooks: 20%

  3. AM/FM Radio: 10%

Remember—this is ONLY spoken word audio, and ONLY that which is consumed on the mobile phone. It does not include music.

AM/FM companies have for years tried to coerce mobile phone manufacturers into building (or activating) an FM chip into their handsets. An entire initiative, NextRadio, was formed to create an app that blended internet-delivered metadata with local FM signals. The app worked well, too, as long as you had decent FM reception for the local station you were tuned to. But ultimately, despite building a pretty good app, NextRadio was shuttered by its parent company, and today we don’t talk about FM chips in smartphones anymore.

Looking back on NextRadio, it’s easy to blame the initiative or the app itself, but that simply doesn’t tell the story. App and service makers might claim that they are “device agnostic,” but that agnosticism doesn’t necessarily transmit to where it counts—the listener. The real problem with AM/FM content on smartphones is that the product doesn’t fit the container. This is why we don’t sell milk in GoGurt containers and vice versa. AM/FM radio simulcast into a streaming container may look the part, but when static, signal drops, and long commercial breaks pop up, it’s clear that the product was, in fact, not the Go-Gurt you were looking for.  Because AM/FM radio was never engineered from the ground up for the smartphone, it hasn’t been competitive there from the get-go. 

Of course, AM/FM radio has nearly 100% of the Share of Ear on an AM/FM radio. (I say “nearly” because there are still a few brave pioneers out there using FM adapters to broadcast their smartphone audio to an unused frequency on their car radio. If you ever played the classic computer game Myst, you’ll remember moving from one highly detailed, photorealistic location to another, until you got to the library. There you could open a beautifully rendered red or a blue book from a pristine oak bookshelf and be treated to…a scratchy, pixelated video of one of the game designers trying to act. This is exactly what FM audio adapters were like.)

For those of us who have ever tried to use one of those FM adapters to get audio from our smartphone to our cars, we did so because of the one true unifying feature of all smartphones, whether Apple, Android, or newly-resurgent STONK BlackBerry—a crappy speaker. Audio on a smartphone begs to be listened to with headphones, which is why you see content that was designed mainly to be listened to individually, like audiobooks, performing twice as well on phones as AM/FM radio content. Yes, I know that you can listen to audiobooks with others, especially in the car, but that isn’t the dominant modality for audiobook listening, and the car isn’t the primary location for spoken word audio listening—that’s still at home, and not by a little.

Even at home, the smartphone is increasingly the most important audio device. In a sense, the smartphone is the great equalizer—theoretically, you can listen to any content on your smartphone, from Morning Edition to Frampton Comes Alive to Carlos and the Chicken. It’s the great leveling ground—a meritocracy for the ears. And at least as far as spoken word is concerned, the medium that is winning out is podcasting.

Podcasting’s share of mobile spoken word is more than five times greater than that of simulcast AM/FM radio content. Before you dare cast a chortle at broadcast radio companies, know that in our ranking of the top podcast networks by weekly reach (available in our quarterly Podcast Consumer Tracker) you will find Entercom, NPR, WNYC, WestwoodOne, and a host of other entities that also offer linear broadcast content. Through a combination of building and buying, radio companies are reaching as many podcast listeners as the “pure play” content companies, and have for a while. They know that podcasts on a smartphone is Go-Gurt in a Go-Gurt tube.

Here’s what any of those companies will tell you (and you probably already know): creating great spoken word audio content is hard. So difficult, in fact, that “building” is a pretty risky strategy. The download numbers of the “hits” of podcasting pale in comparison to the impressions raked in by the biggest YouTube stars, people like Jimmy Donaldson or 9-year-old Ryan Kaji. Many audio companies have either never developed the chops to craft great spoken word audio, or have allowed those muscles to atrophy.

In the case of commercial broadcast radio, much of the spoken word on offer had consolidated to services (News/Traffic/Weather), morning show banter, or a very narrow band of talk subjects—sports, politics, and personal finance. Asking a commerical radio company to create a hit show based on, say, science, would be to ask them to create something truly from whole cloth. Not easy. This is why so much podcasting talent in the early days has emerged from the ranks of public media—they’ve been exercising these muscles all along. So broadcast radio companies have combined their own portfolio of content with those they have acquired to become viable competitors for your smartphone earballs.

Companies that have demonstrated excellence at spoken word audio do not grow on trees—which is why shops from Pineapple Street to Pacific Content to Midroll have been snapped up—it ain’t easy, and they are doing it. And thus we have had a lot of acquisition activity recently in podcasting. Maybe you could build the next Ringer, or Wondery, but if you believe in podcasting and you want to make a difference now, you buy Wondery. It is easier to buy than build.

I think the talent pool for great spoken word audio creation will grow—it is already doing so—but again, consider how the models for having a great career in spoken word audio have not been easy to find for quite some time. Larry King stopped doing radio in 1994. Sirius (now SiriusXM) took Howard Stern off the public chessboard ten years later. There are only so many on-air slots in public media, and a lot of super talented people already filling those spots. So in a sense, the career I once thought I wanted to have as a teen (radio talk show host) really didn’t exist as a viable career choice except through very limited windows.

Today, that’s all changed. The smartphone changed it. Podcasting changed it. It’s cool to be a podcast host, and we have more positive role models than ever to learn from, and we can access them all, on-demand. Spoken Word is going to continue to grow, and not to entirely unprecedented heights. While spoken word has grown relative to music througout the seven-year history of our Share of Ear research, I would have loved to have seen a similar study from the 70s or 80s. Our current love for spoken word isn’t a new phenomenon. From the grunts of our cave-dwelling ancestors to the modern-day grunts of Joe Rogan, we have always been moved by great audio storytelling. I think the current rise in podcasting and audiobooks is as much a return to a great era of audio content as it is the ushering in of a new one. The smartphone is the perfect container for it.

While we build the next generation of superstars to create that content, the ones we have now are like emeralds and rubies (and not the comparatively less-rare diamonds. THANKS, DEBEERS.) A six-week development sprint does not code the next Larry King. You can’t 3-D print Anna Sale. The team behind APM’s In The Dark can’t be manufactured, no matter how many sigmas you use (six is probably too many.) And this brings me back to Citi’s letter to investors about Spotify, and the failure of their podcasting investments to produce a “material positive inflection.”

Let me say two things up front—the success of Spotify’s podcasting strategy is not guaranteed, by any means. And I will also disclose that Spotify is a client, like many of the other companies mentioned in this week’s newsletter. All of that said, I think it is a little too early to say that anyone has paid too much for a podcasting investment. YouTube sold in 2006 for about a billion and a half, with negligible revenues to show for it. Remember? In Google’s 2007 regulatory filings, they didn’t even list YouTube’s revenues, because they were “not material.” It took about three years for Google to realize $200 million in revenue from YouTube. Today, if you passed on YouTube in 2006, I think you’d like a mulligan.

The companies that Spotify and Amazon and Liberty and other firms have purchased are a mix of technology and content. Wall Street has never been good at valuing the latter, and not necessarily great at valuing the former all of the time either (see YouTube). I mean, look at how wrong they were on GameStop! I am not saying that Spotify’s acquisitions are necessarily going to pay off like Google’s purchase of YouTube. I am saying that you can’t value content the same way you value technology, and it is just too soon to make these pronouncements. I can tell you two things about letters like the one written to Citi’s investment clients: one, they are written by an entity that profits from transactions (you know, like “sell”) and two: they are not written by Citi’s CEO, Michael Corbat. They are written by young quantitative analysts, to be kind, and as my wife Tamsen recently reminded me, Wall Street sucks at valuing art.

Here’s what I do know: today, according to our latest Share of Ear data, we listen to one hour of podcast content for every seven hours of AM/FM radio content. Podcasting does not currently bill one-seventh of what AM/FM radio bills from advertisers—far from it. It’s going to catch up. And that isn’t even factoring in direct support models or subscription revenues. The number of podcast listeners doesn’t have to increase at all for podcasting to be a multi-billion dollar industry—the advertising world just needs to catch up to it. If you believe that, then you place your bets now. It will never be cheaper.

All of this reminds me of my past years as a failed fantasy baseball player. I used to be in one of the oldest fantasy baseball leagues in existence. I never won it, despite being pretty good with numbers. I was good at stats; however, it turned out I sucked at economics (failing at Fantasy sports was in fact my primary driver in getting an MBA.) In our league, we auctioned off baseball players every year, and you had to stay under a $260 budget. If you retained a player from the previous year that you had wisely gotten for a bargain (like a $5 rookie Albert Pujols who ended up being a reliable $30+ star every year) then you had extra money to spend. Each year in the auction, my spreadsheet would tell me things like Roger Clemens was worth $25, or Barry Bonds was worth $36. I would smile, fold my hands and say “pass” when the bidding for those players, fueled by excess league cash saved from previous wise investments, drove the price for those players to $50 and even $60 or more. 

I can tell you three things about my fantasy baseball years: A) I rarely overpaid for anyone, B) I never got Barry Bonds, and C) I never won that stupid league. You don’t win without stars. No matter what Hall of Fame voters think now, Barry Bonds was a star. And stars are worth exactly what someone pays for them.

Spotify, Amazon, Entercom, iHeart, Liberty and others have had their first auction draft. They all went home with the players they believe will hit above average in the years to come in a medium that dominates the smartphone NOW, and it is only growing.

TL;DR - I miss you, Larry King, it’s too early to write-off ANY podcasting investment, and Go-Gurt is gross.

Links of Distinction:

I am not someone who invests in individual stocks—Vanguard index funds for me, baby—so I was not a part of the GameStop debacle of the past week. Still, I fantasized being part of it, so I wrote this, which I am linking to rather than including here.

Bryan Barletta of the Sounds Profitable newsletter wrote a great article about brand lift studies in podcasting that I was honored to contribute to. You can read it here, and subscribe to his excellent newsletter here: https://soundsprofitable.com.

My friend Eric Nuzum, formerly of NPR and Audible, has also started a new newsletter called The Audio Insurgent. Well worth your time. I love that there are more and more newsletters popping up about podcasting and audio. I’m grateful for the time and attention you give to mine, but the more there are, the healthier the industry is.

I’ve written about some of the pitfalls of Clubhouse before, but there are also some genuinely great interactions and resources. I was Juleyka Lantigua-Williams’ guest in a Podcasting, Seriously Clubhouse room this week on listener surveys and the quality of the interaction was great. More about that here.

I’m not always going to be so link-y, but like Whitney, I’ve been saving all my love for you. Have an awesome weekend.


Credits: Barry Bonds By Jim Accordino, CC BY 2.0, https://commons.wikimedia.org/w/index.php?curid=7557426. Whitney Houston By Mark Kettenhofen (Public Domain, https://commons.wikimedia.org/w/index.php?curid=18712450). Go-Gurt by Yoplait.