While advertisers dominating a particular media marketplace is nothing new, the consolidation of buying power and presence in podcasts is certainly a cause for notice, and potentially, taking steps towards risk mitigation. Without an understanding of the market dynamic (or a firm to provide guidance), you risk overpaying in an inflated market, not getting first access to vital inventory due to lack of buying power, and not knowing when a competitor is about to completely shut down your category.
As advertisers like Squarespace, Blue Apron, and ZipRecruiter absorb so much market share that they become synonymous with the space, remember that podcast advertising is only a $220M industry; not even close to the one-hundred-times-larger $22.38B that Radio claims for 2017. Because of the relative scale, there’s a potentially risky market dynamic occurring that cognizant marketers and vendors ought to observe and strategically plan against. The general principle of diversifying an investment portfolio is still valid here, but there are also ways to be proactive in securing valuable inventory, ensuring access to inventory in general, and knowing when to and not to lock in rates for longer terms.
Consolidation in the marketplace is not limited to advertisers, but it is happening on the network level too. There are over 400,000 podcasts, and 1-3% of those have enough scale to be significant for advertisers. This diversity, therefore, is mostly consolidated into networks. The consolidation continues down the chain in the configurations of advertisers placing and agencies representing those advertisers. To start, most major content genres one could consider are built up into networks to leverage larger, flagship shows against smaller, lesser-known shows.
A great example of network consolidation is Crooked Media, whose flagship show is Pod Save America, hosted by founder and former Obama speechwriter Jon Favreau. While well over 1M unique listeners reportedly tune in for the twice-weekly episodes of Pod Save America, there are far less tuning into satellite programs such as Pod Save the People or Pod Save the World. Furthermore, Crooked Media is a part of the network Cadence 13, and represents a large portion of their podcast inventory by audience volume. By extension, Pod Save America could, in and of itself, represent a disproportionate amount of inventory for Cadence 13, thus putting a diversified media asset portfolio out of reach for them.
Perhaps obviously, this pattern follows the age-old business principle of “80/20”, where 80% of your sales come from 20% of your customers (where, in this case, sales are ad revenues and customers are individual shows). That is not in and of itself a problem. The problem is that the space is still volatile enough that, with a simple swing of an election or a new phase in listening habits and preferences (similar to the shift from serialized narrative to true crime and politics), the 20% is not as static as it may be in a more established business model/media segment.
Cadence 13 is not the only podcast network with this model, but just one of the many case studies. This dynamic causes a few unusual wrinkles in the media vendor space. Firstly, this causes a “seller’s market” for premium content, where talent groups with unique and audience-rich niches, like Crooked Media and Daily Wire, have the power and influence to essentially name a price. If the revenue guarantee isn’t accepted by the representation firm, they’ll simply take the offer to a competitive network and be signed.
This kind of partnership leads to a trickling down of unusually high pricing for advertisers that don’t match normal market expectations. In other words, the premium paid by the network to have the shiniest jewel in the crown is passed on to advertisers (most of which, by the way, are still DR advertisers that live and die by efficient pricing). Furthermore, this creates a revenue model for the network that has a disproportionate amount of projected revenue based on a few key media assets, rather than a balanced portfolio with various revenue-producing media assets. This should read as a dangerous investment strategy for both networks and the investment institutions funding them, that, given the dynamism of the space, could create a series of bubbles and busts that hurt advertiser investment and relationships with networks due to a lack of consistency and trust.
The consolidation doesn’t stop at the talent-network level but trickles to the sponsors. Here is where we define the difference between advertisers. Although both types are placing advertisements with a promo code or vanity URL, it can be said that there are true hybrid advertisers and direct response advertisers—the former being defined as running partially direct response campaigns and partially reach/awareness campaigns.
Hybrid advertisers like Squarespace, Blue Apron, Audible, Stamps.com, and ZipRecruiter fall into this group. These are advertisers that have been engaged with the space for years, if not since the beginning. There is little to no chance that ZipRecruiter placing as many spots as they did last week achieved a positive ROI on a show-by-show basis. They did, however, buy out an entire media type from any competitor who would ever dare jump into the space, and therefore their investment, if their goal is to win the turf-war, may be justified.
Among the total paid spots that ran everywhere in the podcast universe last week, a majority of them were shared between those top 5 advertisers, whatever the reason. It is likely that a majority of the spend in the space is also made up of those five advertisers. Therefore, not only are networks not diversified in terms of revenue generating talent, but they are also not diversified in revenue from different advertisers.
There isn’t a problem if that status quo continues. The big five maintain their positions, talent contracts get ironed out, and the ecosystem thrives, or at least survives. There is a problem if and when something happens with the consolidated group of advertisers. If, in a landscape where 10-30% of a given network is driven by two advertisers (at 5-15% each), and if in a downturn, those advertisers run out of VC funding, have poor IPO performance, or cut their podcast spend for whatever reason, then that marketplace takes a 10-30% immediate drop.
The effects of this are felt far and wide by advertisers that are active in the space. Suddenly, long sold-out inventory becomes available, often at lower prices. Entire categories open for the competitive advertiser that is next in line. Without an advocate on the ground and in the sky providing air surveillance (read: an agency), it is much more difficult for an advertiser with a direct network relationship to 1) anticipate the changing tide and 2) react in time not to be drowned by a competitor, the market, or both.
This has happened before (recently) and will happen again. Constant communication with networks and industry leaders helps to mitigate the risks, but for networks, the threat is very real. That is not to suggest that any single advertiser can sink the podcast ecosystem. The failure of one could raise supply so that substantial amounts of inventory go unsold with short notice. This, in turn, deflates prices, leaving desperate networks who may not meet their revenue targets and have not diversified their advertiser portfolio nearly enough.
This is not to suggest a coming apocalypse. It is a reminder that podcasts are still very much in their “wild west” phase, and market fluctuations will continue —especially with volatile and nascent networks and advertisers intermingling. While the majority of advertisers engaging with podcast advertising at scale are venture-funded and highly competitive, the recipe is right for constant flux in the marketplace. The key is to be working with a firm that understands these market fluctuations, and can strategically position you to protect your investments and leverage the opportunity they represent.
The market will stabilize in the coming years as more mature media companies acquire content networks and more stable advertisers continue to trickle in, but now is the time to enlist and engage experts on all sides (advertisers, networks, and agencies) in order to maintain the status-quo, not live at the mercy of the shiniest ruby, and engage with the media in a meaningful and results-oriented way.