Spotify and Pandora duke it out for podcasting prominence

With more than 70 million listeners streaming podcasts, audio companies see a big upside

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Credit: Mary Ellen Forte

Marketers go where the eyeballs are, but digital audio giants Spotify and Pandora are placing their bets less on screen time and more on ear time.

Both companies recently said they've marked podcasts as an area for significant growth and are investing heavily in exclusive shows and tech to lure users away from Android and iOS' native podcasting apps and onto their respective platforms.

"One of the key attractions with podcasts is the incredible sexiness of the demographic," says James McQuivey, VP and principal analyst at Forrester Research. "They're the hyper-educated types that used to only be available through sources like The Atlantic or even NPR sponsorships, but now they abound in podcast land."

An estimated 73 million people tuned in monthly to a podcast in 2018, up 2 percent, or nearly 1.8 million people, from the previous year, according to the latest figures from Edison Research. The spread of smart speakers, connected vehicles and mobile devices is fueling podcasting's overall growth, according to Edison. Meanwhile, some podcast listeners have also morphed into so-called "power users," or people who tune in multiple times a month. This group has been growing each year, from 3.3 million in 2013 to 48 million last year, according to Edison.

Podcasting is also going through an evolution similar to the one television went through in recent years: There's a proliferation of programming types. One of the biggest trends in the space at the moment is prestige dramas such as "Homecoming," which was adapted into a series on Amazon Prime Video.

Within the audio industry, the thinking goes, consumers will prefer the convenience of having both their music and shows live within the same app, and not betting on podcasts is akin to leaving money on the table.

Increasingly crowded field

Despite podcasting's growth and shiny-new-object appeal, there are headwinds to reaching scale both in terms of users and revenue.

Spotify and Pandora are the No. 1 and No. 2 apps, respectively, that offer podcasts, but they must compete with "dedicated" players such as Castbox, which is the No. 1 podcast streaming app, according to the latest figures from Sensor Tower.

"These users want independent, dedicated third-party apps," says Castbox CMO Tina Kuan. "Power users aren't on Apple because of their tech and interface."

Meanwhile Spotify, Pandora and others are in an arms race to create the best podcast discovery engine. Castbox, for example, has transcribed every single word from its library of podcasts, allowing users to search for specific terms such as "history of Mesopotamia" to see which shows discussed the subject. And last month, Pandora debuted its Podcast Genome Project, which recommends shows based on some 1,500 different signals. Someone who often listens to Aerosmith, for example, might find a recommendation to listen to a podcast featuring an interview with frontman Steven Tyler, says Lindsay Bowen, VP of podcasts and entertainment content partnerships at Pandora.

"We are looking at people coming in fresh to podcasting and we don't see the fact [of] being known for music as an obstacle," Bowen says. "We see that as a competitive advantage because it's audio and our users trust our recommendations."

Courtney Holt, head of Spotify Studios, says recommendations are just one element for discovering new podcasts. "The behavior for submitting a click for a 45-minute podcast is different to a four-minute song," Holt says. "The recommendations are good for contextualizing the content, and discovery is going to happen in a lot of different places."

Close, but no scale

Though the podcast pie is small, its potential is huge: Ad revenues were $314 million in 2017, a whopping 86 percent increase from the previous year. By 2020, revenues will increase to $659 million, according to the latest predictions from the Interactive Advertising Bureau. Among podcast listeners, a majority—67 percent—prefer host-read ads, which typically air once before a show starts and again after it ends, presenting a significant challenge when it comes to creating enough ad inventory at scale, according to the IAB.

"Consumers aren't as annoyed by the advertising experience if it's read by the host and if it's in the tone of the show," says Dan Richardson, director of Invention+ at Mindshare, the agency's innovation unit. "But it does bring up questions: How do you scale it and how do you target consumers without ruining what people like about the podcast ad experience?"

For now, podcast hosts like comedian-actress Amy Schumer must read multiple ads, as she does for her exclusive show on Spotify.

"We talk about ads being respectful to the listener and we make the ad creative hand-in-hand with brands to help them achieve that purpose," Pandora's Bowen says. "The speaker is right inside the ear canal of the listener; you can't have a shouted, radio-type ad so it's heard above everything else."

Historically, most audio ads have been "baked in," meaning they live within the podcast forever. But Pandora, Spotify and the industry overall are moving toward providing advertisers the ability to target listeners in programmatic fashion while also delivering the sort of measurement brand marketers demand. Yet programmatic for podcasts is still in its infancy, and Pandora and Spotify declined to share specifics about their podcast targeting capabilities. Both did say that users will always get ads when streaming podcasts regardless of whether they listen through a paid subscription or an ad-supported model.

The rise of exclusives

Another hurdle for Spotify and Pandora is raising awareness that they offer podcasts despite being so closely associated with music. Both companies are looking to tackle that problem by creating content exclusively for their platforms.

Spotify recently announced that Jemele Hill, a staff writer at The Atlantic, would exclusively produce her new show, "Unbothered," on its service. The company also moved former rapper Joe Budden's popular podcast exclusively to its platform. Pandora, for its part, also has its own shows, including "Questlove Supreme."

"We have an incredible library of podcasts and not everything we're doing will only be distributed on Spotify," Holt says, adding that Spotify currently has more than 170,000 podcasts on its platform. (Pandora has more than 100,000.) "The goal for us is to get you to discover podcasts on Spotify and build habit with us."

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CLARIFICATION: Spotify and Pandora are the No. 1 and No. 2 music streaming apps, respectively, that offer podcasts, but they must compete with "dedicated" players such as Castbox, which is the No. 1 podcast streaming app, according to the latest figures from Sensor Tower, which based its rankings on first-time downloads on the iOS App Store and Google Play for the 2018 calendar year. Another list of rankings, by Podtrac, puts NPR and iHeart as the top two "podcast publishers" overall.

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