Thursday, March 17, 2005

Surveying a rush of Podcasting businesses

A number of new businesses have sprouted in the past month to capitalize on podcasting. (Not sure what podcasting is? Wikipedia is your friend.) The PodCast Network, Odeo,, and Adam Curry's Boku Communications to name a few. And, of course, we can't forget the veritable granddaddy of them all, itconversations. Does the podcasting trend have strong enough legs to support these businesses? Before I answer that question, I should disclose that I am tossing my hat into this ring as well -- so you may want to keep your salt handy if you choose to drink the cool-aid that follows.

How will these businesses make money? A number of individual podcasters already make money from sponsorships and micropayments. Doc Searls' thread on making money with podcasting drew a number of examples from people that make (what I assume to be) beer money (or perhaps car payment money?) from podcasting.

Yet the new crop of podcasting businesses are seeking more substantial revenue. They are focused primarily on advertising. That is, they intend to develop a network of high-quality podcasts that will attract a core of committed listeners, and in turn, a group of avid advertisers.

The problem with advertising strategies today is that there are relatively few listeners. Few podcasts have aggregated more than 10,000 listeners. (In February of this year, ClickZ reported that The PodCast Network's most popular podcast had about 6,000 listeners.) In BlogAd's second annual survey of blog readers about 5% of respondents acknowledged listening to one or two blogs on a weekly basis. It takes no great analytical skill to conclude that if only a few blog readers are listening to podcasts, substantially fewer non-blog readers are listening. Therefore, pursuing an advertising-based strategy today depends on (1) a faith that listenership will expand quickly and (2) either deep pockets or keeping your day job.

Is the audience for podcasts likely to grow dramatically in the next year or two? My guess is that it will. Three trends point in that direction:

1. Better technology for creating, finding and distributing podcasts: Many of the companies mentioned above are trying to make it easier for listeners to find high-quality podcasts. Adam Curry's company is taking that one step farther and offering to pay up-and-coming podcasters directly. Many other companies are developing tools that dramatically reduce the cost of creating and producing high quality audio. And finally, there are a multitude of podcasting clients (podcatchers) under development.

2. MP3 player / cell-phone ownership: MP3 players reached a tipping point in 2004. According to a Pew Internet & American Life survey released on Feb. 14, 2005, 11% of adults now own MP3 players -- and if the teenagers I know are representative, the adoption rate among teens quite likely exceeds the rate among adults. Cell phones with adequate memory can already be used as MP3 players, and that trend will only accelerate. In fact, a recent study found that of the 44% of US teens (ages 10 - 18) that have a cell phone, 71% want to use their phone as an MP3 player.

3. Continuing penetration of broadband: Downloading audio files is impractical on dialup lines -- time shifted or no. As of February 2005, slightly more than 56% of US internet users have broadband access from home. This percentage has increased at approximately 1% a month over the past 12 months. This upward trend is expected to continue, although likely at a decreasing rate as we approach 60 - 65% penetration.

These three trends suggest a trifecta for audio content: it will be easier to develop, easier to find and easier to access in the coming year. That spells more listeners and the advertisers that follow them. Will advertising revenue offset revenue burn quickly enough for these companies (and my own) to succeed? It's too early to say -- I suspect what will matter most is good-old-fashioned entrepreneurship: keep an eye on the money and innovate, innovate, innovate.

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