The Podcaster's Myopia

The internet’s open system has led to an information age unlike any in the history of mass communication. Search and social media platforms have developed because of computer networks, resulting in the first true many-to-many communication medium. The consequences of connecting many-to-many are uncertain because, historically, mediums have operated as one-to-many. The ability to make large quantities of books for information dissemination, following the creation of the printing press, was the first true one-to-many communication medium. Other mediums such as the telegraph, telephone, radio, and television followed each other and ushered in new ways to communicate as one-to-many mediums.

Podcasting is now the new one-to-many communication medium and we see a rise in podcasters, shows and networks indifferent from the history of the older mediums [1]. Independent podcasters seeking to shape culture must maintain the openness of the medium but there are monopolists who prefer to keep the system closed. With these two different perspectives on the future, the independents should learn the history of other one-to-many mediums to make that future more favourable.

Peter Theil in his lecture, Competition is for Losers, argues that a business should seek to be a monopoly and avoid competition. So, if a business creates $1 billion dollars in annual revenue then its monopoly power will be the percentage of the revenues that is captured by the business. While there is correlation between value created and value captured, the two variables are independent of each other in the determination of monopoly power [4].

If the goal of a business is to capture most of the value it creates then what is s wrong with monopoly power? By observation monopolies have better structures, quality, performance, and price than those of the independents. However, Independents create more sustaining and disruptive innovations than monopolies, leading to better products and more choices in the marketplace.

The marketplace dynamic of monopolies and independents is critical to understanding the telecommunication industry and how it has cycled from an open system to a closed system. The cycle starts with a few independent players playing with a new medium followed by a monopolist that realizes the potential of the medium and attempts to consolidate the industry, usually with success. Industrialists were never champions of competition. From Henry Ford to Theodore Vail, these capitalists crushed competition and created moats that kept competitors away from their industry.

Podcasting is at the beginning of the cycle with primarily independent players. However, given how fast independent podcasters join large podcast entities, it appears many podcasters are short-sighted about the potential loss of control of the medium. Podcasting is an open system that has common carriage, meaning you or I can host a podcast, and can both release at the same time [5]. This type of open system should not be expected to continue, and podcasters must be aware of how different players are working to close the system. The cycle is the change in an industry from an open to closed state, and it is why mediums like radio and television are all closed systems that can only be changed either before it closes or through innovation.

Just as we see independents using podcasting to communicate their ideas, so did the early users of different telecommunication mediums. It is unimaginable to think of starting your own telephone network, but in the early 1900s, a farmer, named Edmund Burch was part of the movement of telephone pioneers who self-connected. Hundreds of small telephone companies sprung up in the zones where the Bell System was unavailable [6]. These independents, made up of farmers and small towners, conceptualized a use of the telephone that Bell did not think of. They realized that the telephone could be a cheaper tool for mass communication and not just peer-to-peer. The telephone was in effect the first social technology similar to Twitter, Facebook or Instagram.

The radio was also initially explored by those considered hobbyists or amateurs. Before the FCC and its regulatory oversight of radio broadcasting, it was amateurs who used it as a two-way medium. Radio broadcasting was accessible to anyone who wanted to start their own small station. Now, it is almost impossible to get a radio license and broadcasting without one would result in a federal felony [7]. Although the internet and its interoperability make closing the podcasting system more difficult, a world in which podcasting becomes a regulated medium is possible. A well-funded entity in the industry could become the common carrier of a podcast and if you are not carried you may not get to podcast.

Unlike the telephone and radio, the film industry did not consist of independents but was quickly dominated by the film trust that controlled the industry dynamics using patents, blocking film imports, and fixing prices at each leg of the filmmaking process. The film trust was the only group permitted to make films or import films to the US, with failure to comply leading to a patent infringement lawsuit. The independents who formed their own film business migrated westward to Cuba, San Francisco, Florida and Los Angeles, forming what is now known as Hollywood. But like all cycles, the independents would morph into a closed system controlling production, distribution and exhibition in the industry [8]. Netflix would eventually be created to disrupt the closed system of Hollywood.

Large companies like Spotify are paying attention to the weaknesses in the podcast industry. Independents tend to lack a level of quality that can appeal to the casual listener and many have low monetization for their content. Spotify, a large company, can step into the role of the consolidator and guarantee a level of quality and negotiate how the monetization should work. However, like all other monopolists, the terms that Spotify will dictate to these independents to get carried is unlikely to be a fair deal.

Spotify is open for all to plug into their network so long as the platform has not reached a critical mass of podcast listeners. They will carry a Joe Budden Podcast or buy Gimlet Media and The Ringer Podcast Network as this is an efficient method for gaining listers. Once critical mass is realized, the plan will be to refocus on their true long-term customers, big business advertising. This is not different from the radio industry whereby independents were permitted to broadcast without restrictions to ensure that RCA reached critical mass by selling radio devices. But when RCA reached a critical mass and had the captive audience, continuous advertising began and restrictions on who can broadcast followed [8].

Monopolists like the idea of innovation, but any risk of cannibalizing the primary source of income leads to innovation getting squashed. Podcasts as an open system allows the independents to choose any length of time, topic of their interest and invite guests that may not be publicly approved. Once the consolidators take over, the only ideas that matter will be those set by the monopolists.

The radio, telephone and film industry all experienced slow innovation in a closed structure. The answering machine was developed in the early stages of the telephone but was kept from public use due to the fear of the cannibalization of telephone sales. The radio monopoly, RCA, banned the FM radio from existence for decades as it wanted to continue selling its AM radios. Lastly, Americans could not see foreign films as the Film Trustdictated what gets made and seen by the public [7]. It is not unrealistic to assume that as Spotify continues to hunt for networks of podcasts, innovation will slow down for the medium, Spotify will determine what gets made, who gets to speak, and independents may have to acquire license or pay a fee to get carried on the platform.

Distribution determines the media and media determines the culture [9]. So, to maintain an open system for podcasting, the independents must fight for 1) distribution on multiple platforms even if you are contracted to one primary distributor like Spotify, 2) the data generated from one platform to the next should be portable 3) there should be a high level of interoperability in the system to use the data from one platform to enhance your work on the other platforms 4)Independents should also seek 100% transparency of information by ensuring that they own their data 5) Independents must ensure that there is no licensing of the spectrum or fees to get carried by a specific distributor and 6) independents must continue the rapid and continuous innovation that made the medium viable.

NOTES

[1] 65% of active listeners started listening in the last 3 years

[1] Podcast listeners consume 6+ hours (6 hrs 37 mins) per week and 7 podcast episodes per week

[1] Psychographics: 30% graduate degrees, 44% millennials, and 56% male

Reference: Podcasting & Audio Market Map – Lin Jin, Bernett Carroccoio, and Avery Segal

[2] It is not incorrect to call a podcast a radio show given how familiar most people are with a radio broadcast. but what is a podcast and why is it popular? A podcast is a digital audio file that can be downloaded. Podcasting is not radio broadcasting because it is an open system while radio is a closed system. Podcasting consists of mostly independent hosts with limited funding, communicating to a limited audience [a]. Radio is typically scheduled, produced for mass audiences and is ephemeral. While the listed differences are mostly based on the production aspect, the important difference is that podcasting is an open system that allows anyone to speak without restrictions.

[2a] Hobbyists: small creators, Large Indies: Joe Rogan, Tim Ferriss, Podcast-only production: Gimlet, Media Companies: iHeartMedia, NPR

[3] Podcast consumption is increasing each year with more active listeners in terms of the number of people and the amount of hours spent listening. Because a podcast generates network effects, the value of the network is exponentially greater than the actual number of people listening to the podcast and the accessibility of smart phones, laptops, ipads, connected speakers and connected cars are the growth catalysts. Podcasters are made up of hobbyists, large independents, and media companies with podcast initiatives. Monetization of the medium is through ads, sponsorships, donations, paid content, subscription, live events and foundation support but monetization is low compared to other mediums like radio, television, magazines, newspapers and the internet. The podcasting business model is evolving, with a variance in production quality, monetization and quality presenting an opportunity for a big player like Spotify to consolidate the industry.

[4] Examples using Peter Theil’s Competition Theory

- Corp. A: $200B revenue, 0.2% profit margin = $400M

- Corp. B: $400B revenue, 20% profit margin = $80B

- Corp. C: $100B revenue, 1% profit margin = $1B

[5] Common Carriers – dedication to serve any customer willing to pay, charge fixed rates, and carry traffic without discrimination; Examples: telecommunications, banking, energy, and transportation

[6] The Bell System - https://en.wikipedia.org/wiki/Bell_System

[7] This is a requirement in the US and Canada. FCC and CRTC are the governing bodies respectively.

[8] Tim Cook – The Master Switch

[9] This is a quote by Seth Godin

[10] Illustration of Reggie Osse – Founder and Owner of Loud Speakers Network

[11] Ad Revenue per Active User - Reference: Podcasting & Audio Market Map – Lin Jin, Bernett Carroccoio, and Avery Segal

[12] Monetization of Podcasting - Reference: Podcasting & Audio Market Map – Lin Jin, Bernett Carroccoio, and Avery Segal

- Assumptions: Patreon (2% of audience gives $5/month), Sponsors (>5k downloads per episode) at $25 CPM (Cost per Thousand) and 1 sponsor per episode

Thanks to Aminat Ayinla, Bunmi Ojulari, Krista Jennings, Bode Seriki, Kedro McCormack for reading the drafts of this essay.

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