The economics of podcasting

The economics of podcasting has been a hotly contested issue over the past 10-12 month, with every side of the debate weighing in its own opinions. Despite my somewhat vested interest in the format (which I ironically have never recorded a podcast in, but thats a different article entirely), I think there is a lot of confusion out there. I am going to keep this as simple as I can (and use the most simple math and sample rates as I can think of). I am also going to try and give each side of the argument its fair shake for those of you who care.

So let’s begin with the basics: how exactly is podcasting supposed to be monetized? The first and most popular answer is definitely advertising. Advertising? In an amateur audio format? What do you mean? Well glad you asked. The general idea from what we’ve seen here and there is the insertion of 15-30 second spots at the beginning and end of a podcast. Usually this is done by the podcaster himself (if he has access to the media the sponsor wants inserted), if not then maybe the publisher handles this later (a time-waster if you ask me). Ok so now that we have inserted the ads, where do we make our money? Well that is where the big debate rages on. Proponents of podcasting think that this is enough, we’ve charged our advertisers $0.10 per podcast-listener (rough estimate, but gives us an easy number to work with of $100/cpm), and now we can divvy up the money with our podcaster and take our cut at the same time.

That sounds like a reasonable assumption, but what about the costs and other things involved in putting out a podcast? Well if you all would give me the luxury of some very simple math we will see the shortcomings of such a simplistic approach to the idea.

Using the assumption that we are charging ten cents per listener (and the podcaster is hosting his OWN data-files – I’ll touch on this a little later), here is the breakdown of how one could imagine the financials looking in a podcasting business (assume these figures are for podcasts over the course of 10 weeks – i.e. 50,000 listners a week):

  • Sponsor buys 500,000 downloads = $50,000
  • Publisher takes 50% cut = $25,000
    • His 50% cut is eaten up by sales staff, production staff, and management
      • 25% sales staff – $6,250
      • 25% production – $6,250
      • 25% management – $6,250
      • we now have $6,250 to devote to hosting/bandwidth, and R&D not to mention profits (only an idiot builds a business without looking for profits)
  • Podcaster has his 50% cut = $25,000
    • His costs are as follows:
      • Bandwidth: 500,000 downloads average download size of 10MB = 5TB of bandwidth. = $5,000 ($1/GB estimate)
      • Production costs: $2500 (computer, microphones, software, etc.)
      • Time: 5 hours($50/hour)/week x 10 – $2500 (assumption)
    • So now the podcaster is left with $15k for ten weeks work (this is a HIGH assumption, and remind me if I forgot any other costs)
    • This revenue breaks down to roughly $0.03 per listener for the podcaster. Now a realistic podcaster has a better number to work with as far as money they can make from the medium.

Ok, so on this front the podcaster is making some decent loot, but that is assuming he can get 50,000 listeners a week, something that I don’t believe any podcasters are getting yet. According to feedburner, in february (I know, ages ago), the average podcast they managed the feed for was only getting about 15 listeners a week. Thats why on a one to one basis, the business model isn’t there yet.
Sorry for the long diatribe, especially since i haven’t even gotten to the counter-argument, which is that podcasting lacks viable metric measurements. This I would argue isn’t that big of an issue as tv and radio are both passive non-interactive mediums for advertising, so it takes a creative marketer to make it work for them. Who says you need to know the exact number of listeners, not just downloaders? Can’t you spice up your ad to give people an incentive to follow-up later? I.e. make your promo a coupon, only LISTENERS can redeem it. Give each podcast a special coupon code and then you will track how many SALES came from the campaign. Also, lest we not forget that podcasting is a captive audience in a sense, most of the listeners are passively listening to your campaign away from their computers so instant response and performance metrics that are instantly recognizable (like in banner ads,etc.) is not going to be here for a couple of years at least.

So my recommendation to podcast advertisers is, don’t hold your breath waiting for a better medium or performance analysis system to come about, because if you do, you might just miss out on getting in while the prices are low.