Luminary Is Betting $100 Million That People Will Pay For Podcasts


Tomorrow, the New York and Chicago-based startup Luminary will launch what it claims will be "Netflix for podcasts," an $8/month subscription service that includes a podcast app and access to dozens of exclusive shows. The podcast industry has been skeptical about, and has tiptoed lightly into, getting consumers to pay directly for podcasts. Luminary, backed by $100 million in funding, hopes to change the game.

Money is pouring into podcasting: for example, last month Spotify bought yet another podcast production company, on the heels of its $230 million purchase of Gimlet Media in February. The industry is expecting increasing revenue, which it gets mostly from ads -- but while ad revenue is growing, limits are in view. Podcast ad revenue is proportionally lower than for streaming music; less user data is available to advertisers from podcasts than from other Internet content services; it's easy for users to skip ads while listening; and the native (host-read) ad model endemic to podcasting doesn't scale well.

More podcasters are turning to crowdfunding to supplement ads and sponsorships: crowdfunding site Patreon says that the number of podcasters using the service has quadrupled in the last three years and revenue to podcasters has increased eightfold. But there are limits to how many podcasts each listener will support individually through crowdfunding. Podcasters typically ask for donations of $5 per month, and the average podcast fan listens to seven podcasts per week.

Therefore it makes sense for podcasters to turn to direct consumer revenue: there's so much great podcast content out there, and listenership continues to grow well into mainstream levels, but as a Luminary spokesperson puts it, podcasting "lack[s] a sustainable funding model for production and creator compensation." Recently National Public Radio launched a major listener survey across all of its podcasts to explore how NPR can make more revenue from its shows.

Yet there are several reasons why a "Netflix for podcasts" has a hard road ahead. First, unlike music, people have never expected to pay for podcasts. Although music has been available on broadcast radio since the 1920s, music recordings were available since before then. Even during the "Napster era" of the late 1990s through mid-2000s, when people with a modest degree of technical savvy could download MP3s for free, people understood that this was probably illegal, and paid alternatives were widely available.

In contrast, podcasts were free ever since they started about fifteen years ago. Not only that but there are dozens of podcast apps available, all of which offer the vast majority of podcasts, as downloads or streams, as soon as they are released. Most podcasts apps are also free; they require far less effort to develop and maintain than streaming music or (especially) video apps. And podcasts aren't an emerging medium anymore, they are mainstream: Edison Research's Infinite Dial estimates that 90 million Americans listen to podcasts monthly. That's 90 million people, or one-third of the U.S. population age 12 or more, who generally expect podcasts to be free.

Second, unlike Netflix and other video services, it is difficult for podcast services to differentiate themselves based on their catalogs of content. Netflix and Hulu are spending huge sums of money developing original content, and they are in competition with each other (and other services) for viewers. But the television content universe is much smaller than podcasts: as of last year, Netflix had 1569 TV shows available, while Hulu's TV catalog had 1700 (with 75,000 total episodes). Consumers know that both of these services are continuously adding old as well as new shows, some new network TV shows aren't available on streaming platforms (or aren't available for a while), and networks occasionally pull shows from them.

In contrast, there are over 700,000 different podcasts, with 29 million total episodes (and growing), podcast apps can play virtually all of them, and no one expects any of them to become unavailable when a programming network and a streaming service don't renew a license agreement. It would take more than a few exclusive shows to make a difference for a podcast service, especially given how many podcasts cater to niche interests. Attempts to offer truly exclusive content on podcast services have hardly ever succeeded: it is considered necessary to make even exclusive podcasts available everywhere after a holdback period, or to make only bonus content or ad-free versions of podcasts exclusively available to paid subscribers.

The latter is the strategy of Stitcher, even though it owns the largest network of podcasts anywhere (Midroll), numbering more than 300. Stitcher has existed as a podcast and streaming radio app for ten years. Its strategy is to build up its roster of podcasts to attract people to the $4.99/month (or $35/year) Stitcher Premium service gradually over time, with the understanding that it will still have to offer all of its podcasts for free. Stitcher Premium features "21,000 hours of premium podcasts" (they don't say how many shows), bonus content, and fewer ads.

Third, subscription fatigue is beginning to set in. Particularly in the video arena, the proliferating number of services is leading to fees that add up to more than the typical monthly cable bill and frustrations regarding which shows are available on which service, managing multiple passwords, and so on. Meanwhile, streaming music services are avoiding subscription fatigue by offering all-inclusive audio with a single monthly price tag and very little exclusive or held-back content. (This is especially true of Spotify, which claims to be the second most popular podcast app after Apple Podcasts and is adding lots of original podcast content to its service.)

All this makes Luminary's strategy look incredibly ambitious. Luminary is launching with a roster of 27 exclusive ad-free podcasts (growing to more than 40 this summer) and charging $7.99/month -- midway between Stitcher Premium and Spotify or Netflix. Its app will be able to play all of the free podcasts, but it will have to be careful not to alienate users by nagging them to upgrade to premium -- a problem that has plagued TuneIn, another podcast and Internet radio app, as well as Stitcher. (Luminary will initially offer the first episodes of each of its shows for free; it intends to experiment with free-to-paid conversion tactics as time goes on.)

Luminary's content roster includes an interesting mixture of public-radio refugees (TED Radio Hour's Guy Raz, Adam Davidson from NPR's Planet Money, Manoush Zomorodi from WNYC's Note to Self), quirky celebrities (Lena Dunham, Russell Brand, Trevor Noah), and proven podcast topics such as comedy, storytelling, true crime, business innovation, and tech. It's as if Luminary is taking topics and hosts who are likely to appeal to existing podcast listeners and adding a dollop of celebrity wattage, but not going so far as to make its lineup crassly commercial.

The company is confident that it can build a paying audience for its content. It claims that only a few hundred podcasts have audiences that exceed 50,000, and therefore that it should be possible to distinguish their exclusive shows from the pack. And $100 million gives Luminary not only big budgets for content but also access to marketing channels that other podcasts can't touch: it can market its shows at the same level as Netflix can market Game of Thrones or Hulu can market The Handmaid's Tale. (Imagine outdoor, TV, and print ads, or Lena Dunham talking up podcasts on Colbert or Fallon. That's uncharted territory for podcasts.)

Yet unlike Netflix, Hulu, Spotify, and even Stitcher, Luminary also has to build an audience for this exclusive content mostly from scratch. Netflix built a huge business in DVD rentals before pivoting to streaming video; Hulu was backed by two major TV networks (NBC and Fox) and was the exclusive Internet on-demand home for much of their content, such as NBC's Saturday Night Live; and Spotify launched in the U.S. on a tidal wave of hype and anticipation from its three years of success in Europe. Luminary has a couple of shows that already have followings (such as WNYC's Note to Self and Snap Judgment) and intends to acquire more; but otherwise, it has to build a brand from the ground up.

In addition, Netflix, Hulu, Spotify, and others have been able to build successful subscription businesses because they found new ways to deliver content that users are willing to pay for. Subscription streaming music presented instant access to enormous catalogs of music for a flat monthly fee, where the existing alternatives were record stores, radio, and digital downloads. Subscription video services changed television from appointment-setting, TiVo-ing, video-store-going, and standard TV sets to an on-demand world on mobile devices.

Podcasts are already abundant, ubiquitous, free, on-demand, mobile, and convenient. What can anyone add to this mix that consumers will pay for? Luminary says that "ultimately, it is the quality of content that drives subscription" and  "if we have quality content people will subscribe, as they have with every other form of content going back to the days of the Book of the Month Club." Luminary also sees opportunities to improve on podcast discovery and listening features in podcast apps.

Luminary faces long odds; yet here's hoping that it not only succeeds but engenders a robust competitive marketplace for paid podcast subscription services that deliver quality content. We're living in an age of peak podcasts, and without sustainable revenue coming in to fund content development, podcasting could fade away as a commercially viable field.


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