With a potential downturn looming, the days of mainstream brand advertisers crowding out direct marketers may be over.
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Podcast networks struggle while direct-to-consumer brands and their agencies thrive
It’s a bleak time in the media industry with news of fresh layoffs arriving almost daily. This fall, we’ve reported on layoffs at Spotify and Acast. Last week, we wrote about National Public Radio’s budget cuts and near hiring freeze in response to a $20 million deficit in corporate sponsorships. The next day, we broke the news that SiriusXM will also cut staff. A variety of unfortunate factors have culminated in what’s shaping up to be a rough winter.
But to understand how we got to this point in podcasting specifically, let’s quickly run through how the past few years of unprecedented spending shaped up. It was only in 2020 that Spotify signed Joe Rogan for reportedly more than $200 million. Last year, Amazon Music signed SmartLess exclusively for as much as $80 million while others, like SiriusXM, reached agreements with major networks and shows to build out not only popular listening platforms but also thriving ads businesses.
All these networks hope to build programmatic marketplaces that can efficiently sell and insert ads, essentially allowing podcasts to act more like the display world or YouTube where ads are inserted on the fly and targeted to the specific person consuming the content.
To pull that off, these networks require many ad slots, lots of advertisers and, obviously, tons of listeners. At the moment, two of these three factors seem to be faring okay. Through acquisitions and investment in new shows, networks have secured significant inventories, and listenership, though potentially dipping , remains high.
But with so much money invested, stakeholders want to see tangible results, especially with a tightening economy. Spotify’s investors punished the stock for focusing on future growth this year, for example, sending it to its lowest point ever. Advertisers appear to be pulling back too, tightening their spending in case of a recession.
At some level, podcast shops might actually be in a stronger position than other media organizations to weather this storm. Though the networks have sought big brand dollars, they haven’t yet completely shaken free of the advertisers that helped build the space: direct response brands, such as mattress companies, meal kits and health supplements like Athletic Greens.
In recent years, as more and more popular programs locked themselves up in exclusive distribution deals and their new parent companies demanded higher prices from advertisers, many of these early adopter podcast sponsors were almost priced out of their most effective shows. Last year, I covered that dynamic here .
Many of these direct-to-consumer brands prefer podcasting specifically because they can measure their results. Those promo codes that hosts hawk allow the brands to determine their return on investment. By contrast, big brand advertisers, which focus more on building general awareness of their name and products, might be able to do so with simultaneous campaigns running across a broad variety of mediums.
Now, however, these networks are clearly struggling. Amid a broader pullback in advertising across the economy, the podcast owners are being forced to refocus on their core business of selling through the ad inventory they already have.
But what about the ad agencies? I checked in with a few who specifically focus on direct response brands to gauge what they’re seeing.
“There’s more leftovers on the table than there used to be,” said Dan Granger, CEO at Oxford Road. “It’s becoming a buyer’s market.”
The agencies can negotiate for lower CPMs, taking advantage of networks’ desire to get any sort of advertiser into a show. Hilary Shafer, the VP of Veritone One’s podcast and YouTube influencer marketing business, tells me there’s been a “pretty broad drop” in CPMs, though blockbuster shows have mostly maintained their pricing.
“But even then, there’s this air of flexibility,” she said.
Glenn Rubenstein, founder and CEO at Adopter Media, says his team can now negotiate to run ads in ways they prefer that networks have tried to move away from — such as embedding an ad into an episode forever, rather than inserting and swapping them out once the agreed-upon impressions are met. Granger points out that advertisers want flexibility to buy monthly rather than commit to long-term contracts. Shafer says the same, pointing out that big brands might want to run ads more specifically tied to a certain time or around a certain initiative.
All three call what’s happening a “correction” to the market. But networks, having spent billions in the hopes of cashing in on the developing industry, are paying the price while, for now, the advertisers they tried to move past might keep them afloat.
Odds and ends
Apollo Global Management sells $1.8 billon of bonds backed by Concord’s music catalog
Concord, the multifaceted music company that’s acquired more than a million music assets, including copyrights to catalogs of Genesis and R.E.M., is using its vast holdings to back $1.8 billion of bonds. The news follows the company shopping around for an acquisition deal for itself that topped out at $5 billion — not enough for Concord, which sought $6 billion. President Bob Valentine tells me the company will continue to turn to bonds for financing and will use the money to invest in additional purchases, as well as its internal labels. You can read more here.
What happened to key changes?
A slight oldie here that I missed: NPR covered research from Chris Dalla Riva, a musician and data analyst at Audiomack, pointing out the declining popularity of key changes. Dalla Riva listened to all the number one hits on the Billboard Hot 100 since 1958 and found that a quarter of the songs from the 1960s to the 1990s included a key change. But from 2010 to 2020, only one song did: Travis Scott’s 2018 track, “Sicko Mode.”