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Spotify Buy of Parcast Consolidates Podcasting

Swedish streaming service Spotify announced late last month a deal to acquire rising podcast network Parcast for an undisclosed amount. Parcast, based in Woodland Hills, has two studios and about 20 employees. Since its founding in 2015, the network has gained national popularity with its crime and mystery podcasts. A series called “Cults,” for example, explores the history and psychology behind the world’s most notorious cults, from the Freemasons to the Kirtland Cult and its murderous founder, Jeff Lundgren. “Serial Killers” provides a rare and detailed glimpse into the stories of violent enigmas like “The Co-ed Killer,” the “Ogress of Reading” and “The Jacksonville Cannibal.” Other popular programs include Conspiracy Theories, Unsolved Murders and Haunted Places. Seven of the studio’s titles have reached top-three ranks on Apple Inc.’s podcast charts at various times. Parcast currently produces 18 original shows and plans to launch at least 20 more this year with backing from Spotify. Company founder and President Max Cutler comes from a radio heritage. His father, Ron Cutler, who is a consultant for Parcast, was chief executive of a radio syndication company. “Audio is part of the core fabric of the Cutler family, so to bring that tradition into the digital world over the past few years, and to now have our studio join such a powerful platform in Spotify is a wonderful next step in our evolution,” Max Cutler said in a statement. The transaction is expected to close in the second quarter. Parcast declined the Business Journal’s request for an interview, while Spotify did not respond. Audio Push Parcast is the latest in a string of investments into non-music audio by Spotify, following its acquisitions of Gimlet Media and Anchor FM earlier this year for $230 million and $110 million, respectively. And the company isn’t done: Spotify’s fourth quarter financial report outlines plans to spend an additional $500 million on podcast buyouts this year in hopes of becoming the world’s leading audio platform. “What is happening here is just like Netflix and Hulu (with video),” said Lou Diamond, a business consultant and the host of the ThriveLoud podcast. “Those that are distributing the content are trying to capture as much of that content universe as possible.” Keeping pace with industry competitors — Apple Music is the largest by a wide margin — isn’t the only reason Spotify is making these moves. “It’s necessary for their profitability,” said Giles Martin, executive vice president of client strategy and media operations at L.A.-based advertising agency Oxford Road. Unlike music, Martin explained, podcasts and other spoken-word audio formats are not considered intellectual property and don’t require the ongoing payment of royalties to the original creators. This, along with low production costs, makes podcasts attractive in-house moneymakers for streaming services. Spotify and others, like radio stations iHeartMedia and SiriusXM, have realized this and are investing in podcasts at a time when more and more young people are spending their hours listening to non-music audio. Diamond pointed to consumption statistics from Edison Research: 51 percent of the U.S. population has listened to a podcast in their lifetime, but 80 percent of those listeners tune in for all or nearly all of an episode’s runtime. And they do this for a staggering average of seven episodes per week. “That is a huge number, and you still have half the country to go,” Diamond said. Additionally, 32 percent of podcast listeners return to a series on a monthly basis. Just four years ago, that statistic was 15 percent. That’s big growth in a short time, and signals that the podcast format can develop a stable audience. Growing numbers mean more and more brands will soon incorporate podcasting into their marketing strategies, Diamond said. For example, authors, consultants or businesspeople can appear as guests on relevant podcast shows to get their services or expertise in front of different audiences. Additionally, listening to podcasts can serve as research into a potential client’s priorities, lingo or culture. That in turn can prepare sales managers to connect productively with their target customers. Some experts are looking beyond the podcast format, predicting that audio content of all kinds will soon be consumed as voraciously as video. “Podcasts open the door for smaller, shorter versions of audio production and audio consumption,” said Toufic Mobarak, co-founder of communications companies ConeXus and MobileSphere. Mobarak launched a social media platform and mobile app in March called Riffr, focusing on short-form, self-produced audio content. The app allows users to record, distribute and consume brief audio clips with nothing more than a cellphone. “We believe this is going to be the next wave,” he said. “Podcasts will not go away, don’t get me wrong. It’s like consuming a film versus consuming a little skit.” Shifting Profit Centers With streaming services pushing to take over podcast distribution, the most obvious shift in the business model will be the introduction of paywalls. Traditionally, podcasts monetize by filling the first few minutes of a show with direct-response advertisements read by the host. Parcast’s podcasts contain breaks in the narrative where sponsored ads like these can be placed, though for now they contain self-promotional plugs for Parcast’s own programs. But Spotify and other streamers operate on a pay-to-play strategy, drawing paid subscribers with the promise of unlimited access to ad-free content. Podcast startup Luminary has received $100 million in venture funding using this ad-free subscription model, which it employs to compete directly with Spotify, Apple Music and other streaming behemoths. So will streaming wipe out the podcast advertising economy altogether? Diamond, Martin and Mobarak all say no. Instead, they predict some combination of advertising and subscriptions, based on how much listeners are willing to pay for ad-free content. “It depends on the level of annoyance of the ad. If the ad is considered too annoying, people are willing to pay additional premiums to avoid that. For short-form audio, the annoyance will be much less. It’s usually three or four seconds and you’re done,” said Mobarak. For short content, like that circulating on the Riffr app, he believes advertising will remain the primary source of revenue. “It’s never going to be black and white,” Martin said. “There will always be a market for both.” The emergence of multiple revenue streams isn’t the only advantage streaming boasts over downloads — another is data. With a business model driven by downloads, podcast distributors can see who intends to listen to a podcast, but they have no way of knowing who actually does, or for how long. Streaming makes those details available, including what parts of the podcast listeners pause at or skip over, what time of day they listen, what device they listen on, and whether they go back to archival episodes. That data can be used to improve podcast quality and to better target content — and advertisements — to listeners, both of which increase profitability. Podcasting’s streaming revolution is not without drawbacks, however. “Any time you have a big company taking over and trying to monopolize something, it reduces creativity,” said Mobarak. “Spotify might want to sanitize the content or might want to align it more with their strategy. You’d have less diversity and less creativity in the production of podcasts. … Absolutely, there is a risk. We see it happening in many industries, especially media.” Even so, Mobarak is confident podcasts, and audio in general, will be “equal if not bigger (than music),” for streamers like Spotify. According to Martin, “in 10 years … (podcasting) could easily be a $10 billion industry.”

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