podcasting_market_jul05

iPODCASTle Demystifying Podcasting – A Market Analysis for the Businessperson July 2005 © Copyright 2005 Verkata LLC. All rights reserved. Abstract A podcast is a file - mostly an audio file in MP3 format - stored on the Internet that people can download to their computers or digital players and listen to whenever they want1. It is also one of the most recent buzzwords in the Internet news headlines. 22 million Americans own an MP3 device. Since the release of the first podcast in August 2004, about 29% of them have downloaded or listened to a podcast according to the Pew Internet and American Life Project2. If the current growth continues, podcasting could turn out to be multi billion market. Despite this incredibly fast growing “podcasting” phenomenon, there is very limited documentation explaining the market structure or how to make money from podcasting. Currently the industry looms with more questions than answers. Perspective: “Audio and video files have been available for download for many years. So, what is it that makes podcasting truly different and useful?” • Is podcasting a new market where it gives voice to amateur home broadcasters, or is it just a new twist on how media companies deliver content? • • Is podcasting simply a time-shifted version of radio (e.g., Tivo for radio)? Is it an audioblog, the audio version of the familiar weblog? Audio and video files have been available for download on the Internet for many years. So, what is it that makes podcasting truly different and useful? The jury is still out to determine whether podcasting will be the next paradigm shift that gives the power to the amateur content producers, or simply a new method we receive media from traditional content sources. However, one thing is certain: podcasting is growing rapidly as podcast creators get on the air with a tremendous energy for self-expression while listeners satisfy their ever-growing hunger for diverse and enjoyable content. Like any growth market, podcasting creates new opportunities. The objective of this whitepaper is to • • • Explain podcasting and the underlying technology in layman’s terms, Introduce a framework to analyze the podcasting market, and the business models of the players, Help you identify business opportunities by examining the gaps between demand and supply. This paper is intended for the business person looking to understand the podcasting market and spot business opportunities. It is not intended as a technology or a do-it-yourself guide for podcast creators. We consider this paper as a work-in-progress; we hope to improve it as the podcasting market evolves. You are encouraged to contact the author, Alper Turgut, alper_turgut@verkata.com with your comments and questions. 1 A broader definition: Podcasting is a method of publishing and retrieving files on the internet, often allowing users to subscribe to a feed One should treat these survey numbers with care in an emerging market such as podcasting. For example, Pew Research Analysts and receive new files automatically. 2 interviewed only 208 people. In addition, the questions were worded quite broadly and many respondents may have possibly interpreted podcasting to include all audio downloads from all web pages. © Copyright 2005 Verkata LLC. All rights reserved. 2 Table of Contents iPODCASTle ................................................................................................................................................................................1 Abstract ......................................................................................................................................................................................2 Table of Contents .....................................................................................................................................................................3 Introduction ...............................................................................................................................................................................4 Market Size .................................................................................................................................................................................6 Market Size Overview.......................................................................................................................6 Market Size Details and Assumptions.............................................................................................7 Market Structure........................................................................................................................................................................9 Value Chain Analysis ................................................................................................................................................................9 1. Core Value Chain.......................................................................................................................10 2. Supporting Value Chain ............................................................................................................13 Gap Analysis ............................................................................................................................................................................14 1. Core Value Chain Opportunities .............................................................................................14 2. Supporting Value Chain Opportunities ...................................................................................17 Summary...................................................................................................................................................................................17 © Copyright 2005 Verkata LLC. All rights reserved. 3 Introduction Podcasting is a method of publishing and retrieving files on the internet, often allowing users to subscribe and receive new files automatically. Podcast subscribers regularly receive content files (e.g., video, audio) via the internet, and can listen to or view them at their leisure on their digital media players (e.g., iPod, computer or any other digital player). Figure 1: Podcasting Information Flow Podcast Creator INTERNET Computer Player (e.g., MP3) Podcast Audience “Although receiving podcasts does not require an iPod, iPod may indeed drive the growth of podcasting. Apple said it shipped 6.15 million iPods during the 2nd quarter of 2005, an eye-popping 616% increase from a year ago. iPod sales totaled $1.1 Billion - a morethan-fourfold rise - and contributed nearly a third of the company's total revenue.” Currently, most podcasts contain audio content in MP3 format, and the audience prefers to listen to these MP3 files on their iPods. In fact the word "podcasting" is derived from the combination of the words iPod3 and broadcasting. However, unlike the common misconception, one does not need an iPod to receive podcasts; any digital player is sufficient. Moreover, podcasting technology is not restricted to audio; it can deliver any type of file or digital content (e.g., pictures, video content, and software). In this whitepaper, we focus on delivering audio and video content through podcasting. It is important to note that even though the underlying podcasting technology is based on polling, podcasting provides subscribers a “push user experience”; subscribers do not need to go back and check for the latest version of the content. The “push user experience” has significant marketing implications that we will discuss later in this whitepaper. Podcasting has two fundamental entities, a Podcast Creator and the Podcast Audience as illustrated in Figure 2. Figure 2: Podcasting Definitions and Concepts PODCAST CREATOR Podshow (Channel) Episodes (Casts) Regularly published files containing audio, pictures, video etc. content. A typical podshow contains many episodes. RSS Feed XML file containing information about the Podshow and its Episodes. PODCAST AUDIENCE Podcatcher Software Software constantly monitoring the subscribed podshows and retrieving the Episodes. INTERNET Player Software or hardware capable of playing Episodes. 3 Apple iPod and iPod are registered trademarks of Apple Computer. © Copyright 2005 Verkata LLC. All rights reserved. 4 • • Podcast Creator. The Podcast Creator is an individual or a company that creates and publishes the digital content on the Internet. A Podcast Creator is also called a Podshow Host. Podcast Audience. The Podcast Audience consists of people who listen to or view the content. Podcast audience needs to have access to the Internet, a computer to retrieve, and a digital media player to play the content. “With blogging people became journalists overnight, with podcasting, can they now become stars or celebrity talk show hosts?” • Podshow. A podshow is the series of ongoing content produced and presented by a host. A podshow is akin to a radio talk show (e.g., Howard Stern or Cartalk) that has a consistent theme and a host. Sometimes, a podshow is called a “channel” as well. • Episode. A single instance of a podshow is called an episode. Since podcasting industry is fairly new, and there are no standard definitions yet, an episode is sometimes called a "show" or a "cast" or a “podcast” as well. • RSS Feed. RSS (Really Simple Syndication) feed is an XML file that encapsulates and describes content so that it can be easily syndicated. For example, RSS is used by news websites to publish not only the full text news content, but also a set of useful descriptors such as the latest headlines, time of publication, description and news category. RSS is chosen as the delivery technology for podcasting, because it can handle multimedia attachments (e.g., audio files) and readily facilitates content description, syndication and search. • Podcatcher Software. Podcatcher Software is a piece of software that not only allows a user to subscribe to podshows, but also continually monitors and downloads the latest episodes. Some podcatcher software also provides non-core, but convenience functions such as podshow directory listings and search services. Currently, podcatcher software products (e.g., iPodder, Doppler Radio) are packaged as stand-alone software that loosely integrate with standard media player software. The next step in the natural evolution is that the podcatcher software be embedded into standard media player software (e.g., Apple iTunes, Windows Media Player, Nullsoft WinAmp) and provide the audience a seamless subscription, retrieval and listening experience. Apple, in fact, released Apple iTunes version 4.9 in June 2005 that provides native podcatching support. © Copyright 2005 Verkata LLC. All rights reserved. 5 Market Size Podcasting is a brand new growth market where there is very limited historical data, thus, currently it is not possible to provide rigorous market size analyses. Most of the existing podcast surveys or statistics have limited sample sizes and do not accurately reflect the true potential of the market. The simple-to-use products and services that are critical for growth of the nascent podcasting market are not yet available, making demand projections difficult. Instead of providing survey results, we present three major market segments which comprise the podcasting market and provide market sizing scenarios based on a framework and a set of assumptions that we validate with the current state of the market. We explain how we approach market sizing and lay out the assumptions so that you can see the key market growth drivers and align your business model to benefit from the growth. Market Size Overview One way to estimate the size of the podcasting market is to break it into three major segments and assess what products and services could be provided to each segment. Figure 3: Podcasting Market Segmentation Podshow Creators Podshow Audience Advertisers Serving Podshow Creators. Podshow Creators need to purchase software and hardware to produce and publish podcasts, pay ongoing fees for hosting, and also invest in marketing (promotion and CRM) to serve their existing customers and increase their audience. Serving Podcast Audience (Listeners). Podshow audience may pay for certain set podshows via subscriptions. Highly specific content such as audio books, investment research and timely news are likely categories for subscriptions. Listeners may also need to purchase or upgrade their portable digital players to listen to and store podshows. Serving Advertisers. As more people spend more time listening to podshows, and given that podshows are not regulated by FCC, podcasting stands out as an extremely attractive advertising channel for advertisers. To fully benefit from podcasting, advertisers need products and services such as audio advertising creation, brokerage, tracking, accounting and campaign analysis solutions. © Copyright 2005 Verkata LLC. All rights reserved. 6 Market Segment 1. Serving Podshow Creators Revenue Driver • One time set-up investment in software and hardware to produce and publish podshows • • Ongoing fees for hosting Ongoing fees for marketing (promotion and CRM) to serve customers and increase audience Market Size Scenarios ($) Low $140 Million Medium 1.4 Billion High 7.2 Billion 2. Serving Podshow Audience 3. Serving Podshow Advertisers • • • • Audience paying subscriptions Digital Player (e.g., MP3 Player) Hardware incremental sales Advertising Creation, Tracking and Brokerage Service fees Revenue-share from advertising $224 Million 2.2 Billion 11.2 Billion N/A4 N/A N/A Market Size Details and Assumptions 1. Serving Podshow Creators. Podshow Creators need to invest in set-up software and hardware to produce and publish podcasts, pay ongoing fees for hosting, and also invest in marketing (promotion and CRM) to serve their existing customers and increase their audience. • • The market opportunity is calculated as Money Spent per Podshow Creator multiplied by the number of Podcast Creators. Money Spent per Podshow Creator is broken down as follows: Money Spent per Podshow Creator ($) Low Budget Podshow Creator Number of Listeners/ Podshow: One-time Setup Investment : 5 Average 10,000 Pro Podshow Creator 50,000 1,000 Recording Software, FTP Client, Sound Card, Microphone, Headphones, Firewire Interface, Mixing Gear Ongoing Hosting Expenses (Annual) Hosting and Bandwidth Ongoing Marketing Expenses(Annual) Tools and Promotion Expense Total 7 6 40 609 310 3,655 2,090 15,230 Customer Relationship Management 500 $1,149 5,240 9,205 25,600 42,920 4 5 6 Not included in this report. Please contact the author for more details. Detailed breakdown of podshow creation hardware can be found at www.podcastrigs.com. Average episode length is 20 minutes; size is 7.1 MB. Assume publishing 2 Episodes per week. Assume that bandwidth cost is $0.75 per GB. Assume extra 10% bandwidth usage due to intermittent download errors. For a 1,000 listener podshow, the annual cost is $609. Assume 40% per listener extra cost savings for a 10,000 listener show and 50% savings for a 10,000 listener show. 7 Assume $0.50 promotion expense to acquire a listener. $0-50 in fixed monthly marketing expense to send emails and materials, making phone calls, maintain and analyze web sites and web logs. © Copyright 2005 Verkata LLC. All rights reserved. 7 • Let’s run a scenario for 10,000 to 500,000 total podshow creators. Let’s also assume that 20% of these Podshow Creators are Low Budget, 60% are Average and 20% are Professional. The market opportunity ranges from $140 Million to $7.2 Billion. Market Size: Serving Podshow Creators ($) Low Number of Podshow Creators Market Size ($ ) 10,000 $140 Million Medium 100,000 1.4 Billion High 500,000 7.2 Billion As a comparative reference check: • • As of July 2005, there are approximately 1,000 active podshow creators. As of June 2005, there are approximately 50-60 Million bloggers worldwide. If 1% of them created podshows, we would have more than 500,000 podshow creators. 2. Serving Podcast Audience. Podshow audience may pay for a certain set of podshows via subscriptions and may need to upgrade their portable digital media player hardware to play and store podshows. Thus, subscriptions and new player hardware purchases are the largest market drivers. • Subscriptions. Highly specific content such as audio books, investment research and timely news are likely categories for subscriptions. Assume that 5% of the podcast listeners pay $4/month to subscribe to their favorite podshows. If we run a scenario for 10 million to 500 Million Podcast listeners, the subscription market size is $24 Million to $1 Billion. Subscriptions Low Assumption: $/month Assumption: Penetration Rate Scenario: Number of Podcast Listeners Subscription Market Size ($) 4 5% 10,000,000 $24 Million 100,000,000 240 Million 500,000,000 1.2 Billion Medium High • Portable Media Player Hardware. Some listeners may need to upgrade their portable digital media player hardware to play and store podshows. Assume that 10% of the Podcast Listeners need to upgrade their digital player hardware. Assume hardware costs to be an average of $200, where a reasonable range is $100-350. If we run a scenario for 10 million to 500 Million Podcast listeners, the player market size is $224 Million to $11.2 Billion. Player Hardware Low Assumption: Percentage of Listeners who need to upgrade the player Player Cost ($/Player) Scenario: Number of Podcast Listeners Player Market Size ($) 10% 200 10,000,000 $200 Million 200 100,000,000 2 Billion 200 500,000,000 10 Billion Medium High • The total market to serve the podshow audience is the sum of subscription market and the player market. If we run a scenario for 10 Million to 500 Million listeners, the market opportunity turns out to be between approximately $224 Million to $11.2 Billion. © Copyright 2005 Verkata LLC. All rights reserved. 8 Market Size: Serving Podshow Audience ($) Low Scenario: Number of Podcast Listeners Subscription Market Size Player Hardware Market Size Total Market Size ($) 10,000,000 $24 Million $200 Million $224 Million Medium 100,000,000 240 Million 2 Billion 2.2 Billion High 500,000,000 1.2 Billion 10 Billion 11.2 Billion How believable are these numbers? As a comparative reference check: • According to the Pew Internet Project, more than 22 million American adults own iPods or MP3 players and 29% of them have downloaded podshows which amounts to more than 6 million podshow listeners in US. • Analysts estimate the annual revenues of Audible (NASDAQ: ADBL) to be $64 Million in 2005 and $102 Million in 2006. Audible offers spoken audio content, such as audio versions of books, newspapers and magazines, original productions, and public radio subscriptions. • In US in 2004, the online music market is estimated to be between $100 Million - $400 Million.8 3. Serving Advertisers. As more people spend more time listening to podshows, and given that podshows are not regulated by FCC, podcasting stands out as an extremely attractive advertising channel for advertisers. The market sizing analysis for the advertising segment is not included as part of this whitepaper. You may however contact the author to get more information. Market Structure We examine the market structure by looking at podcasting through two lenses. • The first lens is the simple value chain analysis where we trace a piece of raw content from creation until it reaches the audience. The value chain allows us to dissect what value each player brings to the table and may be a good tool for companies looking for partners to play in the podcasting market or companies looking for strategic positioning opportunities. • The second one is “gap analysis” where we dive into the needs of demand (listeners) and suppliers (podcast creators or vendors who serve them) and briefly outline the gaps, the business problems and potential business opportunities. Value Chain Analysis The podcasting market can be modeled as two separate but linked value chains. 1. The Core Value Chain focuses on the steps that add an incremental value to the original content (e.g., audio talk show, music, instructional video) as it evolves and gets packaged and delivered to the audience as a podshow. 8 Apple iTunes has 70%, Napster has 11%, RealNetworks, MusicMatch and Wal-Mart each have 6% market share. Source: NPD Group, October 2004 © Copyright 2005 Verkata LLC. All rights reserved. 9 2. The Supporting Value Chain focuses on the business support functions that are not on the core value chain, but help drive the top line revenue for podcasting through subscriptions and advertising. 1. Core Value Chain CORE VALUE CHAIN (TODAY) 1. Content Creation 2. Production 3. Publishing 4. Hosting / Delivery 5. Marketing and CRM 6. 7. 8. Playing Search, Receiving/ Syndication, Catching Aggregation • Syndicating, indexing and categorizing content • Providing the search • Managing podshow subscriptions for listeners • Continually retrieving the latest episodes • Creating original content (e.g., audio, video) • Recording, editing, cutting content • Creating standard format media files (e.g., MP3) • Creating and managing RSS • Transferring content to servers • Hosting Content Internet connectivity • Promotion to acquire new audience • Managing customer relationships (website, email, feedback) • Hardware or software to play (e.g., listen to, view episodes) feeds and shows• Providing audience efficient polling and Example Players in the Core Value Chain • Companies: o Time Warner o Sony • Individuals: o ITConversations • Audio: o iPODCASTle o Audacity o Adobe o Pinnacle Studio o Adobe • Automated: o iPODCASTle • Manual: o XML Editor o FTP Client • Specialist: o iPODCASTle • Generalist: o Any web hosting provider • Podcastalley • Odeo • iPodder • Apple iTunes • Software: o Apple iTunes o Windows Media Player o WinAmp • Hardware: o Apple iPod o Creative Zen • Digital Podcast • Doppler Radio o Dawn & Drew • Video: 1. Content Creation. Content creators create the original content for podcasting. Content creators can both be companies (i.e. organizations) and individuals. a. Organizations. i. Commercial Organizations. Companies in the media and entertainment sector that produce original content own and operate radio and TV broadcasting entities (e.g., Walt Disney, Time Warner, Viacom, and Sony) have been making substantial investments to digitize their content. After proper partitioning and resizing, most of their readily available content (e.g., music, talk shows, and clips) could be easily podcast. Note that many commercial companies whose core business is not media still need to maintain constant communications with their shareholders and general public. Therefore it is conceivable that general communication content such as press releases, analyst reviews, and shareholder meetings will soon be podcast. ii. Non-commercial Organizations. Government, Political and Religious Organizations, Universities and Schools, Membership Based Organizations and Clubs (e.g., AAA) and any other non-commercial organization that needs to regularly reach out to their audience would benefit from podcasting. The major benefit is that each member would sign up for content and get automatic updates without the need to visit websites. © Copyright 2005 Verkata LLC. All rights reserved. 10 “An audio podshow with 10,000 listeners could cost $350-500 per month in bandwidth alone. Unless you have a predictable revenue source, hosting a popular podshow could be a costly hobby today.” b. Individuals. Podcasting allows individuals to get heard on the Internet. Podcasting makes reaching out to a wide range of audience simple and cost effective because it eliminates the need to invest in the broadcasting infrastructure equipment. With a simple microphone and a PC, anyone can produce a podshow in less than 30 minutes (refer to www.iPODCASTle.com for details and available tools). Whether it is the weekly movie review or the monthly gig of a local garage band, podcasting makes the content available to millions of internet users rapidly, easily and cost effectively. 2. Production. Production involves recording, editing, and cutting content so that it can be podcast. Since audio is the most common podcasting format, let’s take audio content production as an example. A podshow host could record his/her content using simple production hardware (microphone, headphones and a PC) and use open source software to mix, edit and package it as an MP39 file, all for less than $50 investment. Having said that, some podcast creators will opt for professional grade pre and post-production hardware and software and could invest more than $2,000. In either case, the bottom line is that producing the content for podcasting is very similar to producing standard digital media file. There are already mature hardware and software tools (e.g., Audacity, Adobe Audition) to facilitate this production task. 3. Publishing. Publishing means making the podshow available on the Internet so that the audience can download it. A podshow is essentially a bunch of media files (e.g., episodes) packaged with an RSS file that describes the podshow contents and retrieval instructions. Once these files are created they need to be uploaded to a server so that the audience can retrieve them. Assuming that the episodes are already available, publishing has two remaining steps: “After creating the RSS file, the challenge may be in managing and updating as new episodes become available and old ones need to be archived.” a. Creating an RSS file. RSS is an XML file. Although the podcast Creator can manually create an XML file, it is much easier to use a tool such as iPODCASTle Studio (www.ipodcastle.com) where you can create an RSS file with a simple drag-and-drop. b. Uploading to a Web Server. The traditional method is to use an FTP server to upload the files. However, there are specialized podcasting tools such as iPODCASTle Studio www.ipodcastle.com) that uploads your content to a web host of your choice. If you do not have web host, iPODCASTle even automatically provides you this service on-the-fly. 4. Hosting/ Delivery. All RSS files need to be hosted on a publicly accessible web server so that the audience can download them. Hosting podshows is not much different than hosting any other content, so any web hosting company can host podcasts. However, there are a few key points that podcast creators need to keep in mind. a. Bandwidth costs money. Let’s assume that an average episode is 20 minutes and approximately 7 MB in size. A typical podshow would have 2 new episodes each week. Assume that the podshow has 1,000 listeners as its audience, thus it requires 68 GB of bandwidth per month costing $35-50 per month. 9 MP3 is a patented technology and content owners who use it may have to pay royalties and need to ensure compliance with the relevant patent and copyright laws. Refer to www.mp3licensing.com for details. © Copyright 2005 Verkata LLC. All rights reserved. 11 b. Bandwidth cost may increase linearly with podshow popularity. There is currently no access rules, restrictions or payments built into retrieval of podshows. Unless your web host provides facilities, once on the internet, you may have no control of how many downloads you will have. If our example podshow increases the audience to 10,000, its bandwidth cost could climb up to $350-500 per month. c. Knowing Your Audience could be a challenge because you will not necessarily know who have downloaded your episodes. The hosting provider may furnish you with log files, but analyzing and deducing conclusions from the log files may be technically too complex for an average podcast creator. 5. Marketing and CRM. Podcast creators need to promote their podcasts to build up audience and need to have access to tools to communicate with and maintain their audience. a. Marketing and Promotion refers to the set of activities that help podcast Creators get new listeners. Internet is a crowded place and getting heard can be challenging. Assuming that they can profit from a larger audience, podcast creators need to create and manage campaigns (e.g., email campaigns, partner promotions) so that they can build up and grow their audience. b. CRM. CRM (Customer relationship management) refers to the set of activities that help podcast Creators retain existing customers and serve them better. Podcast audience likes to talk back and participate. They have been actively sending emails to podshow hosts and in some cases using telephone or Voice-over-IP services (e.g., Skype) to call in, leave messages or participate. 6. Search, Syndication and Aggregation. a. Search portals allow podcast audience to search for the content they desire along several key dimensions such as category, keywords and content ratings. Since RSS inherently allows for content description, some web sites currently allow for basic search based on keywords. However, intelligent sorting and recommendations (e.g., collaborative filtering that predicts what a listener is likely to enjoy based on his/her past subscriptions) is not yet there. b. Syndication and Aggregation portals pre-select and aggregate content and present their audience channels organized along consistent themes similar to current radio and TV channels (e.g., news, sports, and entertainment). Podcasting market currently exposes audience directly to podshow producers. Intelligent and coherent aggregation and syndication of content into channels will take time. 7. Receiving and Catching. Receiving and Catching software keeps track of what podshows the audience subscribes to, continually monitors the podshows and automatically downloads the new episodes of these podshows as they become available. As an added functionality, Receiving and Catching software may provide podcast directory and search functionality and automatically launch the listener’s favorite media player. The user interface of the receiving and catching software is simply a subscription user interface for the podcast listener. Underneath the covers, the software continually polls the podshow RSS feeds and downloads them in the background. Currently, Receiving and Catching software is a separate application installed on the podcast listener’s computer. However, in the long run we should see most popular media players to come with Podcast Receiving and Catching software integrated. The most popular Receiving and Catching software are iPodder (http://www.ipodder.org) and Doppler Radio (http:// www.dopplerradio.net) both of which are open source projects. © Copyright 2005 Verkata LLC. All rights reserved. 12 8. Playing. After the listeners receive the episodes, they typically play them either on their computer using their media player (e.g., Apple iTunes, Windows Media Player, Nullsoft WinAmp) or play them on their portable digital player (e.g., Apple iPod). There are tremendous synergies between portable media players and podcasts; a podshow is a time-shifted recording of a live show allowing users to listen to it whenever they want, and portable media players allow listeners to enjoy their content on the-go, wherever they want. However, research indicates that most people currently listen to their podshows on their computer, a trend that is likely to change. 2. Supporting Value Chain The Supporting Value Chain focuses on the business support functions that are not on the core value chain, but help drive the top line revenue for podcasting. Although there is currently no structured and easy way for podcast creators to monetize on their content, we expect this to change. We expect that the primary revenue drivers be advertising and subscriptions. Similar to most Internet business models, one expects monetization and business models to follow usage. SUPPORTING VALUE CHAIN (FUTURE) 1. Advertisers 2. Ad Brokering and Accounting 3. Ad Tracking 4. Subscription Management • Create advertising content in the proper media format • Decide on advertisement and targeting strategy • Connect Advertisers with • Podcast Creators • Price Ads, Auctions, and Wholesale • Handle Accounting and • Billing If Ad. Sponsored Podshow: Track Advertisements o Impressions o Performance/ Conversion If Subscription Sponsored Podshow: Track and manage subscriptions 1. Advertisers. Advertisers view podcasting as a new, growing and lucrative channel to reach their target audience for a couple of key reasons. • Unlike radio shows which are transmitted through the air, podshows are not regulated or controlled by the FCC provided that the podshow does not contain copyright infringing property. FCC censorship rules that are open to interpretation regarding obscenity, indecency or profanity severely restrict the use “Unlike radio shows which are transmitted through the air, podshows are not regulated or controlled by the FCC.” of television and radio shows; this leaves podcasting an ideal medium for companies that produce adult products. Companies such as Durex already have started taking advantage of this fact. • With the new upcoming technology advancements, podshow hosts may be able to track and know more about their audience (i.e. subscribers) than their counterparts do in the radio and TV world. This will give advertisers a unique opportunity to pinpoint their advertisements and measure the ROI. 2. Ad Brokering and Accounting. Podcast Creators will need a central portal that provides them audio advertisements so that they can embed into their podshows. Podcast creators may be paid either on a © Copyright 2005 Verkata LLC. All rights reserved. 13 per-impression or performance (i.e. convergence) basis. Either way, podcast creators cannot deal with individual sponsors and they require an intermediary to take care of ad acquisition, pricing, billing, collection and other accounting tasks. 3. Ad Tracking. Advertisers are willing to pay the top dollar for performance based advertising where they can clearly measure the ROI (Return-On-Investment). Linking advertising expenditure on podcasts to actual purchase revenue is an ideal metric for advertisers. However other proxies for this metric such as targeting accuracy, increased awareness and brand building can still be very valuable. 4. Subscription Management. Some podshows that have concentrated high value content may be able to make money from subscription fees from listeners. Subscription fees can be pay-per-view fees (per episode, per show, etc.), or flat monthly fees. • Pay-per-view. Consumers are already used to paying online for media content such as music, audio books and movies on a pay-per-view basis. Paying for podshows may not be such a stretch. • Monthly Subscription. Cable TV, Internet Access appeal to people because they are all-you-can-eat flat rate monthly subscriptions. There is no metering or fear of overage, and a similar model may apply to a bundle of podshows grouped together by syndicates. Current RSS format is completely open and there is no standard methodology to limit access to podshows once it is on the Internet. Podcast Creators who wish to charge a subscription fee will need a platform similar to an online music store that will allow for authenticated downloads and manage subscription payments. Gap Analysis As the podcasting market takes shape, technologies and services need to emerge to solve the business problems for Podshow Creators, Podshow Audience and Advertisers. Our intention is to systematically assess, articulate and prioritize these needs. 1. Core Value Chain Opportunities 1. Content Creation. One way to look at the content creation opportunities is to look into porting existing content versus creating new content. a. Porting Existing Content. Many companies have vast archives of content, either in written text or audio format. This content may need to be converted into the proper audio format and resized for podcasting. For mass conversion of text content where timeliness is more critical than quality, text-tospeech may be a viable alternative to human speech. Content owners may take on this task internally or look to partner with the experts. b. Creating New Content. New podshows with original content from diverse content producers is one of the major promises of podcasting. The large media companies, looking to maximize their profit focus only on 10-20% of the content that satisfies 50-80% of the audience needs. In essence, a lot of the content that the audience is interested in does not get broadcast, because it does not appeal to largeenough a market to be profitable for the media companies or carries risk of non-compliance with FCC radio and TV regulations. Since podcasting not only breaks the cost and complexity barrier to broadcasting but also unregulated, it opens up the possibility for the home-spun podshows. The key to creating a successful home-spun podshow is to focus on a content category and a market niche that is not only large and popular enough but also underserved by large media companies. One way to © Copyright 2005 Verkata LLC. All rights reserved. 14 assess the attractiveness of content categories is to map them in a matrix along two dimensions: Popularity/ Market Demand and Competition from Large Media Companies who may have substitute content. A sample matrix, which is not to scale, but nevertheless illustrating the concept, is shown below.10 Low Personal Audio Blogs Soliloquies, Rants & Raves Local Regional Religion & Philosophy Arts & Crafts Erotica/Adult Entertainment COMPETTION Politics & Government Hobbies & Recreation Computers & Technology Music Learning & Instruction Health & Fitness Sports Business & Finance News & Media Audio Books High Low MARKET DEMAND/ POPULARITY High c. Vertical Content. Each market vertical (i.e. industry sector) has its own content needs. It is not in the scope of the current document to analyze vertical market needs but you may contact the author for more information. 2. Production. Production includes recording content and creating the appropriate media files using the right hardware and software. a. Hardware and Software. The hardware required for recording is already a mature market. The software is available across a wide range of prices (Audacity is free and Adobe Audition is $299). Although there may be room for new packages that are simpler to use and provide more integrated capabilities for podcasting, there does not seem to be a large gap between the demand and the available technology. Therefore, the growth of this segment will most likely depend on the increasing number of podcast creators, and to a less extent on new hardware or software. However, we may see specialized niche products (e.g., sound effects, royalty free background music) to emerge over time. 10 The categories and the dimensions of the matrix need to be more objectively defined to serve a business purpose. You may contact the author for definitions of the categories and an accurate matrix. © Copyright 2005 Verkata LLC. All rights reserved. 15 BitTorrent is a P2P file sharing and networking technology that excels at downloading files that have high, peak demand. It breaks large files into many small chunks, downloads and uploads each chunk from and to a separate computer in the P2P network and coordinates their assemblage. In essence, at the same time that you're downloading a chunk, another user is downloading an earlier chunk from you. As a result, no one server is overloaded, and the more popular a file, the more available it is. b. Digital Rights Management (DRM). DRM is an open problem that has multiple solutions each with their own weaknesses and strengths DRM has not been as much of an issue for streaming, but it may be one of the key institutional bottlenecks for companies planning to port existing content into potentially easy-to-copy digital files. 3. Publishing. Currently, podshow creators go through a cumbersome process of editing their MP3 file tags, manually creating RSS files and uploading them to web servers using FTP clients. There is a need for automated publishing tools that ease these tasks and provide convenience. Publishing tools should have integrated generation of RSS files, publishing, and file transfer functionality and also allow for management of podshows, episodes such as editing, unpublishing and deletion. See www.iPODCASTle.com for fully functionally publishing tools. 4. Hosting and Delivery. As outlined in previous chapters, bandwidth usage is the main cost driver for podshow creators. If the industry is to grow, the revenues from podcasting need to align with the costs. However, in the early stages of market growth where revenues are limited, low cost and creative hosting alternatives will become premium money makers. a. Unmetered Hosting Providers. Some hosting providers charge for unmetered bandwidth if the user is willing to sacrifice quality of service. This could be a huge cost reduction factor for podshow creators who are on a low budget with no advertising sponsors. b. Distributed Peer-to-peer (P2P) File Networks. Peer-to-peer and distributed file sharing and network such as BitTorrent have potentially huge advantages in distributing large files at very low cost. For P2P to bring cost efficiencies, both podshow audience and podshow producers must embrace P2P downloads rather than standard client-server (e.g., FTP, HTTP) downloads. • The podshow audience needs to have P2P capable podcatching software and must be able to contribute some of their upload bandwidth to increase the efficiency of the P2P network. Restrictive firewalls, slow connections, or audience who turn off their computers reduces the network efficiency. The audience also needs to have an incentive to use P2P downloads rather than the standard clientserver downloads – currently they have no incentive either way, because there is no cost of downloads. If using P2P requires additional steps, the audience may not bother using it unless they have no other way to get their favorite podshows. • Assuming that podshow audience adopts using the P2P networks, podshow producers need tools to support P2P distribution. They need to be able to efficiently upload their files to the P2P networks and be confident that the audience can download them with sufficient speed and reliability. In essence, the more transparent P2P network usage is to the podshow producers and to the podshow audience, the more the utilization and hence the lower the bandwidth costs. 5. Marketing and CRM. Marketing activities consist of pre-sales activities (i.e. promotion) to attract new listeners and post-sales (i.e. CRM) activities to maintain and serve existing listeners. a. Promotion. Podshow creators need to use cost effective promotion mechanisms to promote their podshows. Running direct email campaigns, advertising on search portals, sponsoring search results, partnering with related non-competitive content providers are a few of the promotion avenues. It is © Copyright 2005 Verkata LLC. All rights reserved. 16 likely that most podshow creators, busy with content creation will look for easy-to-use services and automated product packages to handle these tasks. b. CRM. Podshow audience is active and prefers to talk back and contribute. Communicating with the audience, involving them in the content creation requires consistent and easy-to-use communication tools such as forums, blogs, and voicemail. There is an opportunity for packaged products potentially marketed on a subscription basis that provide podshow creators CRM facilities. 6. Search, Syndication and Aggregation. As “Search” is becoming the primary entry point for the Internet content, podshow audience will look to have the same single point of entry user experience. They not only look for efficient searching of podshows, but also podshows sorted by relevance to their particular preferences and simple subscription management. Consumers are used to receiving radio and TV content syndicated and aggregated into channels, and they may appreciate a similar service in the podcasting area where they can browse channels and categories that hold related content. 7. Receiving and Catching. Receiving and catching software is most likely going to be integrated into standard media players, therefore opportunities in this area are most likely to be software OEM opportunities. There could be specific opportunities for specialized receiving and catching for specialized platforms such as mobile and gaming. 8. Playing. Hardware or software to play podshows will most likely have advanced storage and media plying capabilities and be portable. Some may also contain wired or wireless internet connectivity and come bundled with receiving and catching software, not requiring a computer to receive podshows. 2. Supporting Value Chain Opportunities 1. Advertising Funded Podshows. Podshow creators need efficient mechanisms to receive and embed advertisements in their podshows, track impressions and other metrics to calculate ROI for their advertisers and receive commensurate payments. They also need information about their customer demographics to earn top money for the limited advertisement spots. 2. Subscription Funded Podshows. Current RSS mechanism is built for open downloads and podcatching clients do not include authenticated download and payment support. The winning subscription model still is uncertain, but it could either be flat fee per month or pay per podshow or some other charging mechanisms. Currently online music stores such as Apple iTunes, Yahoo MusicMatch and RealNetworks support pay-per-download charging and some of this infrastructure could be extended into podshows. Summary Consumers have always had a latent demand for diverse content that is not covered by mass media. Despite the strong demand, the content supply has been restricted, because setting up a production and delivery infrastructure has been cost prohibitive for the home-spun content providers to get in the broadcasting game. Podcasting stands out as a technology that can change it all: it is easy and relatively inexpensive. We are entering an era where the tremendous demand for diverse content can be satisfied by an emerging group of podshow creators who have an opportunity to publish and express themselves on the Internet at very little cost. Although the revenue model is still uncertain and bandwidth cost to deliver the large media content is an issue, the usage is already picking up. The podcasting market is evolving in parallel to the blogging market. Like many emerging markets, revenue is likely to follow usage. In this report, we have attempted to create a © Copyright 2005 Verkata LLC. All rights reserved. 17 framework to list, classify and assess the numerous business opportunities serving podshow creators, podshow audience and the advertisers/ sponsors. We consider this paper as a work-in-progress; we hope to improve it as the podcasting market evolves. You are encouraged to contact the author, Alper Turgut, alper_turgut@verkata.com with your comments and questions. © Copyright 2005 Verkata LLC. All rights reserved. 18