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Podcast ads: a bright spot in the dim digital advertising sector

August 5, 2020 | By Tim Bourgeois — Digital Media Auditor and Consultant @ChiefDigOfficer

Covid-19 has hobbled untold sectors, and advertising is one of them. In July, two research outfits revised their industry growth estimates in negative directions. The lone bright spot among the various advertising channels is podcasting. Originally targeted to expand by 30% this year, IAB/PwC halved its estimate. However, that still equates to more than $100 million in net expansion. Indeed, brands are slated to spend nearly $1 billion on podcast advertising in the U.S. in 2020.

By contrast, the total global advertising category – inclusive of TV, print, radio, digital and out of home – will contract by 9% this year. This is according to fresh estimates from Zenith’s Advertising Expenditure Forecast report, published on July 27. Brands slashed ad budgets most aggressively in Western Europe and in the out-of-home category. But no geographic region and only a couple of formats (podcasting, digital) have been spared. 

Solid fundamentals fuel podcasting’s (relatively) rosy forecasts

Given the uncertainty and fragility of global economic conditions, we’re all firmly in the “any non-catastrophic news is good news” camp. (Unless you work at Goldman Sachs, of course, which makes gobs of cash so long as the sun rises, but that’s a topic for another day.) That said, podcasting’s fundamentals have been headed in the right direction for several years now. 

I first wrote about podcast advertising strategies for DCN in March 2019, and favorably. While growth has been healthy since, the market has by no means taken off. However, a confluence of factors could facilitate a podcasting growth spurt in the next few years. 

Experienced advertisers make up a big chunk of the market
Direct-to-consumer (“DTC”) and financial services brands generate more than one-third of advertising activity. These companies can serve as an important anchor for the category moving forward. They both understand advertising and take a long view of their programs.

Spotify is driving changes in habits with both consumers & advertisers
It would be incorrect to claim that Spotify is betting its future on podcasting. But it’s definitely a meaningful part of their strategy. In July, the company reported both increasing consumer engagement with podcasts – up over 100% year over year – and has committed to the format in a big way. To wit: the company invested hundreds of millions of dollars over the past year into deals with organizations such as The Ringer (Bill Simmons’ venture), The Joe Rogan Experience, and Omnicom.

It’s a small market
Because it’s currently a niche market, positive growth rates should be easy to maintain. Brands spend more than $200 billion every year on advertising in the US and carve out less than .5% of budgets for podcasting. So podcasting will not fuel ad industry growth and sustenance for the next decade. But it is well-positioned to be a consistently positive storyline. 

What brands need to be concerned about 

As is the case with most nascent markets, there are reasonable questions about podcasting’s future that linger. 

Staying power
As Digiday’s Pierre Bienaimé explains, “The question of whether podcasts have hit the American mainstream is kind of like asking the same about Major League Soccer.” The advertising industry has been waiting for podcasting to ‘pop’ for several years now, and the reasons for why it hasn’t persist.

Standardized success metrics
Podcasting’s performance metrics are more akin to traditional (offline) advertising formats than digital ones, such as audience size and awareness. This issue needs to be reconciled by media companies to facilitate growth.

Even experienced podcast listeners often have difficulty both locating a new pod they are aware of and ‘shopping’ for new ones. Pods need to be as easy to find as a website or social media account. 

A promising future

While it would be inaccurate to say that podcasting is in full-on growth mode, the format is showing signs of long-term viability. Over the past decade, its evolution has been characterized by fits and starts, but crossing the billion dollar market size threshold this year is notable. 

Alan Osetek, former global CEO of Resolution Media – an Omnicom company and one of the largest search advertising companies in the world – is cautiously bullish. “I’m a huge fan of podcasting, but it’s suffered from an identity crisis. It’s not quite ‘digital’ because it isn’t really a direct response tactic, and that’s what’s been driving online ad growth for 20 years.” 

He goes on, “but podcasting isn’t really ‘offline’, either, since most people listen via smartphones. I just think it took brands awhile to figure out how to deploy the tactic within the overall marketing mix. Now that they’ve done that, I believe podcasting is here to stay. And I wouldn’t have said that as recently as a couple of years ago.”

About the author

Tim Bourgeois is a marketing advisor who helps brands optimize ROI on advertising, technology and agency investments through media audits and strategy engagements.

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