Ads are typically significantly better received on podcasts than in other forms of media.

According to the IAB’s latest Podcast Ad Revenue Study, the vast majority of podcast ads (67%) are delivered by the host(s). Another 32.5% are delivered by a separate announcer — this often occurs when a news organization doesn’t allow journalists to read ads. Only 0.5% of ads are supplied by the advertiser, which is the type of ad you would typically see or hear on TV, radio, or even YouTube videos.

This is great for advertisers. Host-read ads are often more entertaining, more memorable, and less “skippable” than other types of ads, for a few reasons:

Every ad is different. One of the most annoying things about traditional ads is that you see and hear the same ones repeatedly, so even the best ads quickly sour. Many podcast hosts record new ads every episode, so you rarely hear the same ad twice. You may hear ads from the same company across multiple shows, but each host will likely have a different take.

One of the most annoying things about traditional ads is that you see and hear the same ones repeatedly, so even the best ads quickly sour. Many podcast hosts record new ads every episode, so you rarely hear the same ad twice. You may hear ads from the same company across multiple shows, but each host will likely have a different take. Hosts incorporate personal anecdotes. Listeners often consider podcast hosts to be friends and mentors, and value their opinions. Personal anecdotes can be powerful. A good example of this — Lisa Zambetti, one of the co-hosts of Real Crime Profile, has told listeners about her struggles using at-home hair dye. She’s now using a color kit from Madison Reed to dye her hair (“Sienna Red”) and keeping listeners updated on the process.

Gimlet’s Sandra, another great fiction podcast, starred Alia Shawkat and Kristen Wiig (an increasingly common example of Hollywood to podcast talent crossover), and was notable for its fairly natural incorporation of ads into the story. The show was also recently acquired to be developed as a premium television series.

Mimi O’Donnell, the director of scripted content at Gimlet, took advertising to the next level in the network’s recent AI/technology-focused fiction show Sandra — ads were integrated almost into the storyline. O’Donnell said the show creators actually “loved” the opportunity to work on the ads, as they had more of a say in how the ads were placed in the podcast, and could therefore keep the listeners in the world of the story.

Podcasters are great storytellers. The best hosts can turn ads into funny or memorable moments, creating stories around the ad content. When Matt Gourley’s show I Was There Too was added to Stitcher Premium (and the ads were removed), fans took to Twitter to ask for the ads to be added back in, as they were some of the funniest parts of the show.

One of the best ever podcast ads, in our opinion.

Coleman Insights did a study of listener affinity during different sections of The Bachelor-focused podcast Almost Famous. Listeners were asked to turn a dial indicating their satisfaction with the content throughout the podcast (Coleman called this the “media EKG”). They found that the EKG score dropped immediately at the beginning of an almost three-minute long ad for the FabFitFun box once listeners realized it was an endorsement. However, by the end of the ad, the score had almost recovered to the level of the actual podcast content — with listeners commenting that they liked hearing the hosts’ funny takes, or that they learned something new about the product.

Coleman Insights’s Media EKG for the Almost Famous podcast showed that a three-minute ad (pink line on graph) performed surprisingly close in terms of listener sentiment to the actual podcast content (blue lines on graph). Please excuse our somewhat blurry photo!

However, monetization lags audience growth, for a number of reasons.

According to Nielsen, more than 73 million people listen to podcasts monthly, and more than 15 billion episodes are downloaded annually. $314 million in annual ad revenue isn’t just small on an absolute basis, but also relative to other types of media. Using Nielsen data, we calculated ad revenue per consumer per hour for different types of media in the U.S., and found that podcasts monetize at only a penny per listener hour, on average.

This is more than 10x less than the next closest competitor, radio. The discrepancy is confusing given that podcast ads are especially effective, as discussed above — a Nielsen study found that pre-roll podcast ads increased purchase intent by 10.8%, slightly higher than the 10.3% lift from video ads. The podcast listening audience tends to be young, urban, and affluent, an attractive demographic for advertisers. Apple analytics data presented by Panoply showed that the average listener completes 85–95% of an episode, regardless of show duration — so both pre-roll and mid-roll ads should have very high completion rates.

So why are podcasts lagging so significantly in monetization? Brands seem to be valuing podcast ads at an appropriate level — CPMs (cost per thousand impressions) generally range between $25 -$50, and have actually been increasing as more listener data becomes available. The main issue seems to be the fact that only an estimated 15% of podcasts are able to monetize, and that existing ad standards don’t account for the “evergreen” nature of many shows. Here are a few of the factors at play:

The dominant platform isn’t monetized. Though alternative podcast platforms (Stitcher, Pocket Casts, etc.) have grown, Apple still owns 55% of podcast market share. Unlike YouTube, where brands can easily run ads via the TrueView program, it’s much more complicated to monetize on Apple Podcasts. Brands and podcasts have to connect directly, usually via networks. Most networks will only take on podcasts that have 50k+ monthly downloads, an extremely difficult benchmark to reach. Radio Public launched a Paid Listens platform partially to solve this problem — any listen of any show that is published on Radio Public gets a guaranteed $20 CPM.

Though alternative podcast platforms (Stitcher, Pocket Casts, etc.) have grown, Apple still owns 55% of podcast market share. Unlike YouTube, where brands can easily run ads via the TrueView program, it’s much more complicated to monetize on Apple Podcasts. Brands and podcasts have to connect directly, usually via networks. Most networks will only take on podcasts that have 50k+ monthly downloads, an extremely difficult benchmark to reach. Radio Public launched a Paid Listens platform partially to solve this problem — any listen of any show that is published on Radio Public gets a guaranteed $20 CPM. Detailed data on listeners is just now becoming available. Brands, understandably, need data on audiences and ROI to be willing to allocate part of their marketing budgets to a relatively new medium. Apple Podcasts is famously secretive with data — it just turned on a beta version of an analytics feature in December 2017, which still gives fairly basic data on listeners, devices, and time listened per session. Programs like Panoply’s Megaphone Targeted Marketplace, which allows for dynamic targeting of listener segments, as well as Nielsen studies showing significant brand lift will help brands gain confidence — but it will take time.

Some of the major brands working with Panoply on the launch of itsMegaphone Targeted Marketplace for podcast ads.

Lack of cohesive ad standards, and inconsistent (and sometimes unfair) measurements of a “listen.” Thus far, there hasn’t really been a consistent way for brands and podcasts to measure KPIs of brand campaigns, as everyone has different answers to questions like: “Does a download count as a listen?” and “What’s the acceptable time range for a listen to be monetized?” The Interactive Advertising Bureau (IAB) recently released a set of guidelines that will go a long way towards resolving these inconsistencies — and most podcast networks plan to adopt them by EoY 2018. The continued development of the dynamic ad market (where ads are not permanently placed in the show, but can be removed and replaced over time) should also help clear up these issues.

“It has become clear that unless we have a set standard, brands will say, ‘We don’t get it, we’re not sure the numbers are right, it will be easier to spend on TV or Facebook.’ [The IAB’s] V2 is it and we all have to get on that bus, whether there’s short term discomfort or not.” -Marshall Williams, CEO of Ad Results Media (largest purchaser of podcast advertising in the world)

This is especially true for “evergreen” shows, like Serial, which continues to get huge amounts of monthly downloads even three years after season 1 was released. Ads on shows like this should be treated differently than time-specific podcasts like NYT’s The Daily, which likely gets the bulk of downloads on each episode within a 24 or 48-hour time period.

Aside from direct response ads (which make up 73% of podcast revenue), we expect branded content and IP licensing to become increasingly large sources of revenue. One of the first branded shows was GE’s scifi podcast The Message, created in partnership with Panoply. The GE team was so happy with the content that they asked to take out the GE ads, as they interrupted the flow of the show. Gimlet has also been aggressive in the branded content space, inking deals with Mastercard (Fortune Favors the Bold), eBay (Open for Business), and Tinder (DTR), among others — but VP of Brand Partnerships Anna Sullivan said that this money is still primarily coming out of brands’ marketing experimentation budgets, which “isn’t sustainable or scalable.”

On the IP licensing side, Gimlet has formed Gimlet Pictures to sell shows to Hollywood, and currently has seven projects in development. Sullivan said it was “very unexpected how hungry Hollywood is for new IP from podcasts.” The trailer for the Julia Roberts-helmed adaptation of Gimlet’s Homecoming dropped on Amazon last week. How Stuff Works’s Byrne agreed: “I believe LA is invested. I believe it when I heard catchphrases like ‘podcasts are the new scripts,’ and people are thinking that audio translates even better than text to the big screen.”

Amazon has been an early adopter in translating podcasts to TV— aside from the upcoming Homecoming show, they also adapted Aaron Mahnke’s Lore into a two-season show.

Tech companies are starting to invest in podcasting.

Apple has long been criticized for essentially ignoring the podcasting market — the Apple podcast app is extremely difficult to navigate, analytics are limited, and, as previously mentioned, there’s no built-in monetization. While Apple’s listening app has long dominated the market, Google is now making a major push to have a bigger presence in the space. Google launched a podcast app for Android in mid-June, and PM Zack Reneau-Wedeen gave a keynote at Podcast Movement about the tech giant’s move into the space.

The current app is integrated with Search and Assistant, giving listeners personalized recommendations of shows and allowing them to easily start and stop playing across devices. Why now? Reneau-Wedeen said that his team has noticed that the “number, quality, and variety of podcasts has really taken off,” and believes that Google is well-equipped to tackle the challenge of categorizing and curating content. Google’s goal is to double worldwide podcast listenership, and the company has launched a Podcast Creator program to help train and amplify the voices of diverse podcasters.

Screengrabs of Google’s new podcasts app, courtesy of Lifehacker.

Another tech company making moves in the space? Spotify, which reportedly spent $1M to acquire the exclusive distribution rights for Amy Schumer’s new podcast. Dossie McCraw, the company’s Global Head of Podcast Partnerships, wouldn’t confirm this amount, but commented that $1M would arguably be a “good deal” for access to exclusive content from an A-list celebrity.

Spotify’s spending isn’t limited to Schumer’s new show. McCraw noted that the company has dedicated “more and more money” over the past year to make consumers aware of the presence of podcasts on Spotify. These marketing campaigns seem to have worked — according to Libsyn data, Spotify is now the #2 most popular podcast listening platform in the world, representing 6.8% of listens. With stiff competition in the music streaming from Pandora, Apple Music, iHeartRadio, and many others, it makes sense for Spotify to differentiate itself through a robust podcast offering.