Luminary Media: Premium Subscription Play, with $40 milllion in the bank
Been hearing about this startup a little bit over the past few weeks through various folks who felt the waves moving. From the Wall Street Journal’s Venture Capital Pro:
Luminary Media LLC, a venture-backed company, has raised $40 million to join the rapidly expanding realm of podcasting and audio.
Unlike most of its competitors, which support their businesses primarily through advertising, Luminary Media’s business plan includes signing users up for a subscription service granting them access to a portfolio of premium podcasts, according to people familiar with the matter.
The venture, which has offices in Chicago and New York, is being led by Matt Sacks, a principal at New Enterprise Associates. NEA has teamed up with other venture and high net-worth investors to back the venture, which is slated to launch some time next year, according to people familiar with the matter.
The report goes on to note that the company has begun reaching out to podcast publishers like Wondery, PRX, HowStuffWorks and Cadence13 in recent weeks and “has already begun to strike licensing deals.” The incentive involves Luminary providing up-front revenue in exchange for rights to place a given publisher’s content on its platform.
Oh, and this seems super important: “Current plans call for about 75% of Luminary Media’s content to be original within 36 months of launch, according to a person familiar with the matter.”
Consider me skeptically optimistic, with a hard lean towards skeptical. In appraising the prospect of a “Netflix for Podcasting” — which is to say, a premium content platform for on-demand audio — it’s important to be fully realistic about what such a platform can actually offer right now vs. the future as well as what opportunity costs the publisher is facing now vs. the future. And then one has to be further realistic about the sheer scale of the challenges that stand in between the arrangement offered now versus the future being promised.
Here’s my theory of the scene:
- You can break Luminary Media’s long-term value proposition down to two buckets, each mattering differently to different podcast publishing business models. The first bucket is some guarantee of theoretical access to a qualified and engaged audience — the kinds of people who would put up some cash per month to listen to stuff. The second bucket would be the monetary end of the deal: that is, the up-front revenue terms that Luminary ends up offering publishers, which puts it in the politically-delicate position of putting price-tags on shows in the market.
- There is, presumably, some expectation of an analytics angle: as Luminary is able to grow its subscription base, it’ll be able to accumulate an analytics layer (that it controls, by the way) that’ll allow the platform to make judgments on what shows work and what shows don’t on the platform, which will probably affect the way it ends up perceiving the numeric value of the shows it’ll try to make deals with. Of course, I don’t expect that the analytics situation here will ever be exposed to much public accounting or accountability. That data obscurity has worked in Netflix’s favor quite a bit, much to FX head John Landgraf’s chagrin. Anyway, that’s a long-run thing, dependent on Luminary’s overarching capability of pulling together a meaningful subscription base. We’ll get back to this point in a bit.
- For some publishers of a certain size (and business model, and aspirations for one’s self), the choice to get in bed with Luminary depends on how that publisher perceives the trade-off between the middle-men it chooses to mediate the relationship between itself and its audience. At this point in time, given Apple’s vaunted position as the prime facilitator of podcast listening (and wherever Google’s machinations will take us), the default middle-man was a platform whose relationship with podcasting is rather secondary to its core business model. One could argue, with varying degrees of conviction, that in the Apple-dominant environment, a publisher was in an eminently clear position to build a pure brand relationship with a listener. In a world where a “Netflix for podcasting” is relevant, the prime relationship, I’d argue, is between the premium platform and the listener. Look, I paid money out of my pocket for Netflix, so all my emotions and habits and routines are tied to that goddam platform.
- That dynamic of the middle-men, then, would theoretically split the actual value proposition that Luminary provides to the full spectrum of publishers in a bunch of different ways. If I was a public radio podcast publisher — whose core business model relies on my listening constituency to feel strongly enough about me to kick in some cash — I would have some reservations about committing too many valuable assets to this platform that isn’t going to serve my core business model. (But it could be a strong secondary revenue channel; a public radio organization of a certain size — say, WNYC Studios — could theoretically raise a team that specifically creates content for a premium podcast platform, if the returns were deemed to be sufficient. Then again, that would depend on what Luminary’s long-term promise to listeners turns out to be: is it high-quality podcast content you know and love, or high-quality audio content that’s specific to Luminary?)
- But if I was a podcast publisher with little structural interest in cultivating a direct relationship with the audience for the purposes of my business model — say, Pineapple or Transmitter, studios whose business depends on selling on a project basis — I’d probably be more willing to get in bed with a premium podcast platform that will presumably bear the burden of building a qualified audience pool for me. Ditto for podcast publishers that have little capacity to build those direct relationships with a listening base.
- This is stating the textbook obvious, but I’ll lay it out in writing: in order to work, Luminary Media has to display talent in two areas: (1) the ability to build a content archive that can be perceived by audiences to continually beat the open ecosystem, and (2) the ability to adequately create incentives for publishers to play ball with the platform.
- And the way I see it, this, in turn, will rely on one thing: How will Luminary build its subscription base — and therefore the core of its value proposition to potential publishing partners? That question further matters differently in different stages of its life: how will it begin to develop its initial audience base, and how will it grow from there?
- I have no particular insight into the deals being struck right now, but nonetheless, I think how Luminary pursues the construction of the initial audience base will tell us a lot about the company’s… oh I dunno, acumen. Two test conditions come to mind. First, if Luminary’s early partnerships involve some burden of responsibility placed on the publisher to help market the platform, that’s a bit of a red flag for me. A publisher’s state of being is suffering for audiences, and so if the supposed solution is asking me to continue suffering in the same way to generate value for them in addition, then we’re talking about a less-than-confidence-inspiring arrangement. (Particularly if Luminary’s plan is to shift its archive composition to 75% original programming within 36 months of launch.) Second, how will Luminary build its initial fleet of blue chip assets in its content archive to draw the first swathe of subscribers into the platform?
- That second bit is important, because it is here that I often see various degrees of misunderstanding of the “Netflix for Podcasting” metaphor. The way I see it, it’s worth remembering that Netflix developed its initial subscriber base within an industry environment that left it to build an empire on what appears to be scraps: the company solved a relatively undervalued problem — watching older content that wasn’t the “head” of where the movie industry saw its prime points for value extraction — and they solved it well, beating physical stores like Blockbuster by providing greater ease and then shifting to online streaming effectively. Having developed a foothold in the so-called “lower” rungs of the market, the company then moved its shit up-market, taking us to the world we have today. (I’m skipping a lot of details, but the broad strokes is what we need in the analysis here.) We shall see how Luminary plays out its initial hand: will look to secure content from brand-name publishers — which I’ve already been enjoying for free for a while now, by the way — or will it attempt to solve a “lower”-level problem and work its way up? How will it solve a problem for publishers without the publishers having to do much work, and then continuously grow the value proposition from that baseline? The answer to this question, I think, tells us everything about the future of this episode.
- There is, theoretically, an alternate read of the possible starting hand: instead of what value proposition the company offers publishers, the move could be how Luminary depresses the value of all other alternatives. Just a thought. Oh, and also: it depends on who has more leverage at any given point in time. If there’s a recession or something in the near future that pushes podcast ad rates down, then Luminary would would be in a really good to secure better deals for itself. (Podcasting ain’t plump and happy just yet — people be wanting solid paychecks!) So, that’s maybe one way to read the bet: Luminary is buying stock in a lack of faith of the podcast ad market’s future durability.
- To put it clearly: Luminary’s metric to follow is subscriber numbers — current, expected, and change year-over-year or month-over-month. I don’t expect that we, as a gawking public from the outside, will be privy to these numbers at any given point in time. Why would a poker player tip her hand?
- Once again, all of this should be read within the context of the fact that Luminary plans for 75% of its archive to be original within three years of launch (whenever launch is). So, the other major question is: why should any publisher help increase the value of an entity that not only will ultimately be its competitor, but has already signaled intent to be a competitor?
- I should say that none of this hasn’t already happened in the podcast market as we know it. To say otherwise would be to disrespect Stitcher Premium, and all the stuff they’ve been trying with windowing, exclusive content, and so on. But the main differentiator, at this point in time, lies in two things: (1) Luminary isn’t attached to an existing podcast company with various competitive fronts in the market at this point in time, and to a greater extent, (2) Luminary has $40 million in the bank to fuck with content acquisitions. I’ve traded goss with a couple of industry insiders about Luminary’s prospects, and to a soul, everyone cited the $40 million as the thing “that makes this different.” That’s slightly over a fifth of the IAB’s podcast revenue number for 2017 — so, yeah, that could go a long way, but then again, bigger fortunes have been lost in Vegas in a single night.
Like I said, I’m generally skeptical about Luminary’s position here. But that isn’t to say there isn’t a path-to-victory for the platform. In my mind, there are two paths:
- The first is the previously-mentioned bet on a podcast industry that isn’t particularly confident in the podcast advertising market and/or its ability to tap into its value for the next few years straight. (Why else would a major publisher give up its direct audience relationships to a consumer-facing platform?)
- The second is a pathway built on serving a publisher or program-type that isn’t particularly well-served by the current advertising-dominant podcast business model: namely, high-cost/high-quality limited-run podcasts, but also hyper-niche podcasts and experimental productions, among others.
What’s the vision of an ideal future for the ecosystem here? One could argue that, should Luminary achieve on its market theories and build out a meaningful presence in the market, we have a situation where more reliable (which is to say, less erratic) money can be pumped into the ecosystem, which might theoretically benefit creators who just want to be creators without having to deal with the weekly doldrums of cultivating and sustaining an audience. But the flip-side is the possibility of a creative ecosystem dominated by a single curatorial entity, which is a really high ceiling and a really low floor based on the character and judgment of a single team. Another argument would be the generic “competition is good” view and that the rise of a podcast commissioning entity built on a different business model could possibly spur the ecosystem into developing more ambitious creative products.
Whatever it is, however this plays out, my personal position as a consumer is constant: I just want good shit to listen to. As long as I can the high-low of both Caliphates and a steady stream of barely-edited NBA podcasts featuring duos that cry bloody murder about the 76ers, I’ll be a relatively satiated consumer creature — a spread of preferences that I imagine the bulk of audiences will have. Will Luminary have taste that matches mine and a constellation of many others? We’ll find out.
(1) Gimlet’s recent audio drama “Sandra” is being developed for television after wiip, a newly-launched international studio, acquired its rights. (Deadline) Absolutely no surprise here. Meanwhile, Alex, Inc. has been cancelled after one season. (Variety)
(2) WNYC Studios has partnered with Night Vale Presents to repackage and re-issue the latter’s “The Orbiting Human Circus (of the Air).” The new version comes with brand new supplementary material, including a director’s cut of the season finale and episode-by-episode commentary. Super curious partnership, but it’s one that definitely expands the value that can be extracted from a pretty experimental limited-run series like Orbiting Human Circus.
(3) Speaking of WNYC: Manoush Zomorodi, host of WNYC Studio’s Note to Self, and Jen Poyant, an Executive Producer at WNYC Studios, have left the organization to launch a new media venture called Stable Genius Production. The venture is the latest newsroom under Civil, a really fascinating project that’s described to be “decentralized marketplace for sustainable journalism” built on blockchain technology. There’s a pretty good Track Changes interview with the journalist-entrepreneur Maria Bustillos, who started a publication on Civil, about what that means.
(4) NPR’s podcasts can now be found on Spotify’s closed platform. A spokesperson tells me that this “reinforces what Tom Hjelm was talking about last week about ‘multiple shots on goal to address this delivery/distribution/discovery challenge’ of podcasts.”
In this podcast boom piece, the writer relies on Podtrac for download info/rankings/conclusions but never mentions that The
@Ringer + many other pods do NOT allow Podtrac to track their data. Only pods that sign up with Podtrac get ‘ranked’ by them…
I’ve written a bunch before about Podtrac’s limitations — which includes that issue of only representing a relatively small self-selecting group that doesn’t include the aforementioned Midroll and The Ringer, but also Gimlet, Panoply, Maximum Fun, and numerous others — and summed the problem up in a summer 2016 column this way:
… at this point in time, the ranker simply isn’t fully representative of the podcast industry. But I don’t think that automatically invalidates its value as a marker of the space — whatever your misgivings about its representativeness, it still provides utility for the space by conveying the relative shape of a certain slice of the industry at the publisher level (more on that in a second), which in turn serves as a starting point for a broader, possibly multi-sourced picture to be drawn out. That’s something we never had before, and that’s something we really need now.
Podtrac’s fundamental problem comes purely down to communication, and this plays out — quite unfortunately — in two ways.
The first is the manner in which the ranker outwardly portrays itself in somewhat grandiose terms that glides over the nuances of its rollout sample. This runs the risk of being misinterpreted by other media sources that may automatically assume complete representativeness of the ranker; and in fact, one such example can be found in a recent Adweek article on NPR’s expectations that it will double its podcast revenue this year. (Congrats!) It’s up to you to decide whether this comes as the result of a language oversight, or something else entirely.
The second is the company’s communication level with actual publishers. As I noted last week, I was informed that publishers needed to opt into Podtrac’s sample in order to be considered for the ranker. What was revealed to me later on was that inclusion is automatically assumed when a publisher adopts Podtrac as a measurement tool — which struck me as not only a rather questionable practice, but also puts certain participating publishers at risk of having its data shared without its prior knowledge. (Appearance in the ranker came as a surprise to at least one publisher. I asked McCreary whether Podtrac-using publishers can opt out of inclusion in the ranker. He said it is, indeed, possible.)
Much has changed since then, but much, it seems, has remained the same.
(6) The New York Times is developing a TV documentary series for FX and Hulu called “The Weekly,” and it’s being contextualized as building upon the work done by The Daily. Recall the whole thing about The Daily being a franchise opportunity.
(7) Meanwhile, BuzzFeed is having another go at a news podcast with “The News,” a weekly affair that will publish new episodes every Saturday. (Props for taking the weirdly under-exploited weekend scheduling drops.) Nieman Lab has a good write-up on the podcast, which includes coverage of one of its major conceits: a gender-neutral chatbot.
(8) Other folks were linking to this, so I guess I’ll do so as well: Midroll brought in slightly under $11 million in revenue for Q1 2018. Profitability wasn’t broken out. A couple of interesting bits from the earnings call:
- “We saw revenue grow nearly 70% in the first quarter driven by strong advertising demand.”
- “Podcast listening has now surpassed satellite radio for [indiscernible] listening. For us, this increased audience has drawn greater demand from premium advertisers, including Gillette, and other Procter & Gamble brand, Microsoft, Haynes and Michelin, just to name a few.”
- “In March, in partnership with Marvel Comics, we launch the groundbreaking podcast Wolverine inside our Stitcher Premium service. The X-Men franchise has a passionate followers, and we have seen that it’s loyal fan base will pay for premium content. In fact, this show has driven a significant number of new Stitcher subscriptions.”
(9) Congrats to Mike Pesca on the launch of his book, “Upon Further Review: The Greatest What-Ifs in Sports History“! I hear there’s an attendant Slate podcast on the way, the first episode of which is scheduled for tomorrow.
Alright, that’s all I got for now. Back on Friday.