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Luminary, Launch, and Licensing

Luminary, the much talked-about paid audio content app that’s raised $100 million in venture capital funding, officially launched this morning, rolling out its iOS and Android apps in the United States, Canada, the UK, and Australia. The company kicked off public life with a Medium post presenting its theory of the case, or at least a version of it.

If you’ve been reading Hot Pod over the past few weeks, you probably know much of the details. The company is primarily premised on an originals and exclusives-driven business model. Its long game is built on the hope that customers will pay $8 a month to access its roster of podcast-style programming. It’s not the first time to try something like this, but it’s distinct on three fronts: first, Luminary is actively pursuing the podcast community as we know it; second, it’s the first major attempt at a subscription podcast-style audio content service that isn’t derived from a preexisting business; and finally, it has raised the aforementioned $100 million in venture capital and thus are motivated in accordance to venture capital expectations.

But here’s something new, courtesy of Ashley Carman over at The Verge:

When it rolls out to the public on iOS, Android, and the web, Luminary’s podcast app will be missing some of the industry’s biggest shows, including The New York Times’ The Daily and Gimlet Media shows like Reply All and Homecoming. Shows by Anchor’s network of smaller creators won’t be on the app, nor will series from Parcast, both of which are owned by Spotify.

By withholding their shows, the Times and Spotify are setting Luminary up to fail — or at least struggle to get off on the right foot with users. It certainly seems like the first shot fired in the inevitable premium podcast war and could destabilize one of the first buzzy, well-funded entrants before it can make a dent in the industry. The decisions that happen now will reshape the way podcasts are distributed in the future.

So, this is obviously quite an 👀 development, but I’m wary about overstating the politics of this situation. My sense is that this is less about established industry players knee-capping an upstart — speaking in relative terms, of course, given that one of the established players is a music streaming giant trying to diversify into podcasting and the upstart is a startup that’s raised $100 million — than it is something more mundane. Specifically, I get the impression that this story is mostly about licensing and process.

Let’s start from the top. If you browse through the app, you’ll notice the experience feels… well, rather familiar. In fact, Luminary is pretty much a straightforward podcast app that supplies users with a free tier of podcasts from the open ecosystem, except that it comes interspersed with a layer of exclusive content marked by the Luminary logo that users would need to pay for. In its introductory Medium post, the company presents itself as both things equally, a free app and an exclusives-driven subscription app, with the argument being that the latter funds the former. But the component with the business model is probably always going to be the one that matters more to the company over time, and so you can read a utilitarian logic into the design here: the free stuff is what gets people into the app in the first place, after which they’ll hopefully encounter the exclusives and roll down the conversion funnel into paid usership.

Now, about that free tier. Luminary appears to populate its free section by pulling podcasts that are openly distributed over public feeds. Historically speaking, this isn’t an irregular practice. In fact, many third-party podcast apps do this, primarily by mirroring the Apple Podcast directory. More often than not, though, this methodology doesn’t trigger conversations or processes around licensing — i.e., the legal framework that establishes how an app can make money off content it does not own, and so on — chiefly because many of those third-party apps generally don’t command much meaningful market share. (“We often look the other way” is how I’ve heard bigger publishers describe their stances to this.)

Things are a little different these days. As more platforms with big potential podcast listener bases (Spotify, TuneIn, Pandora, and so on) move into the space, there’s an increasing precedent for those platforms to actively and preemptively establish formal relationships with various major podcast publishers, often in the shape of signed agreements, so that all parties are super clear on how both sides can make money and not interfere with each others’ business models.

Poking around on this story yesterday, the issue of licensing came up as a major talking point several times. A source close to the matter told me that Spotify’s decision was rooted in the fact that Luminary had only reached out with a licensing agreement at the last minute, and that Spotify’s various podcast divisions weren’t preemptively told their shows were going to be on the platform. Luminary only approached Anchor with an agreement last Thursday, four days before the app launch, while they had not approached Gimlet at all. I was also told there was a very high likelihood that Spotify and Luminary could have worked out an agreement by the app launch, if only the latter pursued an appropriate process.

Luminary denies all this. “That’s inaccurate,” a spokesperson said. “Spotify and Anchor know the facts including Luminary’s constructive stance towards ad-based podcasting and fair play.”

So, what exactly are we looking at here? One probable interpretation: Luminary, a deeply venture-backed subscription-first business that largely takes the form of a conventional third-party podcast app, misread how they would be perceived in the industry (as a potentially big platform that needs to engage in licensing agreement precedent, and not a scrappy upstart), pursued an inappropriate methodology to populate its free tier (inhaling the open ecosystem in the style of various independent third-party apps), and triggered some perfectly predictable precautionary actions around licensing. In some ways, this feels like Luminary channeling, inadvertently or otherwise, an Uberian — Kalanickian? — approach to the podcast marketplace: act first, draw attention second, form partnerships third.

Still, I totally get how this looks like Spotify, the platform, firing off the first salvo to kneecap a potential platform competitor before it can even get going. But one should remember that Spotify is now also a big publisher, one that would generally like to know how its shows are being used to make someone else money without their explicit permission. Meanwhile, Anchor, which provides ad tech services to its hosting users, has also indicated a general doubt around Luminary’s relationship to third-party podcast advertising that appears to stem from a lack of proper outreach.

As CEO Mike Mignano told The Verge: “We’ve recently heard concerns from creators around Luminary’s very clear anti-ads stance, given that advertising is how most creators on Anchor make money… because Luminary’s business model is new, unproven, and frankly opaque in how it plans to monetize its free tier, we are being especially cautious regarding the potential to automatically distribute Anchor creators’ content, without knowing exactly how it will affect their podcasts.”

The “anti-ads stance,” of course, refers to the incident a few weeks ago when Luminary engaged in a branding campaign with a “Podcast don’t need ads” messaging. (There was a sign-bunny meme. It was a whole thing. I thought The Verge covered that detail really well at the top of its piece.) Anyway, Luminary has since reversed course on that approach, as evidenced by its current self-presentation as a dual-proposition — free pods on top of subscriptions — product.

We shouldn’t just fixate on the Spotify-Luminary dyad here; lest we forget, The Daily is also not on the platform at launch. There’s some nuance here. The New York Times told The Verge that it intends to be “judicious” about where The Daily is placed, and that it’s “looking forward” to working with Luminary… suggesting, once again, that this is a process issue, not a competition issue. Consider, also, that’s it’s only The Daily, the Times’ major audio money-maker and most sensitive asset, that’s being pulled off Luminary. You can still find other Times podcasts like Modern Love, Still Processing, and even Caliphate, a spin-off of The Daily, on there.

All these details, I think, contribute to the interpretation that rather than straight-up platform warfare, this Luminary launch brouhaha is about licensing. Specifically, this is about various entities wanting a properly-executed process to make sure everybody’s square on who owns what and how all sides can make money without interfering too much in each others’ lives. And as it stands, I wouldn’t be surprised if many other publishers outside of Spotify and the New York Times, big and small and medium-sized, might have the same desires too.

Which isn’t to say that podcast platform warfare isn’t on the horizon. For what it’s worth, I believe it to be inevitable. I just don’t think this is what we’re looking at.

Anyway, three more things.

(1) Even if Spotify was aiming for the knees, I’m not sure it’s that big a deal? Moreover, if I were building a $100 million startup, I don’t think I’d want to build a business in such a manner that not having access to five or ten major shows that I don’t own would be that big of a problem. To begin with, the podcast universe is huge and vast and still totally not existentially contingent on a few shows; one could easily outflank this problem with countless other shows and countless other communities. And furthermore, is the free tier truly necessary?

(2) There was a Digiday report last week that brought a mighty interesting Luminary data point to the table. Here’s the quote: “One source, who asked not to be identified, said Luminary was offering anywhere from $700,000 to $1.5 million per show, provided that show hit subscriber acquisition targets for Luminary.”

I’m hearing that this number range is, at the very least, imprecise. A source close to this matter tells me that the deal structure typically involves some combination of upfront payments — designed not to outbid the ad market — and performance-based payouts, both of which are sized differently based on the specific nature of the show. Sizing pre-existing shows is easier, as they have advertising track records that the deals can peg numbers to. New shows, on the other hand, require projections. Luminary originals span a wide range of show types; so too, then, does the range of the deal sizes, which likely extends beyond the $700,000 and $1.5 million band in both directions, or so I’m told.

(3) Here’s the thing I’m thinking about with this licensing business: it’s all fine and dandy for bigger publishers, but I wonder how do smaller podcasters generally feel about being on the Luminary platform by default? Let me know.