What’s a Major Record Label Doing in Podcasting?

Sony Music announced last week that it is taking an ownership stake in Neon Hum, an LA-based podcast production company that currently produces 15 podcasts and partners with the likes of Spotify, Stitcher, Luminary, and the Los Angeles Times. This isn’t Sony Music’s first foray into podcasting: it formed a joint venture with two veteran podcast producers back in May.

What is a major record label doing investing in podcasting? The possibilities are intriguing.

First of all, this does not seem to be about producing podcasts for Sony Music’s artists. The Hollywood Reporter article that broke the story quotes Neon Hum founder Jonathan Hirsch as saying, “We have a shared vision of creating premium shows for a diverse audience, including people who already love podcasts, and the millions who are still to come.” It also says that Sony “will offer content creation, marketing and monetization resources.” (In contrast, Universal Music Group’s deal with podcast producer Wondery back in April was to focus on UMG’s music and artists.)

Podcasting is now a mainstream form of content, with 32% of Americans listening to podcasts at least monthly. But as a business, podcasting is approaching a crossroads: will it be like Spotify or like broadcast radio? Or both? Or something else?

Four visions of podcasting’s future are in view today, according to the different ways that podcasters earn revenue. The minor ones are crowdfunding (donations, such as via Patreon) and ancillary revenue (podcasts to promote books, music, services, etc.). The major ones are advertising and paid subscriptions.

In ad-based podcasting, two producers lead in terms of listenership: National Public Radio and iHeartMedia are neck-and-neck in total audience and both more than double the next nearest competitors. Their approaches to ads are different: NPR podcasts like Planet Money and Wait, Wait, Don’t Tell Me feature sponsorship announcements that sound like shows on public radio stations (which they are), while iHeart shows like The Joe Rogan Experience and Stuff You Should Know include ads that sound like commercial radio.

That leaves paid-subscription podcasts. These are just beginning, and it’s unclear how big a future they have, given that–unlike music–people have never had to pay for podcasts before. But there’s a lot of momentum behind them. Stitcher has a paid Premium service with no ads on its original content as well as lots of exclusive and bonus content. The New York-based startup Luminary has raised $100 million in venture money to build a “Netflix for podcasts.” Luminary has about 40 original podcasts that are only available to paid subscribers, and its app can play other podcasts.

Meanwhile, Spotify spent hundreds of millions of dollars in acquiring top podcast producers such as Gimlet and Parcast. Spotify is now the no. 2 podcast player app platform, behind Apple. Apple has announced plans to develop original podcast content, and Pandora now features podcasts from parent company Sirius XM. It seems only a matter of time until those music DSPs all decide to create walled podcast gardens: to limit their own podcasts to their paid subscribers, or at least create ad-free versions that are for paid subscribers only.

From there it’s a short step to other podcast producers licensing their content to selected DSPs. There’s a fundamental principle of copyright here: like music tracks, podcasts are sound recordings that embody creative works (in this case, text works). Their owners have exclusive rights to both types of content, which so far they have decided to distribute as widely as possible without requiring licensing.

My view is that this is likely to disappear: at least part of the podcasting business is going to leave its Garden of License-Free Eden and become a licensed content industry like any other. Luminary was the canary in this coalmine when it launched back in April. It was accused of various technical tactics that impaired the ability of third-party podcasts to monetize listening on its app; this led to a furious backlash in which many major podcast producers–including Spotify and iHeart–demanded that Luminary take their podcasts down in the absence of a license agreement.

Licensing of podcast content is likely to become a thing in the coming years. Like any other content licensing activity at scale, it will require infrastructure and expertise. And who, among copyright owners, has the infrastructure and expertise to license audio content at scale nowadays? That’s right: record companies.

Which brings us to Sony Music’s stake in Neon Hum, and its stated objective to offer the company “monetization resources.” Like other record labels, Sony Music currently isn’t directly involved in advertising: it neither creates content with ad inventory nor sells ads. (The only Sony unit involved in ad-based media in the U.S. is Sony Pictures Television, whose current shows include Shark Tank, The Good Doctor, and various game shows.) Depending on how the music DSPs as well as startups like Luminary fare in the coming years, Sony Music seems likely to approach podcasts as it does music from a licensing perspective. And if it does, its an equally safe bet that the other major recorded music companies will follow.

Today’s licensing apparatus for sound recordings based on text works has some overlap with music licensing. About one percent of the major music streaming DSPs’ catalogs currently consists of non-musical audio, notably comedy. (One percent of 50 million tracks is a lot of tracks.) Currently those sound recordings are licensed in the same way as music; the licensing treatment (if any) of the text works being performed in those recordings is unclear. It gets even more unclear once the Mechanical Licensing Collective under the Music Modernization Act goes live in 2021, given that the MLC has no statutory duty under the MMA to handle reproductions of non-musical works.

By the way, this is a topic we’ll be discussing at the Copyright and Technology Conference coming up on January 15th in NYC. I will be moderating a panel called Licensing Issues for Non-Musical Audio, which will feature panelists from Audible (the digital audiobook distributor owned by Amazon), a law firm that deals with these licensing issues, and a startup in this space called Spoken Giants. Come join us!

 

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