Perspectives: Opinions from our network of advisors, investors, operators and analysts on the risks and opportunities they see.
It has been a rough freshman week for podcasting’s first $100 million VC darling.
Luminary, the buzzy new startup heralded as “the Netflix of podcasts,” launched on April 23. With substantial capital backing and widespread industry awareness thanks to a popular New York Times profile, the fledgling podcast seemed primed to present an alternative for the quickly maturing podcast industry.
But the company quickly cannibalized much of that positive energy.
It all began with a since-deleted tweet of a bunny holding a sign that read “Podcasts don’t need ads.” This, understandably, caused an eruption of criticism from an industry primarily held up by independent creators dependent on advertising revenue. As Luminary co-founder and former New Enterprise Associates Principal Matt Sacks told The Verge, “The bunny put a foot in our mouth.”
A week after its launch, Luminary is still trying to get that not-so-lucky rabbit’s foot out. Since its debut, Luminary has struggled to make it through a single day without combating fires it could have avoided by being more transparent with the larger podcasting community.
While the recent entrance of power players, wave of acquisitions and widening revenue opportunities make it clear the industry is prime for a new player like Luminary, it may find itself turned into an example of the failures that capital-heavy companies encounter when they challenge creator-driven industries without proper precautions.
Luminary operates two seemingly conflicting businesses: a free podcast listening app and a paid subscription service offering premium original content.
That freemium model is what makes Luminary an easy target for questioning. Luminary utilizes public RSS feeds of hundreds of thousands of podcasts to draw listeners to the free service, in the hopes of persuading them to hand over $7.99 per month for Luminary’s exclusive ad-free content.
Aggregating RSS feeds is not an unusual model. In fact, there are plenty of companies that offer a similar product, including Castbox, Overcast and the recently launched Swoot. The difference is that no others have had a market share that mattered enough for the industry to revolt. And industry giants like Apple and Spotify have not (yet) made such blatant moves to charge for content that is free elsewhere.
What is unusual is for a company of Luminary’s scale to use content owned by other people as a conversion tool for a paid product, especially when podcasters were not made aware that their shows would be featured on the free tier in the first place.
Luminary could have made good by making it easy for shows to earn money through distribution on its app, but it was later revealed that Luminary was routing podcasts through proxy servers, which strip creators of their ability to view accurate analytics used to gain advertisers. The company was also altering show notes, which often include monetization avenues such as merchandise or donation links.
These activities, coupled with Luminary’s somewhat callous attitude and contradictory business model, has spurred a mass exodus of content: The Joe Rogan Experience, Endeavor Audio, Barstool Sports, iHeartRadio, WaitWhat, PodcastOne. Even Stitcher, a podcasting staple responsible for a large chunk of the overall industry’s advertising sales via its ad network Midroll Media, requested that its Stitcher Originals and Earwolf shows be removed. Most shows and companies that have departed noted that they had not agreed to have their content distributed on Luminary.
All series in the Spotify universe (which includes Spotify, Parcast and Gimlet Media properties), as well as The New York Times’ popular The Daily, were never available. At the time, their absence appeared to be, as The Verge’s Ashley Carman said, “The first shot fired in the inevitable premium podcast war.” However, it now appears to be more of a licensing issue than a competitive reaction.
According to Hot Pod, Spotify and its recently acquired company Anchor were only approached with licensing agreements four days prior to Luminary’s launch, prompting them to request their content not be listed on the platform.
Shows pulling themselves from the platform is not necessarily the problem. The real threat to Luminary is the message this sends to listeners. Listeners will ultimately be the source of Luminary’s money, and if Luminary angers the industry’s most powerful producers and studios, their fans will write the young company off as well.
Luminary’s issues are a growing pain of the quickly maturing podcast market. As the industry transitions from a gangly outsized hobby to a full-fledged media industry capable of commanding millions of dollars, money is pouring in and opening opportunities not previously available. But, because this industry is built on the backs of amateurs who have bootstrapped it to what it is today, it still has kinks to work out. There is room for newcomers like Luminary, but the reaction to Luminary has proved that they’ll need tread carefully and find a way to coexist.
Go Big or Go Home
Perhaps the last thing consumers need right now is yet another subscription service, but going the route of a true premium subscription offering might have been a better option for Luminary – especially if it had focused on talent and licensing from the start.
Though a fresh face, Luminary managed to assemble an Avengers-esque lineup of talent ranging from traditional celebrities like Trevor Noah, Lena Dunham and Conan O’Brien to renowned podcasters like WNYC’s Manoush Zomorodi, Guy Raz of NPR fame and Slow Burn creator Leon Neyfakh. Considering the arms race of talent currently taking place in the media landscape overall — the true power of which is evident in the ongoing battlebetween the Writers Guild of America and the Association of Talent Agents — Luminary should have depended on its roster to flaunt the service.
To a true podcast fan, the caliber of talent Luminary assembled is interesting enough to warrant interest at the very least. I personally was interested in subscribing without realizing that a free tier was even an option, and there are plenty of other people who are much more ingrained in this world that would have done the same.
Luminary is currently working on a slate of about 40 original series, for which it individually paid upfront anywhere from $700,000 to $1.5 million. Given Luminary’s $100 million funding total, even on the high end, Luminary would have still had some $40 million to play with elsewhere. It could have used that money to more intensely market the talent it spent so much capital on in the first place. It dipped its toe into this segment with bright yellow billboards in Manhattan’s busy Soho neighborhood and decals plastered across the sides of Los Angeles city buses. But it could have done much more to truly prove that Luminary’s original content was a must for any podcast fan, such as more robust digital campaigns or partnerships with existing podcasts from Luminary creators to reach established fanbases.
In that vein, it could have also used that capital to better collaborate with top podcasters through licensing agreements that would have allowed Luminary to run popular existing shows without ads on a premium tier. By entering into agreements with top producers, Luminary might have been able to avoid outrage from creators, form meaningful relationships with power players in the industry and perhaps even create a model that has yet to find mass popularity in podcasting.
As the industry matures and companies fight to find shows that attract listeners, a trend toward licensing agreements common in television and music will likely become the norm.
What’s next for Luminary is in the hands of listeners. If they choose to switch from Apple Podcasts or Spotify to tune in to their favorite shows on Luminary, the startup might be able to persuade listeners to commit to pay for exclusive original content. However, Luminary has bigger bridges to mend with the industry at large if it wants to build a sustainable model that can continually replenish itself with fresh content and best serve both the podcast fan and producer.
In short, take Luminary as a cautionary tale. This is likely just the first battle in the podcast wars as well-funded rookies enter the arena to challenge established traditionally independent podcasters for their hard-earned dollars.