- The CEO of Substack and the co-founder and CEO of Backtracks discuss the strategies of paid versus advertising in the podcasting market.
- Backtracks believes that the podcasting ecosystem is not ready for subscription content and that ad-supported sponsorship is the way forward.
- Substack believes that paid content is the way to go and that the default assumption of everything being free is breaking the media industry.
- The Chinese market is more accustomed to paying for audio content compared to the US market, which has a larger podcasting ecosystem.
- The podcasting industry lacks accurate measurement metrics for engagement and advertising spend.
- Substack believes that people will pay more for more content overall and that there is a market failure in allocating resources to creative people.
- The subscription model is successful for newsletters, as it feels less expensive and encourages long-term commitment.
- The US market may need to adopt payment mechanisms similar to those in China to facilitate direct payments to creators and aggregate subscriptions.

- The power and magic of podcasts lies in the fact that listeners are engaged and choose the content they want to listen to
- Podcasts allow for a deeper connection between creators and audiences, and can be consumed without a screen
- The storytelling aspect of podcasts is memorable and valuable to both advertisers and consumers
- There is a need to support the ecosystem of podcasting through a blend of ads and subscriptions
- Content creators are underpaid for their work and there is potential for increased spending on cultural output in the future
- The rise of individual creators and brands is expected, as the internet allows for direct subscriptions to a person's content
- YouTube is not a reliable source of income for creators, and subscriptions can provide a more stable revenue stream
- Advertisers value the quality of the audience rather than the size, and niche content can be more valuable in this regard
- Data-driven content creation can remove creativity and limit the magic of the creation process
- Maintaining control and independence in monetization is important for creators, as podcasting allows for more direct free speech
- The Netflixification of podcasting can have both positive and negative effects on the industry
- Discovery of podcasts and newsletters is a challenging problem that needs to be addressed.

- Newsletters are easier to share and grow than podcasts because of the ease of forwarding and sharing text-based content.
- Substack advises writers to make their best, most accessible content free to attract readers and then offer more exclusive content to subscribers.
- Private feeds and paywalls are not very common in podcasting, but there is potential for monetization through educational content.
- The Chinese podcasting app Himalaya has grown through educational content and the value placed on paid content in China.
- The marketing aspect of educational content is focused on improving oneself and offering a better version of oneself.
- There is potential for professors and educators to become successful podcasters and monetize their content in the future.

- Monetizing educational content through personal branding and paid subscriptions is becoming more profitable in the US market
- The cultural shift towards paying for high-quality education and cultural output opens up opportunities for profitable content creation
- Strategies for newsletter growth include making good content free, encouraging sharing on social media, and implementing referral programs
- Quality storytelling and content design are important for growing an audience
- Personal newsletters will not replace social networks like Facebook, but they can replace the consumption of cultural content and news on these platforms
- Podcasts can be effective for advertising, with ROI and CAC calculations depending on direct response and brand awareness measures
- Podcasting allows for direct communication with an audience and can enhance brand perception.

- The speakers discuss the value of podcast advertising for startups
- They mention that podcast ads can be both underpriced and overpriced, but overall they are worth it
- They believe that podcast advertising can help tell a compelling story and reach a larger audience
- The importance of understanding metrics and measuring the effectiveness of podcast advertising is emphasized
- The speakers also discuss the process of starting a podcast or newsletter and the importance of consistency and feedback
- They suggest starting with a clear purpose and topic, and adjusting the content strategy based on feedback and learning over time.

- The CEO of Substack and the co-founder and CEO of Backtracks discuss the strategies of paid versus advertising in the podcasting market.
- Backtracks believes that ad-supported sponsorship is the way forward in the podcasting ecosystem, while Substack believes in paid content.
- The Chinese market is more accustomed to paying for audio content compared to the US market.
- The podcasting industry lacks accurate measurement metrics for engagement and advertising spend.
- Substack believes that people will pay more for more content overall and that there is a market failure in allocating resources to creative people.
- The subscription model is successful for newsletters, as it feels less expensive and encourages long-term commitment.
- The US market may need to adopt payment mechanisms similar to those in China to facilitate direct payments to creators and aggregate subscriptions.
- Podcasts allow for a deeper connection between creators and audiences and can be consumed without a screen.
- The storytelling aspect of podcasts is valuable to both advertisers and consumers.
- There is a need to support the ecosystem of podcasting through a blend of ads and subscriptions.
- The rise of individual creators and brands is expected, as the internet allows for direct subscriptions to a person's content.
- Advertisers value the quality of the audience rather than the size, and niche content can be more valuable in this regard.
- Maintaining control and independence in monetization is important for creators, as podcasting allows for more direct free speech.
- Discovery of podcasts and newsletters is a challenging problem that needs to be addressed.
- Strategies for newsletter growth include making good content free, encouraging sharing on social media, and implementing referral programs.
- Podcast advertising can help tell a compelling story and reach a larger audience, but understanding metrics and measuring effectiveness is important.
- The process of starting a podcast or newsletter involves starting with a clear purpose and topic, and adjusting the content strategy based on feedback and learning over time.

Chris Best is the cofounder and CEO of Substack. Substack makes it simple for a writer to start a paid newsletter. They were in the Winter 2018 batch of YC. 

https://twitter.com/cjgbest
https://substack.com/

Jonathan Gill is the cofounder and CEO of Backtracks. Backtracks is a podcast analytics and hosting platform. You can check them out at Backtracks.fm.

https://twitter.com/jgill333
https://backtracks.fm/

The YC podcast is hosted by Craig Cannon.

https://twitter.com/craigcannon

Y Combinator invests a small amount of money ($150k) in a large number of startups (recently 200), twice a year. 

Learn more about YC and apply for funding here: https://www.ycombinator.com/apply/

***

Topics

00:00 - Intros

00:25 - Paid vs advertising in podcasting

2:55 - Are advertisers overpaying for podcast ads?

5:35 - What percent of the market will ultimately be paid content?

7:35 - Payment mechanisms

9:10 - Price anchoring

11:50 - Individual creators vs brands

16:45 - Deplatforming

18:15 - Spotify

19:45 - Discovery and growth in newsletters

22:05 - Public and private feeds

24:45 - Apple's role

26:00 - Will education be the driver of paid content?

29:45 - Educational podcasters in China

31:45 - How are their newsletter and podcast customers growing?

35:40 - Jack Ryder asks - In 5 years time, are personal newsletters going to replace social networks like Facebook?

37:35 - Debdut Mukherjee asks - Do podcasts actually work? If so, how do startups calculate the ROI & the CAC?

43:00 - Measurement

44:45 - Best practices for new podcasters and newsletter creators

We make it simple to start a paid newsletter and also you can put audio in it now.

I'm Jonathan Gill, co-founder and CEO of Backtracks.

We help audio content creators know and grow their audience and their revenue.

And you guys have 2 different strategies, paid versus advertising.

I think from the current state of the podcasting market, ad-supported sponsorship is 1 way forward when people are used to free products versus television and cable where they're used to different tiers.

So there is subscription revenue, there is a la carte, but from our view, the podcast ecosystem at large is not really ready for subscription content.

And I think there's those alternate viewpoints of that.

I think that's actually an interesting way to put it.

I mean, obviously we think that paid content, paid relationships even, is sort of the way to go as a huge missing force in the media in general.

We think the default assumption that everything has to be free is kind of something that's like breaking the world in a couple of important ways.

And it may well be true that with the existing podcasting ecosystem, especially in the US, that it's really hard to do paid stuff in a compelling way, just because of the way that it kind of evolved and the way that the people control the ecosystem.

But I think that the podcast market that can be supported by advertising is small and sad compared to the audio market that could be supported if we had an effective way to pay for it.

And the kinds of things you're seeing happen in China right now sort of hinted that.

And in terms of the Chinese market, the Chinese market's a little different than the US and worldwide in that they're used to paying for audio content.

The ecosystem for podcasting and paid for content in China is much greater than even the US market.

And I think there's a good blend of there's content that works, that's ad supported, there's directly attributable.

see sponsorships where people are paying for that content by being a fan, by being a patron, by the direct payment systems.

I think in the US market in the current state, sponsorship is 1 way.

And kind of our viewpoint at Backtracks is, from the advertising standpoint, people don't like advertising when it doesn't fit with the content and the messaging.

But advertising can add value if it's actually in relation to the content, if it's not in the creepy factor that Google and things have, but you can basically blend the 2 for a healthy ecosystem.

It doesn't need to be 1 way or the other.

Can I ask a question that I'm genuinely curious about?

Is, are advertisers today overpaying or underpaying or paying about the right amount for podcast ads in general.

So it depends on the particular piece of content and the particular advertiser.

1 of the problems in the industry is measurement, and how do you uniquely measure a listener, and how do you know engagement?

It feels a little bit like podcast downloads are almost like the banner ad impressions of the early internet.

So we have a spec in technology that's around measuring the actual engagement.

So should you base your advertising spend on a metric like downloads or more engagement or other, if you're doing advertising, But I think in terms of the industry, the metrics aren't there in the same way video and text are.

And that's part of the tech stack that we have is you can directly measure how long someone listened to a podcast in

Okay, but we saw that change a few years ago with the biggest podcast anyways, because a lot of these companies are using affiliate codes now.

Because if you're just like, I'm going to sponsor Joe Rogan, are you willing to pay for like, whatever, 10 million downloads?

Yeah, and those direct response codes, there's certain types of advertising and sponsorships that doesn't apply to everything.

Some things, maybe from your viewpoint, advertising may not be the way forward for that, but there's also brand awareness campaigns that are harder to do if you can't measure the metrics.

And podcasting in general, despite its popularity, still has a lot of growing up to do that people like us can help make the way forward a little bit different than some of the problems of previous industries.

you encounter any resistance from people who have ads today and are sort of charging based on a download metric that if they had more accurate measurement they might not be able to charge as much?

Ryan Neuhofel Yeah, we have people not use us because we detect fraud, we remove things like that.

But in the ecosystem it's healthier and that's a biased viewpoint.

But if you can actually have a ecosystem where the advertisers, the publishers, and the audience are better off because you're not doing things the same way as before in terms of that measurement statistic, People don't like that our numbers in general are lower.

I will say that, but for the long-term health of the ecosystem, some parts of it are the quality of the content, which you can have in various ways, whether it's behind the paywall, how it's paid for, can be various mechanisms, as well as just getting accurate measurement for the ecosystem.

It's 1 of the core tenants of our business.

You need to know that audience in a way that's not there, where you're not selling on download metrics, you may be selling on other metrics.

Yeah, but on the paid side, Chris, so what percentage of the market do you think it's going to end up being?

Because I think obviously the answer to this question is it's going to be a blend.

There's just going to be a bunch of mass market stuff, and then just what happened with cable, people are gonna wanna pay for HBO and they'll go that route too, I assume.

So where do you think it's gonna ultimately fall?

It's a really interesting question and it's sort of the, gets it like the root hypothesis of Substack.

I mean, we have this kind of radical idea that in the future, people are going to pay a lot more for a lot more content overall.

1 of our core hypotheses is that if you look at sort of like the amount of culture in the world and the amount that we're investing in it as like a proportion of our overall GDP and you know, what we're paying for it.

You know, is that too low, too high or just right?

We think there's basically a market failure where all of society would be richer if there was more efficient mechanisms to like allocate more resources to creative people that are making kind of culture writ large, whether that's writing, whether that's podcasts or other audio content, whether that's videos, whether it's like lectures or entertainment or whatever, you know, we think there's kind of like a few places where the business model really works and you see a flourishing of like serial TV and stuff.

But overall, we're paying basically way too little.

People would feel richer in their lives if they could pay and have more better stuff.

And so, whatever the proportion of it, we think there's going to be kind of this massive area of culture that people are paying for.

And I think that's especially interesting in podcasts because of the amount of time you invest in podcasts.

You know, podcasts tend to be like hours long.

Like you're, if you think of like, it's like a book in this way.

If you think of how much of your life you're investing in a podcast and then how much money you ought to invest, if you could like make that relatively better, you'd almost be really irrational to not want to spend money to make it better, if there were a way to do that.

So in terms of the payment mechanisms and how that exists in other parts of the world that are not the US, there's micropayments, there's ways to facilitate that sort of ecosystem.

How do you view that just in the current infrastructure for direct payments to the creators and or subscriptions that aggregate that.

How would you solve that in the US market?

Not trying to be US-centric, but I mean, some parts of our way of consuming content are maybe reversed of the rest of the world.

And some of the, I mean, some of the sort of laws of nature are different, right?

Like in China, everyone has payment, like we pay and all this stuff in there.

Like the friction for payment is much lower.

So the thing that we've been doing with newsletters to sort of a shocking degree of success from our perspective is charging subscriptions.

So saying, hey, you know, this is gonna be 5 bucks a month or whatever.

And the unit of value that you're subscribing to is the individual sort of creator, the culture creator.

So I'm saying, I really like Craig Cannon's viewpoint of the world.

I get a lot of value out of his podcasts You know, I I want him to be like Independent and be able to like make the best kind of possible And so I'm willing to go and fork out 5 bucks a month for that relationship, basically.

And subscriptions are kind of magical because they both feel a little bit less expensive than they are.

Like if you ask someone to pay 5 bucks a month or pay like $20 flat fee, Like more people would pay 5 bucks a month, but then they wouldn't actually quit it.

They'd keep doing it, so they'd end up paying a lot more.

Are there like weird perverse anchoring issues around Netflix being 10 bucks a month and my newsletter being 15 or something like that?

So you'll see more technical content, more niche content that people will pay for, not just in podcasting, but just in general.

I'm sure on the newsletter angle that if you have a very particular niche content that is not widely covered, but is of extreme interest to you.

People would in general pay more but that basket of collection in terms of anchoring, it can be hard depending on how you judge the quality of the content.

So some part is do you want the long tail of any content and you want as much of it as possible Or do you want a curated experience that could be subscriptions that you're picking and choosing?

In large part, it's people picking and choosing what they listen to.

And that's part of the power and the magic of it.

It's not someone leaving YouTube on and just auto-playing video to video.

They have chosen the podcast that they're listening to and they're very engaged.

And just when you hear someone talk about a podcast And even in the advertising side of it, they can remember the ads, but it's not just the repetition, it's the connection with the audience and the voice.

And sometimes the host will read an ad and it's not what the sponsor exactly wanted, but that's part of the magic of it.

And then people remember just the storytelling aspect, which I'm sure is the same from newsletters and writing where that deeper connection, it's more direct where the creator to the audience, there's less middlemen involved and then however you can support that ecosystem, a blend of ads and subscriptions or however it's done, I think is healthy.

And to your point, I think we do underpay for content however it's paid for.

And when you think of the time and value people get from the business of culture, people on the advertiser as well as direct consumers would in general pay more if they think about the value they derive from all that content.

And especially if you take kind of a long view, even if you think today we pay the right amount for culture.

If we're moving to a future where more and more of the physical economy gets automated over time, and there's sort of like ever increasing number of things that are like the things that are people's jobs now that can be automated.

Surely in the future, if the things we're not automating are a culture creation, assuming that's true, surely we would hope that we would spend a larger and larger percentage on the kinds of things that people are then unlocked to do.

But if we insist that cultural output can't be monetized directly, we kind of break the future economy in an important way.

So do you feel that it's going to be more of these like individual, individual brands, individual people who are like striking out on their own, who are making a sizable income?

Or are they going like, are there going to be like YC type things where YC podcast is paid for whatever and it turns into its own business?

I think we will see what feels like a shocking increase in the number of people who are kind of atomized and unbundled.

Like this idea that almost this is the part of this whole thing that kind of is new is for the first time you can effectively Subscribe to a person.

Yeah where you know, there's been paid subscription publication.

That's not a new thing That's been around forever yada yada But this is kind of like because we have this internet technology and all this stuff now, it's a relatively new thing that it's like, I'm a person, I'm gonna write this newsletter, I'm gonna produce this podcast, I'm gonna sort of like have this, yes, it's a brand, but the brand is like a very direct expression of who I am.

And people can kind of like pay to subscribe to that as like a human to human, very direct relationship.

Like people love that both the audiences that feel like they have this direct human connection and the creators that feel like they have this direct human connection and the creators that feel like they have this sort of like unmediated thing where they're answerable directly to their audience, where they get to have intellectual freedom, where they get to kind of like be as weird as they want.

That thing is very powerful And there's a huge amount of pent-up energy of people that want that and there hasn't been a great mechanism in the past So I'm not saying that everything's gonna be individuals and there's not gonna be any big sort of media things but I think it's gonna look like there's a meteoric rise of individual creation

well because I I'm curious about that hypothesis because if you look at YouTube and who's actually earning on YouTube a living is not that many people.

YouTube is terrible for making money as a person that's more famous than Brad Pitt.

Yeah, I mean like Casey Neistat does okay, but like some other people, not so much.

Like if they're, if say he's number 10, like someone who's number 1,000 is not earning a living.

And especially if the shape of it, like if you're someone that has a lot of people that are like a little bit into you, that's great.

But if you're someone that has, let's say, 10,000 fans that find you completely irreplaceable and wouldn't want to go on living without you because you're the most amazing thing in their life, but there's only 10,000 of them, you're never going to make money on YouTube.

Whereas if you could charge subscriptions, it's easy.

If you charge 5 bucks a month, times 10,000, it just works.

Sometimes in advertising and podcasts specifically, it's not the size of the audience, it's the quality of the audience.

So If you are selling something to a very niche audience and you're sponsoring a show about particular content, you may disregard the numbers in terms of absolute size of the audience, but you know the quality of the audience for your fit, the right message, the right time, the right audience.

You're not going to pay correlated to the audience size.

You're going to pay correlated to the audience quality where if you sell 1 of your widget or 1 of your thing or even just the connection of your brand with that content is worth far more than the audience.

And that's true even to the point where big podcasting studios will like tailor their shows.

We're like, Oh, we're going to make this show because this show is going to attract this audience of people that's very valuable to advertisers.

And so if you're, you know, in a demographic where like the things you like are like valuable to advertisers, that's a great deal.

If you're someone that isn't in that or doesn't want that arrangement, you're kind of out of luck.

Because if you have 10,000 really dedicated fans that have some money but aren't good for this kind of average, whatever, you're just not connecting those dots.

There's no way to bring that content into the world and I think there's a lot of that.

Yeah, and we see people using the data that Backtracks provides in ways that they're producing very on-topic, trendy content for that particular purpose and it doesn't age well in terms of evergreen, useful content.

And then you can be so data driven that the creativity is removed from the process.

And part of the magic of newsletters of direct relationships between a maker and the audience is that you can make things they didn't foresee they would enjoy.

And then the data doesn't force, there's the magic of that creation process.

And there's a philosophical thing like who should be choosing what podcasts get made.

Should we be making the podcast that advertisers want or should we be making the podcast that people want?

And I think there's a big difference there.

But our philosophy is if you make what people want, everything else falls in place.

And that's basically the YC philosophy as well.

I mean, I think you can treat product and content in the same way, absolutely.

But there are people who have been pushed off of platforms, who are making something people want, but the platform doesn't necessarily align with them.

That's the problem with the centralization or the perceived centralization of things.

So YouTube is absolutely centralized and controlled by the big G.

And then podcasting is still largely decentralized and while it appears centralized through the view of a listener.

How do you maintain the control of your means of monetization, that connection while the phone or device, people think about it as it's coming from Apple, it's coming from a certain pod catcher, but it's all these independent brands and creators getting their voices into the world and how do you have the...

Maintain that health to where a strangle on the ecosystem doesn't boot people from their freedom.

So, some people will tell us that podcasting and even I probably say newsletters, it's 1 of the last ways to get direct free speech from someone's mind out into the world.

And people will say things in a podcast they couldn't print or they can do something in a newsletter they couldn't do in a certain publication.

And your independence and your control of your means of monetization, whether it's through sponsorship or subscription bases.

How you can maintain that, the strength of you as a brand and you as a company going forward.

However you can do that is in your best interest.

And it's way less mediated by other people's algorithms.

When somebody subscribes to your podcast, if you make another episode, they're going to get it in most good podcast players.

Whereas if someone follows you on Twitter, are they going to get your next tweet?

How freaked out are you about Spotify, I'm curious?

Well, we're an official partner with Spotify.

Everything's perfect and nothing could go wrong.

Robbins But in terms of freak out from the general idea of public strategy of people that have consumer's attention and that can window that down and that can create content similar to other content.

The Netflixification of podcasting can be good or bad depending on how you view it.

And Just from a personal standpoint, I like niche topics.

I like the freedom of podcasting that you can literally be in an office podcasting about anything you want, be at home.

What I don't know from the consumer standpoint is will people want fairly highly produced content all the time meant to meet certain metrics because metric driven content production that's very professionally done sometimes loses the magic of podcasting.

in many ways become really shitty, unlike the popular side.

Because like, oftentimes I think that people don't even know why they're doing certain things, and it's just the algorithm has like, favored 1 thumbnail style or 1 titling style, and then it becomes a trend across all of YouTube.

And I could see that very much happening with Spotify podcasts, where we know the show's popular, we're not really sure why, so we're just gonna keep knocking it out.

But on the podcaster side, the discovery is so valuable for us, that's Why we do YouTube.

So 1 of the problems that people constantly bring up is discovery in podcasting.

And newsletters, I'm sure it's even more difficult.

How do people discover newsletters in a better way, or discover podcasts?

It's a very hard problem both ways, but I'm curious here.

I mean, just A, because text is really easy to like, you know, if you have like a webpage, you can share it.

And if you get an email, you can forward it.

And so we often see, this is something I think you don't see in podcasting, But if you have a newsletter that like people are consistently reading, cause they like it.

If you do nothing, it kind of will grow at some rate because people will tell their friends word of mouth, but they're also like the forward an issue or they'll like, there's a share button.

They can link to that on the webpage or tweet about it or whatever.

There's kind of like a built in sort of mechanism by which people who want to share something can, in a really low friction way, where you can do the same thing about podcasts.

Like people meet up and be like, oh I'm listening to this podcast, you've got to listen to it.

And you're just like, the amount of time I would have to have in my life to try the podcast you're recommending to me is so much higher than like, oh, you just tweeted this link and I clicked it and now I'm reading it and I love it.

And I think it's something that we have to do even more.

Like obviously discovery is kind of like the biggest thing, and if you're charging for it, it's like, well, how many people discover it, and then how many like it, and then how many of those people pay.

So you have to like, you know, you have to have that whole funnel.

So like, yeah, they have all this private content, Like how do they build their newsletter?

So we, the way that sub stack works is every time you choose to publish something, you either can make it subscribers only, or you can make it public.

And so it's kind of like the Ben Thompson model where he has some stuff that's free and some stuff that's paid.

And the advice we give people is basically take your best, most accessible, most focused stuff and make that free.

Like make your sort of like your very thoughtful essay on a specific topic free because that's how people are going to share it.

That's how people are going to find out about it and learn that they like your stuff and want more from your brain.

And then you can take your like, sort of like more inside baseball stuff or your wonkier stuff or your like less filtered, more raw stuff and send that to subscribers because those are the people that love you the most and they're happy to get like the unfiltered, unpolished stuff.

Do you have people running multiple feeds on Backtracks?

So basically, if you're a brand, you have multiple podcasts.

You can see all your data together and separate.

And you can do private and public content as

I don't think I subscribe to any private feeds.

So private in terms of backtracks terms, you can be behind a paywall for like a traditional publication, which is not so traditional that it's online.

So imagine you log into a newspaper, the same concepts are present there and that there's public content, private content, but who has access to the private audio?

And you will see public and private feeds or within the same feed, content that's pulled out that becomes private.

And then that means a monetization is subscription and it's a mix and a blend of what do you allow into the public ecosystem of podcast discovery?

What do you want behind your paywall or your login?

And some of those same decisions come in of, well, do I want the incendiary content behind the paywall because I know someone's going to share it and then come back in.

And then everybody wants to get access to this content that they need to pay for it.

You want it public to grow the audience to increase the funnel size.

In podcasting, currently, it's not that common.

I think in podcasting in general, there's kind of like this pent up, we wish we had other monetization mechanisms, but because of the historical context, like we call it podcasting because we used to download it to our iPods when we connected it to our computers, right?

Like it's this very like legacy kind of a thing.

And the world that it's in now is kind of a tough place.

It's hard to do, it's hard to create a good, consistent user experience for subscription podcast, even if you do it really well, which I'm sure you guys do.

And you know, we probably will at some point, you know, do more of the actual podcast feed stuff.

See all Y Combinator transcripts on Youtube

Monetizing Podcasts and Newsletters - Chris Best of Substack and Jonathan Gill of Backtracks