Earlier this month, PQ Media released the results of a study with a bright outlook on the future of advertising via blogs, podcasts, and RSS feeds. While total spending in these segments was just $20.4 million in 2005, it is expected to reach $757 million by 2010. The most interesting aspect of the report -- besides the humongous growth predictions -- is that podcast advertising is expected to reach $327 million in 2010, eclipsing blog advertising. These assumptions spring from the recent successes of a number of companies in this space, including Google (Nasdaq: GOOG ) . But are they based on visionary market analysis or pure speculation?
As interest in these made-for-the-Internet audio broadcast grows, podcast links have popped up on sites like Disney's (NYSE: DIS ) ABCnews.com and New York Times' (NYSE: NYT ) NYTimes.com. Podcasts may help the Times and other newspapers stem or recoup the loss of subscribers from traditional print media. However, only 11% of Americans say they have ever listened to a podcast, and it is estimated that just 1% listen regularly. This makes forecasting the future of the podcasting market particularly difficult.
The other difficulty any forecaster must consider is that it's not clear how podcasts will be successfully monetized. Three potential models seem to hold promise: sponsorships, audio spots, and subscriptions.
With sponsorship, a model already used by content providers such as National Public Radio, a single company supports an entire podcast. Unfortunately, this type of advertising will not work well for smaller podcasters, who may only want to cover their program's production costs.
The second model uses audio spots, much like radio advertising. But with podcasts, users have the ability to fast-forward through commercials, just like TiVo (Nasdaq: TIVO ) systems can do with television. If advertisers can't determine how many people are listening to a program, it isn't likely they will spend much to advertise on it.
Subscription-based podcasting had its first big test in February with The Ricky Gervais Show. The popularity of the U.K. comedian's free podcast led him to start charging $1.95 to download it. Considering that the shows have consistently been in the top 10 audiobook downloads on Apple's (Nasdaq: AAPL ) iTunes, this model has a lot of potential.
The subscription-based model was made possible through Audible's (Nasdaq: ADBL ) proprietary file format, which is used in its core business of selling audiobooks. Once downloaded, these files will only work on five different computers or portable devices, helping to prevent illegal distribution. The format also measures listenership in ways that other formats, such as MPEG-3, do not. Advertisers demand these metrics to ensure they are getting what they paid for -- the listener's attention. They may also help the adoption of the audio spot model.
The popularity of podcasts should continue to increase with the expanding number of digital music players. If media providers can gain a better understanding of this growing audience, they may find it easier to attract more advertising dollars. But an influx of money will require new ways to monetize podcasts, and that will take time. While the potential for massive growth in podcast advertising certainly exists, it may not happen as quickly as PQ Media expects.
Fool contributor John Bluis owns shares of Audible. He has no financial interest in any other company mentioned in this article. TiVo is a
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