Brands are set to double their ad spend on podcasts — here's why

Walk down Los Angeles' Hollywood Boulevard past the Walk of Fame and you might spot billboard ads that aren't for the latest star-studded movie, but for a humbler form of media — the podcast.

Not just any podcast: it's one that is attracting the attention of major luxury advertisers such as Chanel and BMW, not known for running commercials in the format.

"The Daily," from The New York Times, is less than two years old and already has 5 million unique listeners a month. It's looking to step that up with a billboard, TV and online ad campaign running through September in Portland and Chicago, as well as in LA.

The ads show black-and-white images of news events, with a colored square superimposed over them to suggest the idea of bringing a story to life. The line "This moment deserves an explanation" features on all of them, the first words to come out of host Michael Barbaro's mouth when The Daily started two weeks into the Donald Trump administration.

A billboard ad for "The Daily," the podcast from The New York Times, in August 2018
The New York Times
A billboard ad for "The Daily," the podcast from The New York Times, in August 2018

"The Daily" aims to bring clarity to listeners over events such as the Rohingya refugee crisis in Myanmar or President Trump's former personal lawyer Michael Cohen's guilty plea to campaign finance violations, according to its executive producer Lisa Tobin.

The New York Times CEO Mark Thompson praised the podcast in May as helping its journalism reach new audiences and generate revenue, as the company posted an increase in subscribers, but a decline in digital ad income.

Sam Dolnick, an assistant managing editor at the Times, who helped launch the podcast in January 2017, said it was done "kind of at a sprint." "Now you know, a year or so in, we kind of paused and took our breath, the whole institution, and we realized that 'The Daily' is going to be a really big part of our future and that it already is," he told CNBC by phone. He called the podcast the Times' new front page. "For lots of people around the world, 'The Daily' has become a part of their ritual in the same way that the print newspaper was the ritual for me and my parents."

Podcast popularity

Millions of Americans are listening to podcasts, and as audiences grow, so do advertising dollars, with "The Daily" reported to ask $290,000 per month for sponsorship.

Ad revenues for podcasts overall are set to double by 2020, with PwC and the Interactive Advertising Bureau (IAB) predicting that U.S. ad spend will go up from an estimated $314 million in 2017 to $659 million in 2020, with "baked-in" ads (that are read by the presenter) the most popular type.

Having an audience immersed in the content is more likely to mean they listen to commercials, according to one agency creative. "It doesn't matter if the brand isn't necessarily related to the content of the podcast. It's more that they do it in the same tonal manner," Brian Cooper, executive creative director at ad agency Aesop, told CNBC.

Podcast host Marc Maron (left) appears on Jimmy Kimmel Live in October 2017
Randy Holmes | Getty Images
Podcast host Marc Maron (left) appears on Jimmy Kimmel Live in October 2017

Why so much podcast love from advertisers? Because listeners have to concentrate on just one thing, according to Anna Bager, IAB's executive vice president of industry initiatives. "When you listen to something, it's much harder to block it out than when you're looking at a number of different things. Your brain kind of picks it up quicker," she told CNBC.

The IAB will hold its fourth annual "Podcast Upfront" sales day on Thursday in New York, a sold-out event where companies like NPR, iHeartMedia and Midroll Media set out their stalls to advertisers. Midroll sells host-read ads in podcasts such as the hugely popular "WTF With Marc Maron," which has featured former President Barack Obama and the acclaimed "Wolverine: The Long Night," from Marvel and podcast platform Stitcher.

For advertisers, podcasts are often a way to get to younger and harder to reach generations who are used to entertainment being on demand and without advertising. But, says Midroll's Chief Business Development Officer Lex Friedman, they are more open to ads in an audio format. "When (a host) takes a break to voice an ad, it's much less jarring of an interruption… It sounds like a natural extension of the show," Friedman told CNBC. Between 2 and 10 percent of people skip the commercials on the shows that Midroll sells, Friedman added.

Karen Kilgariff (left) and Georgia Hardstark, hosts of the 'My Favorite Murder' podcast at an event in Los Angeles, October 2016
Matt Winkelmeyer | Getty Images
Karen Kilgariff (left) and Georgia Hardstark, hosts of the 'My Favorite Murder' podcast at an event in Los Angeles, October 2016

Audio publisher NPR leads the way in listeners, with a unique monthly U.S. audience of nearly 17 million, according to analyst Podtrac. Its shows such as "TED Radio Hour" and "How I Built This" feature in Podtrac's monthly industry ranking, while "This American Life," which has been sponsored by website builder Squarespace, is the most popular podcast, according to the figures for July.

Squarespace is an advertiser almost ubiquitous in podcasts and got into them in 2009. "You're in one advertising channel and you sort of just exhaust it and you start to think about what more we could be doing and how else we can reach people. And back then we started with tech podcasts," Squarespace founder and CEO Anthony Casalena told CNBC.

"It's content that's niche-focused, so you can't get (it) anywhere else. Hosts establish a relationship with their audience. You know there's a real kind of connection and feeling there," he said. Squarespace takes direction from the presenter. "We are pretty loose with how it's scripted. We want them to use their own voice... It's part of the script of the episode and so it's not like an ad unit."

Squarespace's most recent initiative is with podcasting company Gimlet. The two worked together to find "the next great podcast host" via Casting Call, a reality audio series hosted by Jonathan Goldstein that will document the companies' search across the U.S., airing this fall.

Branded audio

Some brands are creating their own audio. British insurer Direct Line published its "Good Carma" podcast in July with comedian Richard Herring talking to "Head of Carma" Dr. Gary Wood about his driving experiences, from having had someone drive into his garden wall to how to avoid road rage. This fits in with Direct Line's current "Hit while parked" campaign, that aims to tackle the "injustice" of insurers not paying out if someone's car is hit while in a parking lot, Marketing Director Mark Evans told CNBC.

"(The podcast) is a nice brand story… it has got something interesting to say, but also obliquely it links to this notion of us doing a bit more of a push on injustice," Evans said. Direct Line will cover damage done to parked cars without affecting someone's no claims discount — even while their drivers aren't in them.

References to the company are kept to a minimum, and mistakes such as Wood accidentally saying: "Good Parma codcast" instead of "Good Carma podcast," are kept in. "It's closer to influencer advertising in that you kind of have to let people be themselves. Performers perform," Evans said.

Direct Line sets aside a budget for experimental ways of marketing, such as podcasts (early figures show that website click-throughs from "Good Carma" are more than nine times what the company expected), but one of the downsides of the audio medium is that even though download numbers can be impressive, it's hard to know if a podcast has actually been listened to, and people can skip ads.

No skipping

One way to avoid ad-skipping is to sponsor an entire episode. Sony's movie arm recently worked with Midroll on a custom "minisode" of "My Favorite Murder," a hugely popular show that is often high in Apple's iTunes podcast chart.

Hosts Karen Kilgariff and Georgia Hardstark usually talk through humorous retellings of their favorite slayings, but on the August 20 show they discussed new Sony movie "Searching" and listeners' examples of people who hide secrets, a theme of the film. The presenters were upfront about Sony's involvement: "It would be like a big long commercial for this movie," Kilgariff said at the start of the show.

Podcasts are still relatively basic in terms of what they can offer advertisers. Currently, placing ads into them dynamically — using computer programs to target precise audiences with different ads — isn't widespread. Doing so would also mean creating many versions of host-read ads. "Unfortunately, I can't ask, you know, Marc Maron of the WTF podcast to record 50 different versions of his ads (for) 50 different states. It wouldn't make sense (as) the show sells so well and reaches such a big audience that we look at it as a national play," Friedman said.

At "The Daily," advertisers want to reach the entire audience, rather than segments of it, Dolnick said, and it has attracted brands such as Google, HBO and Facebook. "The audience is vast and it contains times subscribers and longtime (New York) Times readers… it skews younger and more female than most of the Times." Creating each episode involves long conversations with the relevant reporters, going through archives and working out who should be telling the stories behind the headlines.

Questions are written very specifically for host Barbaro (who does not read ads — that's not the Times' style) to make sure the narrative flows, explained Tobin. "We're tweaking the questions in real-time to be responsive to what the person is saying, so that there's an organic conversation unfolding, but then we're on a really clear roadmap to what that narrative is going to be in the end." Ads are fitted in where it works best editorially, and can be used to create cliffhangers, Tobin said.

And the billboard ad campaign? The Times did not provide specific information on the impact on podcast downloads, but people have been posting pictures of themselves against the posters, Dolnick said.

"Broadly, it signaled to the world and to the industry and to listeners (that) 'The Daily' isn't just a hobby for us, it's not a thing off to the side. This is a major piece of where The New York Times is going."