TMO Reports - Diffusion Group Report Sees Podcast Users Reaching 60M by 2010

by , 5:00 PM EDT, July 7th, 2005

The Diffusion Group (TDG) has released a report that forecasts an almost 15-fold increase in the ranks of podcast users over the next five years, from 4.5 million this year to 60 million by 2010. The major driver for the demand, of course, will be the ever-increasing sales of iPods and other MP3 players, although TDG analyst Marc Freedman told The Mac Observer that other factors will play a role as well.

"The groundwork for this was really laid by TiVo and other personal video recorders, which introduced the idea of timeshifting content," Mr. Freedman explained. "Once people accept an idea, it's easy for it to take off." In fact, he sees the percentage of MP3 player owners who subscribe to podcasts to grow from less than 15% in 2004 to 75% by 2010.

Once the timeshifting idea was readily accepted by consumers, Mr. Freedman continued, there was a "need for content" fueled by the capacious storage of MP3 players. With the average consumer owning about 1,000 songs, he said, there was hard drive space waiting to be filled. Finally, the "precipitating event" that pushed podcasting into the limelight was the advent of RSS (really simple syndication) technology, which launched blog feeds and was then used to distribute podcasts.

Podcasting Explodes

Of course, Apple's release last week of iTunes 4.9, which incorporates a podcast subscription feature, was also a key driver of the phenomenon's growth. As Mr. Freedman explained: "Friction is an important part of consumer adoption. How easy is it to get something? The less friction in an adoption path, the higher the adoption rate, and integrating podcasting into software that a lot of people already own was key in reducing friction."

But could the recent Supreme Court decision that holds Grokster and other peer-to-peer (P2P) software providers liable for their users' behavior stunt the growth of podcasting if content creators violate copyright laws and Apple or other distributors are considered responsible for the infractions? Mr. Freedman doesn't think so, explaining: "That was a narrow decision. The Supreme Court said that P2P file sharing is legal, but companies have a responsibility not to induce their users to violate copyrights. That isn't a problem for a legitimate service like iTunes, because Apple isn't responsible for how people use their iPods or iTunes."

With plenty of space in many consumers' iPods, he added that "podcasting will have an increasing share of how content gets into music players. With the ability to have podcasts delivered on a regular basis through subscriptions, it's a convenient way to legally acquire content."

This Podcast Brought To You By...

Apple currently doesn't charge for podcast subscriptions, but Mr. Freedman has already seen some podcasts take on ad revenue, such as the couple who produce a sex talk podcast and received sponsorship from a condom manufacturer. He sees advertising on podcasts taking one of two routes: the "sponsored by" model, similar to 50s TV shows that were brought to viewers by a company that was prominently featured; or the inclusion of 15- and 30-second ad spots in the broadcasts. However, the latter will require a way to measure the reach of the advertiser's message, which Mr. Freedman thinks will be solved by simply sampling the audience, as the radio industry does today.

However, Mr. Freedman said that many podcasts will likely remain commercial-free, either because they're amateur productions without a large enough audience to attract advertisers or because they're "provided as an additional customer service. That's why many major media companies offer podcasts: there's a low incremental cost because they've already paid to produce the content."

As for paid subscriptions to podcasts, Mr. Freedman doesn't think that's likely. "It won't be a significant portion of podcasts because people are used to getting them for free. However, we are seeing some B2B [business-to-business] podcasts that cost money, and Audible.com is now offering podcasts of their paid content."

The Future of Podcasting

As podcasting matures, so will the devices that consumers use to store the content. Mr. Freedman sees the introduction of wireless capability as a key part of the evolution of MP3 players: "Instead of this two-step process where you download the file to your computer and then put it on your iPod, MP3 players will already be connected to the Internet through WiFi or, later, WiMAX. You'll be able to get real-time information, turning it into a digital version of radio."

In two or three years, he also sees cell phones eroding MP3 players' domination as iPod-like functionality becomes part of their design, enabling podcasting to reach an even larger market. "It's just a matter of time until cell phones threaten MP3 players," Mr. Freedman said. "The number one maker of digital cameras today is Nokia."

However, he added, just like cell phones with digital cameras haven't destroyed the standalone camera industry, cell phones with music playing capabilities won't make the iPod extinct. "History shows that these things will find their proper niches," he observed. "MP3 players' share of the podcasting market will erode, but it's still entrenched [in consumers' minds]."

Finally, Mr. Freedman warned that no one should discount the advent of video podcasting. "The Sony PSP was the initial foray into [portable video devices]," he said. "In three to five years, video players will be available at the same prices as today's audio players. Audio players will be US$30-$50 devices while 200GB video players will be available for $200."