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Terry Kawaja, is the founder and CEO of LUMA Partners, the investment bank behind more than $300 billion of digital media and marketing transactions during the past two decades. He told a Podcast Movement panel that podcasting is one of the media he is most bullish about in the coming years.

“What excites me about the spoken word, in the context of the podcast as a media format, is that it is truly a unique media format,” said Kawaja. “We’ve seen innovation around delivery technologies and distribution channels, but the media has largely been the same whether that is a website or video. It’s the same format that we’re used to. Whereas podcasts are somewhat different than radio. They get to dive deeper into topics, so you get a real rich contextualization of a conversation.”

As an investment banker, Kawaja follows the money and by his calculation more than $700 million in venture capital has flowed into podcast during the past three years. He said the pattern is a familiar one which begins with an innovation that takes place followed by rapid growth by consumers. Suddenly that drives a marketplace to grow with what Kawaja said is the “gel” that connects the content creator with its users, including such things as analytics providers, distribution platforms, and discovery solutions. “You get entrepreneurs that come up with ideas and they attract venture capital,” he said. That is followed by the strategic companies that opt to strike deals to grow their business. In podcasting, that was on display in recent months as iHeartMedia bought Voxnest and SiriusXM acquired Stitcher and the podcast management and analytics platform Simplecast in a series of deals focused on ad tech.

During a Q&A with Megaphone CEO Brendan Monaghan on Tuesday, Kawaja was asked which segment of podcasting that is he most bullish on in terms of investing. Rather than select creation, publishing, or advertising, Kawaja instead said it is specific situations that lure investors. The first is when there is industry fragmentation and a company can provide an aggregating solution. The other is when there is scarcity, and a product or service can leverage that lack of competition to its advantage. While he didn’t offer any specifics, Kawaja seemed to suggest podcast creation is an area that may have the hardest time meeting that criteria. “We’ve seen an explosion of content,” said Kawaja. 

Pandemic Reveals Streaming’s Future

The coronavirus outbreak has made investment bankers more cautious in where they are putting their money, but Kawaja said streaming media like podcasting, along with ecommerce and gaming, is one of the pandemic’s winners. He said those three business segments have experienced six years-worth of growth and disruption in the past six months. “People are picking up new habits,” he said. 

Kawaja said he was pleased to see that podcasting did not suffer the feared abandonment when people stopped commuting to their office. “Podcasting is such a strong proposition and a unique media experience that we have just seen people shift,” he said. “Even though they’re not commuting, they’re picking times of the day when they want to unwind and listen to their podcasts; people have adapted their listening habits for the lock down.”

That has helped the industry hold onto its advertising dollars, a reason that many forecasters still believe podcasting will have a compound growth rate of nearly 30% during the next seven years. Kawaja said there’s good reason for marketers to be taking a hard look. “We are talking about a younger demo and a relatively affluent demo so it’s a highly attractive audience from the standpoint of an advertiser,” he said. Still, Kawaja thinks that some subscription podcast services may take root as well, predicting the industry will ultimately have a mix of both models. “It is going to be a sizable market with all kinds of variety,” he said.

The Role Of Technology

Kawaja isn’t surprised that podcasting has grown as quickly as it has during the past few years, seeing the release of Apple AirPod headphones in 2016 as an inflection point. “It is a media format built for mobile,” he said. “If you look at podcast consumption, it grows along nicely until 2016 and then it inflects up because of the advent of AirPods because you literally get inside someone’s head.”

He is next watching to see what the growing number of smart speakers will do for podcasting, believing it has “enormous potential” to change the marketplace. “Listening to a podcast on AirPods from a phone, that’s a very exciting market in and of itself. But the smart speaker market is a whole other realm” said Kawaja. “What I like about the smart speaker market is that given the locations of them in the home, they can be utilized for all kinds of ecommerce, data, and house control applications far beyond just audio.”