“Who wants to listen to audio content?” It was a straight question that potential investors asked Rohan Nayak, Nishanth KS, and Prateek Dixit during the second half of 2018.
The three friends — all in their 20s and starting their first venture, Pocket FM — only had their own hypothesis to counter. Their strong belief that non-music audio would become the future of entertainment did not pass muster with investors.
Until that point, entertainment was either music or video. A year later, Nayak and his team had to knock on the investors’ doors again to survive. This time, too, investors asked the same question: “Who wants to listen to audio?”
Some 30-odd investors rejected Nayak. Finally, Lightspeed came forward to lead a round of $5.6 million, which hit the account just a week before the startup ran out of money.
Over the next four years, Nayak and his team proved their hypothesis was correct. That’s probably why Lightspeed continued to lead the startup’s Series-D funding of $103 million earlier this year.
Busting the myth
Nayak and team started Pocket FM at a time when the world of entertainment was dominated by video and music. Non-music audio entertainment was almost non-existent. Podcasts and audiobooks were limited and mostly boring.
Over the next four years, Nayak and his team challenged and changed the playbook for global non-music audio entertainment, proving all the investors (who rejected them) wrong. In addition, Pocket FM founders decided to focus on monetization, unlike their peers, who mostly followed the ‘scale at any cost’ model.
In 2023, Pocket FM reportedly crossed a $100 million annualized revenue run rate (ARR) in the US — a market it entered only in the last quarter of 2022. Interestingly, the US is currently the startup’s largest revenue market, accounting for around 70% of its $150 million-plus ARR in 2023, a hockey-stick growth from just $2 million in 2022.
In other words, Pocket FM has proven that audio stories can be more than just a source of entertainment — they can also be a highly profitable business. “We’ve proven that you can make significant money from audio shows,” Nayak said.
But how exactly does Pocket FM turn audio stories into “money spinners?”
The trump card: Audio series
To be sure, Pocket FM’s initial experiments did not work. Nayak and the team at Pocket FM needed 10 pivots to find its product market fit. What really worked in the startup’s favor was its decision to revive the “good-old radio drama” in its modern avatar: the audio series.
An audio series is simply a dramatic adaptation of a long-form story — primarily fiction — presented in an episodic manner that can only be listened to. Like successful web series, audio series are equipped with gripping storytelling, intriguing plots, carefully crafted characters, compelling content, and a well-thought-out strategy of ending every episode at a stage that leaves the listener wondering, “What happens next?”
“We identified an unexplored space in the entertainment industry driven by an increasing demand for audio fiction and crafted a playbook to address this opportunity across every key market,” Nayak said in a March 2024 press release.
However, finding the product market fit with audio series wasn’t enough. “The most important metric for us is retention,” Nayak said in a recent interview with Mashable. “If listeners are still engaged by episode 50, they’re likely to keep paying for more episodes. Our writers are also incentivized to maintain high retention rates. This is also key to our business model.”
Making money with micropayments
Above all, Pocket FM needed to get its users to pay. To do that, the startup decided to adopt micropayments, allowing its listeners to pay only for what they consume on a pay-per-episode basis. “This makes the barrier to entry much lower, allowing more users to engage with the platform,” Nayak says.
Pocket FM follows a freemium model, which offers users a limited number of free episodes every day. Once they consume their free daily limit’s worth of episodes, users need to pay to unlock more.
“Our microtransaction model changed the game for Pocket FM,” Nayak told Mashable. “For example, users can unlock one episode at a time with our virtual coins that they can buy for less than a dollar ($0.99 minimum pack). This kind of pricing allows users to engage more flexibly, and it has led to a significant increase in paying users.”
This not only democratized audio entertainment but also helped Pocket FM ensure better retention. Several of Pocket FM’s audio series — such as “Insta Millionaire,” “Saving Nora,” “Insta Empire,” “Rekindled Heartache,” “My Vampire System,” and more — have generated over $10 million in revenue from users.
“Currently, 90% of our revenue comes from microtransactions, and 10% comes from ads,” Nayak said.
AI for cost efficiency
According to Nayak, one of the advantages of audio content is its relatively low production cost compared to video. For example, the CEO estimated the production cost of an audio show that generated revenue of around ₹100 crore (around $12 million) was around ₹1 crore (or just around $120,000).
At the same time, Pocket FM has been using many artificial intelligence (AI) tools to create, produce, and market its audio series.
“Our production costs have decreased even more with the efficient use of AI,” Nayak said. “This has allowed us to produce high-quality content at scale, making our business model even more profitable. The key to making money from audio stories is all about understanding your audience and delivering content they love in a way that’s easy for them to access and pay for.”