Stream Smarter, Spend Less: How Pocket FM Makes Listeners Pay, One Episode at a Time

Getting users to pay for products or services is often the hardest challenge for any startup in any industry, regardless of geography. For Pocket FM, it was no different.

That was more because Pocket FM, a 2018-born Indian startup operating in the non-music audio entertainment space — unlike its peers — did not want to follow the “scale-at-any-cost” model and avoid unnecessary cash burn. Instead, Pocket FM wanted to build sustainable revenue streams as it scaled steadily.

The startup’s initial key market was India, a market that, until recently, was habituated with free content. To add to that, the majority of its users were non-English consumers from a relatively low-income category. One thing was clear: Pocket FM needed to figure out a differentiated monetization model.

So, the startup’s co-founders — Rohan Nayak, Nishanth KS, and Prateek Dixit — decided to go for a tweaked freemium model, backed by micropayments, allowing its listeners to “only pay for what they consume.”

And boom! Pocket FM witnessed a massive revenue surge within weeks of rolling out its micropayments-backed monetization model in February 2022.

Numbers don’t lie

The strategy paid off almost immediately. During the first six months since the startup rolled out micropayment, monthly revenue jumped 10x, with more than 500,000 transactions a month, accounting for nearly 90% of the company’s revenue.

About 10 months after rolling out micropayments, Pocket FM crossed the USD 25 million annualized revenue run rate (ARR). In 2023, the startup reportedly crossed the $100 million ARR in the US — a market it entered only in the last quarter of 2022. That was nothing but hockey stick growth. Interestingly, the US is currently the largest revenue market for Pocket FM, accounting for around 70% of the startup’s $150 million-plus ARR in 2023.

Product-wise, nearly 90% of Pocket FM’s revenue comes from monetizing its flagship audio series, while about 10% comes from brand solutions.

But how different is Pocket FM’s monetization strategy?

Freemium Meets Flexibility

Initially, the Indian startup kicked off with a basic freemium model, which, by design, entices users with free content, building interest and engagement. Pocket FM offered 2-3 episodes of a show free of cost every day to give the listeners a taste of its content without any upfront fee. But if a listener wanted to listen to more episodes and not wait for the next day, they had to pay to unlock additional episodes.

To start with, it was an age-old subscription, even for Pocket FM. And that’s where it stumbled, like every other startup — but not for long. The India-based startup’s co-founders released its users as a major deterrent to commit. They decided to adopt micropayments to replace the age-old subscription model.

That’s when Pocket FM found its sweet spot. In the tweaked freemium model, the startup’s listeners could get a taste of its content, and once they were hooked, they had the option of unlocking more content, one episode at a time, without hurting their pockets.

“What the model did was simple. It brought flexibility and gave our users the power to choose,” said co-founder and CEO Rohan Nayak.

When Pocket FM rolled out micropayment in February 2022, the minimum payment was as low as ₹9 (about $0.11) for buying virtual coins, and listeners needed to spare 5-20 virtual coins to unlock episodes. That was, simply, a game-changer.

“This low-commitment approach made it easier for users to engage with the platform on their own terms, leading to a sharp increase in both engagement and revenue,” added Nayak.

Why Micropayments Work

Although micropayments are not a new concept that Pocket FM introduced, what worked for the startup was how it applied the model in the best possible form at the right time. And that’s precisely what has helped Pocket FM build its path to profitability.

Micropayments worked for Pocket FM because of all the advantages it has over traditional payment models, including:

• Accessibility: Pocket FM’s low-cost entry point made it easy for users, especially those from low-income groups. At the same time, it avoided alienating price-sensitive users yet gave them access to premium content.
• Flexibility: Unlike traditional subscriptions, which come with a long-term commitment and uncertainty, micropayments give users the freedom to choose what they want to pay for.
• Scalability: Despite individual transaction amounts being small, the effect of multiplication always comes into play, especially when the user base is huge. For Pocket FM, micropayments have simply widened the scope of monetization. This has helped the startup generate revenue from a section of society that most content companies could not.

“Going forward,” added Nayak, who believes that the company is on track to profitability, “Pocket FM will be following the same strategy for monetization across all new markets, including Latin America and Europe. The model has worked well in price-sensitive India and the US, arguably the toughest market. However, we are working on a bunch of innovations, including ‘personalized pricing’ that would be based on micropayments.”