This was certainly an unexpected development: The Financial Times reported yesterday that Apple is apparently “exploring” an investment into iHeartMedia, the financially struggling US radio giant that’s trying a whole lot of things to engineer a way out of its bankruptcy. (Including, perhaps, loudly trying to inject itself into the podcast narrative, acquiring a podcast company, and creating a Webby Awards-like podcast awards.)
The actual FT article is behind a paywall, so I don’t want to strip too much out of the article, but three key things to note from the report:
- Discussions between the two companies are described to be in “preliminary” stages; which is to say, there’s nothing certain about whatever is going on between the sides at all, other than they’re talking about some potential ~synergistic~ arrangement. So don’t get too ahead of yourself with the news. (Both organizations also declined to comment for the FT article.)
- Furthermore, Apple is discussed as being among many other companies potentially considering an investment in iHeartMedia, which is apparently seeking a minority stake investment.
- There was also discussion of alternative non-investment arrangements, like a big marketing thing.
Some broader notes to stew over:
(1) As you probably already know, Apple has a digital music streaming service called Apple Music that’s part of a cohort of technology companies — including Spotify and Pandora — that has largely peeled listening away from traditional radio broadcasters. Apple Music is currently locked in an intense battle with its cohort peers, notably Spotify, and seemingly possessing an edge when its comes to paid subscribers, if you buy into this Digital Music News leak from July. (Which a lot of smart people I’ve spoken seem to.)
(2) There are certainly reasons to be skeptical about the developments described in the report, but here’s how I’m reading the view from Cupertino: Apple has been, for the longest time, a hardware company in the business of selling laptops, phones, and gadgets. Everything else that it does — like its various apps and multimedia services — broadly exists within the context of creating an ecosystem rich, interesting, and sticky enough to keep people within the closed loop of Apple’s ecosystem, ultimately working to blunt the likelihood of users feeling the FOMO of jumping to another tech ecosystem like, say, Android.
But it seems that, in recent years, the company has been revving up revenues from its various services — you know, things like Apple Music. (Worth noting: in its third fiscal quarter, Apple reported that its services revenue has grown 31% year-over-year. Here’s the relevant Mac Rumor write-up.) Depending on how its other revenue components shape out over time, this may increase its dependency on revenue from its services, which in turn might re-engineer the way it thinks about those software products and how it makes decisions in relation to that. And then there’s broader fact that Apple has a history of being particularly interested in playing deeply within the music space, buying Dr. Dre and Jimmy Iovine’s audio product company Beats Electronics for $3 billion in 2014.
All of which is to say, I’m not surprised to hear that Apple is considering an investment in another music company. What is interesting is that it’s this specific music company: the largest broadcast radio station owner in these United States, which also happens to be in really, really dire financial straits.
(3) iHeartMedia is facing $20 billion in debt and filed for bankruptcy in March, but it’s been financially complicated for over a decade. As an analyst told Variety back when the company filed for Chapter 11 in March: “What they’ve done to try to stay afloat is financial engineering. There’s no reason to file for bankruptcy until you have to… but we’re at that point.” A bidding war has since kicked up, including a $1.16 billion offer from Liberty Media, which owns SiriusXM, but that offer withdrawn in July. SiriusXM acquired Pandora for $3.5 billion in September instead.
(4) So, why would Apple invest in iHeartMedia? I’ve seen a few potential arguments floating about various blogs and write-ups, including: increasing its distribution (?), improving its streaming offering (??), and flexing its muscles in financially inserting itself into a company with strong relationships to the music industry, which is not something other music streaming services typically have due to rights stuff. (Though, now that SiriusXM owns Pandora, maybe it’s just Spotify that has a spicy relationship with the Music Industry Powers That Be.) As you can probably tell, I don’t quite buy into the first two theories, but I would the third, insofar as this thing actually turns out to be thing, which we still don’t know if it will!
(5) Of course, why does any of this matter to the ordinary podcast person? Obviously, because we’re talking about Apple, which continues to be the primary distributor of podcasts — I’ll keep saying this in vague terms until someone disabuses me of the notion with credible and verifiable numbers, yay for ~conventional knowledge~ I guess — and iHeartMedia continues to want to do… stuff with podcasts, I guess? Anyway, the way I see it: the podcasting piece leads none of these arrangements, but this arrangement might lead the shape of podcasting stuff in the future, so it’s worth paying attention. The concerns of the shark are relevant to the concerns of the feeder fish.
On a related note: From Spotify’s third quarter financial earnings materials —
We continue to invest in podcasts and other forms of spoken word audio entertainment. We signed an exclusive deal with Joe Budden to bring his self-titled podcast to Spotify on September 12. Since that time, The Joe Budden Podcast has become the #1 podcast on the platform and engagement has been increasing. Our overall market share of podcasts globally continues to grow, and we intend to continue to invest in exclusive and original content on this front through Q4 and beyond.