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Insider: August 29, 2019

- Notes on venture capital, podcasting, and the pool moving forward - The Athletic's ambitious 120-podcast goal - The Ringer strikes up a partnership with Grand Central Publishing

Outcomes. Last Tuesday, Axios published a quick piece titled “Venture capital cash is pouring into podcast companies,” observing that there are roughly 3x times as many VC deals being brokered around podcast companies today than there were ten years ago. Crunchbase put out a version of this story not too long ago, but the general utility is pretty much the same: it’s super interesting to see all these deals strung together and visually expressed as charts.

(Notably, 2019 already features the largest number of podcast-centered deals in the past decade… though, not the largest cumulative deal value. Not yet, anyway, as there are still four months left in the year.)

Frankly, the headline that cash is “pouring into” podcast companies overstates the case a little bit, I think; ten years ago happened to be 2008-2009, the time of the Great Recession, which put a hard stop on many of the early companies and initiatives focused on podcasts at the time. (On a relevant note: several podcasting stalwarts we know today, like Comedy Bang Bang and The Joe Rogan Experience, were founded shortly after this period.) But the claim is nonetheless directionally true: while investment interest in the podcast category has generally been pretty tepid for a number of reasons — some of which were highlighted in the Axios piece, like hesitance over Apple’s data-scarce dominant position, some of which weren’t, like a historic lack of pathway towards easily scalable monetization — interest does seem to be picking up somewhat.

The question, for me anyway, are the expectations around potential exits. Venture capital investments are made with the hope of massive potential return (like 10x massive), which tends to be realized via major acquisition. (The other common return pathway is public listing… but, I mean, it’s a little hard to talk about public listings when it comes to media or media-utility startups these days, let alone podcast startups.) And so the logical question that follows, then, is: who are the potential acquirers?

It’s curious, and a little amusing, to see that all three exit examples listed in the Axios piece were the three acquisitions made by Spotify — one of which, Gimlet at $230 million, marked the biggest podcast acquisition so far — which famously went on to note that it had budgeted aside $500 million for podcast-related acquisitions.  Sure, there’s still some money leftover from that $500 million budget for Spotify to spend, but how many active acquirers are there on the market, and how many of them can provide 10x returns? I imagine the list is not super long, at this point in time at least. And I reckon the list of potential acquirers is also different for technology-oriented companies, like Chartable and Red Circle, and content-oriented companies, like podcast studios and the smattering of independent podcast networks that still exist.

But markets are fluid, and I imagine the pool of potential acquirers — and budgets — will expand as the value narrative of the on-demand audio category continues to further expand over time.

Flood the Zone.

Also from Axios, but in a piece that came out Tuesday (frankly, I should just start paying the great Sara Fischer for these): The Athletic, the paid subscription-driven sports news site “will begin experimenting with putting some of its audio content in front of its paywall in an effort to expand its audience.” Also, the company rolled out forty additional on-demand audio shows earlier this week, and it expects to have up to 120 shows by the end of this year.

Two immediate things: first, yes, I’m aware that this development warrants further fuel into the discourse around whether we should call audio shows not distributed over RSS feeds “podcasts” — FWIW, I’m agnostic on the subject, because words and their meanings are fluid and can be battlegrounds onto themselves — and second, yes, it’s super weird and crazy that a media company that barely produced any audio now has the ambition (some would say arrogance) to pump out 120 audio shows by the end of the year.

Then again, it might not be that weird. The business model is the key: The Athletic is fundamentally driven by a focus on paid subscriptions, and so the audio stuff is only relevant insofar as they contribute to the conversions and retention of paid subscriptions. (The Axios piece also noted that The Athletic would be running advertising on its podcasts. Sure: why leave money on the table if there’s advertiser interest, and bonus points if that ad business turns out well.) Furthermore: each audio show doesn’t have to drive that many conversions to be worth the trouble of production.

From a Bloomberg BusinessWeek piece on The Athletic that came out last Tuesday:

The main internal metric is the number of people subscribing to read a story. A hundred or more is a “home run” in company vernacular. Most stories draw far fewer — getting to double digits is considered a success.

Podcasts are generally monetized by advertising, and so most podcasts have to play the scale game to some extent: averaging a considerable threshold of downloads per episode to capture, and then retain, advertiser interest, and so on. The Athletic’s audio shows really don’t have to; if a double-digit conversion outcome is considered a success, even a 1000 download per episode performance could be meaningful.

The vastly expanding audio portfolio is an extension of another element of The Athletic’s paid subscription-driven design: the organizing principle for its publishing operation is the individual team. Again, from BusinessWeek: “The target demographic, Mather says, is the fan who follows a team, win or lose. He and Hansmann say they can potentially amass tens of millions of subscribers by collecting die-hard fans of every team under one roof.” (That’s Alex Mather and Adam Hansmann, by the way, the two business bro founders of the site.)

So, on the one hand, you have a success threshold that feels really doable within the typical podcasting audience context, and on the other hand, you have a counterintuitive-seeming show creation strategy that favors breadth over depth. Add to that the innately sticky nature of sports content, which generally lowers traditional expectations of quality — as I’ve said in the past, as a fan of the Oklahoma City Thunder, I would gladly listen to hours of unedited conversation about Shai Gilgeous-Alexander and Darius Bazley recorded in the bottom of a well (at 2x speed, of course) — and you get… what feels like a sound strategy.

Also, the audio business doesn’t even have to stick around. Consider: if The Athletic props up its audio portfolio for, like, 1-2 years, which translates to a bunch of new paid subscribers, and then they choose to pull the plug on that operation… well, they already have those subscribers.

It’s… ~a whole other ballgame~ (sry)

Pod to Book Pipeline. From THR: “The Ringer… is partnering with Grand Central Publishing on a series of books from staff writers and contributors, The Hollywood Reporter has learned.” Content companies, in general, are (or should be viewed as) talent management companies. As such, moves like these are crucial to increase the utility of a given company to a stable of talents, any one of which can pop and become bigger than the company itself. CAA brokered this deal.

Don’t miss: Ashley Carman’s doing a ton of great podcast work over at The Verge, and her latest is fantastic: “Angry fans keep wrecking podcasts with one-star reviews.” Might spin this out into a broader column for Tuesday; there’s a ton of conceptual threads to unspool here.