Issue 216,  published July 2, 2019

The State of Wondery

“It’s still so early,” insists Wondery CEO Hernan Lopez when we spoke last week. We had jumped on the phone shortly after the Wall Street Journal posted its report on the company’s Series B, and I have to admit: the news surprised me. When I first started hearing rumblings earlier in the week to watch out for a Wondery development, I had fully assumed some sort of acquisition.

That expectation, of course, has everything to do with all the Spotify news in February. Since then, I’ve gotten the distinct impression that a broader surge of acquisition interest was making its way deep and throughout the veins of the podcast community, and that for some, this moment in time marks a window of opportunity for those interesting in cashing out to do exactly that. Indeed, by the waning days of May, I even started hearing from a few people who privately wondered whether that window had already closed, and whether it would be closed for good.

Lopez, though, I suppose he’s what you’d call an optimist — or at the very least, a damn good salesman. A TV veteran and the former CEO of Fox International Channels, Lopez founded Wondery in January 2016 and quickly went on to build what would prove to be an exceptionally shrewd and effective operation. Wondery was among the very first podcast shops to build out a Hollywood adaptation pipeline, and it did so with aggression. When it landed on its first breakout hit, the true crime-rooted Dirty John, the company doubled down on the genre and carved out an entire brand identity around that aesthetic. Here was a company that knows its strengths intimately, and plays vigorously towards it.

Anyway, when we jumped on the phone last week, Lopez started off by telling me about how things are still overwhelmingly early in podcasting, and how there is still so much to do. “Don’t forget that two thirds of people in the US still don’t listen to a podcast on a monthly basis, and the number is higher around the world,” he said, before listing out all the things the industry still needs to uncover: new genres, new formats, new hits, new stars, new advertisers, new business models, and so on. We remain a ways away from figuring out what this industry is supposed to look like, Lopez seems to be insisting, even as the recent bursts of money have fundamentally dragged the podcast ecosystem into new, unpredictable territory.

Here’s the interview, which has, of course, been shortened, condensed, and edited for clarity:

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Hot Pod: I’m interested in this sense of things still being early. Since the Spotify acquisitions in February, I feel like I’ve spoken with more than a few podcast industry folks who privately feel like they’re too late — like the boat has already left the dock or something. What do you think that position?

Hernan Lopez: I think it really depends on where you’re coming from. I suspect that if somebody wanted to replicate what we have done today… or even, if we wanted to replicate what we have done, but starting today, the path would be substantially more difficult. Every time a medium becomes more competitive and more professional (in that the quantity and quality of content increases), you’re just going to have a harder time making a mark.

HP: Let’s go down that rabbit hole. Hypothetically, if you were starting Wondery today, what would be the move?

Lopez: Hm. If it’s here in the US, I’d definitely start by looking to partner with other companies. Particularly those that are already working with elements of what I was seeking to do.

Also, I think it’s well known by now that we came to fame due to Dirty John, the podcast we did in partnership with the LA Times. That show really put us on the map, and a lot of opportunities we’ve had came to us from the popularity of Dirty John. So if I had to start all over again, that would be the guiding principle of my first moves: how do I get my new Dirty John?

HP: I feel like that principle is as true today as it would be four years ago.

Lopez: Absolutely. Nothing really changes.

HP: Let’s talk about the investment. Why did you raise the Series B now? 

Lopez: We raised the money because we felt we have to come a point where we were leaving opportunities on the table. There have been so many things we wanted to do, beyond what we were already doing, that we were not able to afford, because we had only raised five million last year on top of the early seed round, which wasn’t a lot of money.

We realized that we just needed more capital to do the things we want to do: expand globally, get into daily podcasts, and grow beyond the core genres we have now (business, tech, entertainment, true crime, personal growth, and sports). Content production is expensive and time-consuming. It’s also way riskier than the partnership side of the business, which is still growing and will continue to be a significant part of all the things that we do. So we decided to raise new equity funds, and we were lucky to have multiple people who wanted to participate in the round.

Waverley Capital [which led the round] was incredibly thoughtful in their approach. They’re led by Daniel Leff, who was a former in Roku and is a current investor in The Athletic, and Edgar Bronfman Jr., who probably doesn’t need any introduction as the former CEO and chairman of the Warner Music Group. Combined with the investors we already have (including Shari Redstone and Bertelsmann, among others), the fact that we have sold television shows to NBC Universal and WarnerMedia, and that we have active partnerships with the LA Times and the Boston Globe, we are probably one of the most connected podcast companies today.

And I think all those connections translate into lots of opportunities to bring podcasts to the global stage. I know that sounds hyperbolic, but these companies have incredible reach around the world. They have great content and great brands, and I believe these partnerships will be important for us to things far beyond what we could do on our own.

HP: Could you talk a bit about how you approach content strategy? It’s been interesting to watch Wondery operate in contrast to other publishers, because the way you build shows strikes me as being similar to how television networks are composed. 

Lopez: That’s precisely it. Now, let me first say that we wouldn’t be anywhere near where we are today if it wasn’t for Gimlet, This American Life, and Serial generally raising audience expectations for podcasting — they taught a lot of us about what great audio is supposed to sound like.

But yes, what we tried to do over the past few years is borrow parts of the Hollywood model, both from the television production side and the television marketing side, and see if they can be applied to the podcast world. (But of course, in the podcast world, you’d have to remove at least three zeros from the budget.) And I think the result was positive. I think we’ve been able to prove that shows that sound like Hollywood series and have TV industry-style marketing campaigns — taglines, key art, special trailers, and so on — all of that works. I think that’s one of the reasons listeners have responded very well to us.

HP: So, I assume that advertising makes up the overwhelming majority of your revenue. 

Lopez: Yes. Still.

HP: How are the other non-advertising components doing? I know you’ve got Wondery Plus floating around, and you have the Hollywood adaptation stuff. Am I missing anything?

Lopez: We’re also doing some licensing. This year we’ve started a deal with Stitcher Premium to exclusively put ad-free versions of our shows behind their paywall — though, of course, they will continue to be available with ads everywhere else. We’ve also sold new seasons of Hollywood & Crime and Locked Up Abroad to Luminary.

But those are the main three buckets, outside of advertising. Wondery Plus is the smallest of them right now; we’re trying to build something similar to Slate Plus, which would give listeners ad-free and early access experiences but within the apps of their own choice.

On the adaptation side, we have five shows in development right now — with studios like Universal Content Productions, FX, and Warner Media — and we’re working on deals to have other shows made as well. We haven’t seen huge revenue yet because of the stages that these adaptations are in; you typically make the most money when the show actually gets put into production and you eventually collect profit participation.

HP: In your perspective, where are we with podcast advertising? And what do you see are the major barriers that continue to prevent more advertisers from buying in?

Lopez: Again, I still think it’s very early. At the core, you have a young industry where there’s a low number of people spending time with podcasts. In addition, you have the fact that advertising agencies not only want scale, but scale with research tools that can easily plug into their existing systems.

We haven’t found our way into the latter just yet, partially because, speaking as a publisher that’s in a constant sell-out situation (and I think this is true for many other premium podcast publishers in the US), we’ve had less incentive to plug into those research tools than we would if we weren’t selling out inventory.

Also, because we’re selling out pretty well right now, we’re not particularly motivated to try out a programmatic marketplace and risk seeing what happened to digital media publishers when programmatic became a big thing.

HP: Does programmatic actually worry you? 

Lopez: Yes, well, programmatic worries me to the extent that, if it ends up resulting in a worse experience for the listener, we’ll all be worse off. I always cite the data point from Nielsen showing that 78% of podcast listeners don’t mind podcast ads because they know they’re supporting the show that they’re listening to. But I also add that it’s because we, as a class of publishers, have been able to keep the ad loads slight, the advertising experiences entertaining, and the targeting not creepy.

HP: Let’s talk about the non-English podcasts and international markets. Whenever I’ve looked into why we haven’t seen more podcasts operating in certain other languages or in certain non-American markets, the answer is almost always revenue. The general argument being: there are not enough advertisers in so-and-so market willing to buy into podcasts, or not enough advertisers willing to buy into podcasts of so-and-so language. You’ve stated that international and linguistic expansion are big focuses of this round. How are you going to navigate that advertiser hurdle?

Lopez: I always go back to my own experience as a listener. Back in 2015, when I first binge listened to Startup and Serial, I found nothing else like them. And I kept wondering: when are we going to have the next Serial, the next Startup? It occurs to me that, as audiences, we don’t know what we don’t know, and before these shows existed in 2014, we didn’t know what we were missing.

If you look at the marketplace all over the world outside the US, I think you’re pretty much going to find a situation to what the US had pre-2014. There hasn’t been a Serial-level hit yet, for a combination of reasons. And I believe that we have the opportunity — through the great fortune of the funding that we have, of the expertise that we have, of the great content that we have and will continue to create — to expose more people, languages, and markets to this medium.

I can’t tell you exactly how we’re going to do it, market by market, because we’re still working on the plan, but I think we’ll have a better idea by the end for the summer. I will say, though, that I’m extremely excited about the prospect. I think the time has come.

HP: Basically, though, it sounds like what you’re saying is that, like new podcast companies, these new markets need their Dirty Johns — their hits.

Lopez: That’s essentially it.

HP: It strikes me that a recurring theme of this conversation is, like, the importance of hits. How you need that one breakout hit to essentially “represent,” for lack of a better word, the market. To become the focusing vessel for new audiences to try out the medium, or for new advertisers needing an exciting stock to buy into the medium for the first time. However, in some ways, putting the weight of a whole industry onto the representation of show seems a little tricky, but at the same time, that process of focusing seems to be what’s needed to get things done.

Lopez: I think that’s true. And by the way, I think that’s exactly what we saw here in the US. When people try out a new medium, it’s not necessarily just because the medium’s experience may be better than anything else. It’s also because there is something specific they feel compelled to try out.

People often say that because podcasts don’t have more listeners, it needs better discovery tools. I would say we need more hits. That’s been the founding principle of this company for the past few years. How do we make the most buzzworthy, zeitgeisty hits?

HP: How did the whole Spotify acquisition flurry of February 2019 impact the podcast industry? And how do you think it has affected the immediate acquisition landscape?

Lopez: Those acquisitions were very important for the industry. They signaled that at least one major company sees strong strategic value in the podcast ecosystem, so much so that they’re willing to put half a billion dollars behind it. We haven’t seen that before.

As far as the acquisition marketplace is concerned, I suspect you’re going to see more activity this year. Clearly, we are out of the market. One of the reasons we raised money is that we wanted to remain independent. But I think you will see other companies get combined or acquired.

HP: Last question. If everything rolls the way you want it, how does Wondery look like in two years?

Lopez: We would definitely be a more global company. Right now, we have 36 employees, all but one of which are in the US. (My colleague Declan Moore has moved to the UK, and that’s where he’ll be heading up international.) I’d like to see a company that’s doubled the number of employees, and spread out across the world.

Today, we drive around 60% of our revenue from original shows and 40% from partner shows. I’d like to change that a little bit but not by much, maybe 70-30. I believe original shows need to be the cornerstone of our business, but I also believe in the importance of our partnerships. And I want a larger share of our revenue from non-advertising channels. Right now, that’s about 15%, and I want that number to increase.

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Happy Fourth of July, every one. Take it easy.