Issue 276,  published September 29, 2020

Wondery explores exit

Aside from being an utter garbage fire of a year, 2020 has also turned out to be the year of consolidation in the podcast business, and it looks like Wondery is assessing whether to go after the bag while the iron is still hot. (Wow, apologies for the many mixed metaphors.)

Last Friday, Bloomberg published a scoop that the Los Angeles podcast company has hired financial advisers “to explore strategic options, including a potential sale.” Citing people familiar with the matter, the report claims that a sale would be expected to haul at least $200 million and could be “as much as double that,” and that the company is projected to surpass $40 million in revenue by the end of the year, a 75% growth from last year. A sale within the aforementioned price range would put Wondery in the running to secure the biggest podcast acquisition to date, an honor that currently belongs to the SiriusXM-Stitcher deal that was agreed upon in July, which is valued at around $300 million.

A sale was always going to be the likely endgame for a company like Wondery. The publisher has raised at least $15 million in venture capital over the years from a collection of high-profile backers, including Lerer Hippeau, Shari Redstone’s Advancit Capital, and Bertelsmann’s BDMI. Its most recent fundraise took the form of a $10 million Series B round in the summer of 2019 (not long after Spotify’s blockbuster Gimlet-Anchor-Parcast acquisitions), which valued the company at $100 million. All of which is to say the company is locked into some structural expectations of outsized returns, and given the hot acquisitions market we’ve seen over the past year, this environment provides opportunity for that type of return to be realized. The question, of course, is whether Wondery can get someone interested enough to shell out that kind of cash, and the presence of this report is presumably part of the process of drumming up that interest.

Context, for the unfamiliar: Wondery first gained prominence with Dirty John, the 2017 true crime podcast that came out of a partnership with the Los Angeles Times. I didn’t particularly care for it (not that it matters), but lots of people did, and the success of that podcast was significant enough to lay the foundation and set the template for what would become the company’s primary strategy: dressing up buzzy true crime and genre fare, packaging them as intellectual property assets, and leaning hard into the podcast-to-Hollywood adaptation pipeline. This approach resulted in a portfolio of stylized narrative productions — Dr. Death, Over My Dead Body, Bad Batch, The Dating Game Killer, and so on — that were couched by an assortment of Parcast-style genre feeds, like the generically named Business Wars and American History Tellers. The mix was rounded out by some miscellaneous add-ons, like Life is Short with Justin Long. Aesthetically, one could place Wondery shows within the tradition of a certain kind of cable television, somewhere between Investigation Discovery and the History Channel.

Perhaps more so than any other podcast company, Wondery has leaned very hard into the podcast-to-Hollywood adaptation pipeline, actively internalizing the trend as a core part of its business narrative. The company recently sent out a press release claiming that it has sixteen television projects in various stages of development, including a scripted adaptation of the Joe Exotic story for UCP, starring Kate McKinnon as Carole Baskin, that’s based on Wondery’s podcast version of the story. (Which, weirdly enough, is one of two scripted adaptations of that story currently being produced for television, the other being an eight-part series starring Nicolas Cage based on the original Texas Monthly feature from June 2019. Late capitalism is wild, folks.) Of course, Wondery has already seen one of its adaptations actually make it to television: Bravo’s Dirty John, which hit screens in late 2018. (Again, not that it matters, but I thought it was pretty okay. Connie Britton definitely deserves more roles, though.)

Wondery’s capacity as an intellectual property factory will likely feature heavily in its argument to potential buyers. However, that particular quality might prove to be somewhat less edgy these days, given the vastly increased competition specifically around that strategic channel. Indeed, at this point in time, there is at least one cheaper alternative on the market if a potential buyer is really serious about picking up a podcast company that can serve as some in-house market testing vessel for scripts and intellectual property. (I’m thinking, specifically, of QCODE, which has already cranked out two adaptation deals over the past year.) There’s also new pressure on the top end: just last Friday, shortly before Bloomberg’s story on Wondery hit the wires, Spotify announced a first-look partnership with Chernin Entertainment that formalizes the position of the streaming audio platform (platisher?) as an abundant source of intellectual property itself. Given Spotify’s rapidly growing library of original content and the sprawling nature of its content divisions, the argument for Wondery as a differentiated IP factory might run the risk of being crowded out.

Hernan Lopez, Wondery’s founder and CEO, insists that he has the luxury of time. He couldn’t comment specifically on any negotiation or on any detail of the Bloomberg story when we spoke over the phone yesterday, but he did seek to paint a picture that the company is acting out of a position of opportunity, not necessity. He claims that over the course of the year, despite the pandemic and its resulting economic turbulence, the company had received considerable inbound interest not just for investment and acquisition, but also by banks prospecting to take them public. “Nothing has to happen right now,” he said, going on to note that the main reason we’re seeing an exploration process at all was because he owed it to his staff. Lopez made a point to highlight the fact that all of Wondery’s employees are stock or option holders — and further, that “the majority of our company is owned by women/LGBT/people of color,” he emphasized.

I should admit that I didn’t have much time to adequately assess Lopez’s claims about Wondery getting considerable inbound interest, but what calls and inquiries I could make yielded a general sense that it’s plausible… to a point. One industry insider who’s familiar with financing activities in the podcast space told me that there will always be acquisition interest for something like Wondery, given the fact that it’s one of the few podcast companies that has reliable scale. It’s just a matter of whether there’s interest at the price being sought, in this case the $200 million to $400 million range. Furthermore, while Spotify has been the market-driving acquirer in the podcast space to this point, there is a possibility that the recent Stitcher-SiriusXM deal catalyzed interest among the bigger and legacy media/entertainment companies. There’s all sorts of corporations on the outside looking now; even Amazon has been agitating on the sidelines. To them, $200 million might be a relative pittance.

Then again, a handful of other sources raised skepticism, pointing out the legal situation currently surrounding Lopez. Speaking of which, we should talk about that, because you can’t really talk about Wondery right now without talking about the FIFA scandal stuff. In case you missed it, prior to starting Wondery, Lopez had been the CEO of Fox International Channels, and in April, the US Attorney’s Office in the Eastern District of New York announced corruption charges against Lopez and another former 21st Century Fox senior executive as part of the on-going investigation into the 2015 FIFA scandal. The 53-count indictment includes charges of wire fraud, bribery, and money laundering dating back to Lopez’ time leading Fox International Channels. (Lopez had exited Fox in January 2016 after what was reported as a reorganization, and founded Wondery later that month.)

Lopez pled not guilty and was allowed to remain free after posting bail of $15 million. “I am shocked to hear about these allegations,” he told me back in April, when I reached out for comment after that news broke. “The indictment includes a single paragraph that alleges nothing remotely improper. While I am sure the process I will have to go through will be very painful for me and my family, I am looking forward to a jury confirming my innocence following a trial.”

Lopez has continued to deny those charges and has generally gone about his business. In June, he appeared on the Recode Media podcast, talking shop about the podcast industry and the pandemic. Of the case against him, Lopez told host Peter Kafka: “The events the government alleges happened anywhere between five and fifteen years ago and had nothing to do with Wondery, and I had nothing to do with them… there’s not much I can do other than to fight it in the court.” He remains Wondery’s most public face, hosting the company’s presentation at the IAB Podcast Upfronts earlier this month. Lopez’s decision not to step down as Wondery’s CEO — or even take a back seat — has confounded more than a few podcast executives.

I asked him how he’s doing with all that, and whether his legal situation has complicated any strategic options for Wondery. “I feel very optimistic about my case, and I grow more optimistic the more time goes by,” he told me, expressing full confidence that the government got the case wrong. On the second thing, Lopez said: “Measuring the volume of inbound interest we’ve been getting, I’d have to say that the answer is no.”

The finance-familiar industry insider’s viewpoint supports the picture. According to him, if a potential acquisition is deemed sufficiently valuable, stuff like that tends not to matter. Besides, they could always swap the chief executive out.

I run this thing.