Large/Stable Audience, Low Production Costs and Back Catalog of Shows Have Spotify Interested in The Ringer

JohnWallStreet

The Wall Street Journal reported on January 17th that Spotify Technology (SPOT) is sniffing around The Ringer. Front Office Sports has since added that Bill Simmons seeks $200 million for his network of 30+ podcasts (which are downloaded 100 million times/mo. and generate $15 million/year in revenue). At $200 million, the company would be valued at twice the amount that AT&T Warner Media proposed to buy the company for last year. The two sides are said to be “early” in conversations. There is no guarantee a deal will be consummated.

Howie Long-Short: As an industry, podcasting remains in its infancy. For perspective, while digital advertisers collectively spent $107 billion in the U.S. in 2018, IAB’s ‘2018 Podcast Ad Revenue Study (published in June ’19) indicated that brands allocated just $479.1 million globally to podcast content during the same twelve month period. Ad budgets tied to the audio format still pale in comparison to the amount spent on other forms of digital advertising, but the podcast business is growing fast. Total podcast advertising revenues were expected to climb +42% YoY in 2019 (to $678.7 million), before jumping another +27% YoY in 2020 (to $863.4 million). Should all go according to plan, IAB expects the industry to cross the $1 billion dollar threshold in 2021.

Podcast ad dollars are growing because the medium is gaining popularity with both listeners and content creators. Blubrry reports that there are now 700,000 podcasts, with the number increasing by between “2,000 and 3,000 new shows” each month. While it’s worth wondering if we’ve ‘hit peak podcast’, NYPR chief marketing officer Lisa Baird says there is no end to the growth in sight. “Podcasting remains a nascent industry and there is still fundamental platform growth and medium adoption to be had.” Initially, podcast audiences were made up of “core avids.” Only now are the shows starting to reach a “more mainstream” audience. The rise of smart speaker technology (in +/- 25% of homes and every new car rolling off the production line) has made it easier to find the shows and as a result the number of hours spent listening continues to increase.

Spotify is looking to build out its podcast business because “the cost of entry [to create the content] is low, it’s a brand new medium [so adoption rates will continue to climb] and the audio format has a very attractive and difficult to reach audience” (think: highly educated, affluent, tech savvy). Because the medium speaks to listeners on a “one-to-one basis, [distributors] also have the enormous advantage of being able to customize programs [for advertisers].” Baird says that’s why there has been so much DTC advertising on podcasts to date and why Spotify believes the format provides such a tremendous opportunity for revenue growth and profit generation.

It's no surprise that Spotify is eyeing The Ringer. Bill Simmons' podcast (The Ringer’s most prominent show) is consistently rated among Apple’s most popular sports podcasts, Simmons has a large and stable audience, talk shows are cheap to produce relative to true-crime or investigative reporting and the company has a back catalog of shows that can be monetized. Baird couldn’t/wouldn’t opine on the rumored $200 million price tag - outside of Gimlet Media (acquired by Spotify for $200 million) and Stuff Media (acquired by iHeartMedia for $55 million) there have been few significant acquisitions in the space to compare it to - but she did say that “opportunities to purchase an independent top ten podcast producer are far and few between and thus are very valuable.” Of course, as the advertising dollars continue to grow, Simmons’ company will only become more valuable.

One would assume that Bill Simmons would continue to do his show if Spotify acquired The Ringer, but the company is worth pursuing regardless. SPOT has a large content library that it can cross promote, which makes Simmons’ podcast network - and the loyal audience he's developed - a valuable asset from a marketing standpoint. Spotify will be able to leverage its marketing muscle, international distribution and data capabilities to find new listeners with or without the Boston sports fan churning out new content.

There’s been talk that if Spotify were to acquire The Ringer that it would shutter the company’s written business. While the written content does serve as a cheap marketing vehicle for Simmons’ network, it could be argued that Spotify’s reach eliminates the need to pull resources from his audio first mission.

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