Audio streaming: Podcast M&A hits the big time thanks to Spotify

Data InsightDealspeak 11 January

Audio streaming: Podcast M&A hits the big time thanks to Spotify

A two-decade-old concept, podcasting has only recently spawned a big round of consolidation.

Led by Spotify [NYSE:SPOT], which has acquired at least eight US companies since February 2019 to become a global podcasting leader, dealmaking for North America-based podcast assets has soared. It saw hockey-stick growth through 2020, after which it has tailed off but remained strong.

Why now and how much running room is there for more consolidation?

A USD 20bn opportunity

Music streaming offered by the likes of Spotify, Apple [NASDAQ:AAPL], Amazon [NASDAQ:AMZN], or Sirius XM [NASDAQ:SIRI] has become commoditized, say music industry executives. After all, industry rights and licensing structures are similar everywhere. Streamers need to differentiate themselves by adding new services, such as podcasts, audiobooks, the metaverse and gaming.

Podcasting has become a far bigger opportunity for reaping advertising dollars than initially thought. Podcast ad spend in the US grew from USD 479m in 2018 to an anticipated USD 2.1bn in 2022 – nearly double earlier projections – and should grow to USD 4.2bn in 2024, according to Dawn Ostroff, Spotify’s chief content and advertising business officer, speaking last June at the company’s investor day. Going forward, she believes podcasting will be a USD 20bn opportunity.

Spotify has committed more than USD 1bn to podcasting. In four years it acquired studios Gimlet Media, The Ringer and Parcast, podcasting distribution platform AnchorFM, advertising technology companies Megaphone, Podsights and Chartable, and podcast discovery company Podz.

Because of those investments, its podcast business has dragged down Spotify’s overall gross margins. But eventually it expects podcast margins to reach 40-50%, handily outperforming its music streaming side.

Other acquirors of podcast assets abound, including Sirius XM, Amazon and iHeart Radio [NASDAQ:IHRT]. Sirius XM paid a reported USD 150m for Team Coco Digital in May 2022 and USD 325m for Stitcher in mid-2020.

Future finds

What opportunities are there?

LiveOne [NASDAQ:LVO], a music and entertainment platform, intends to spin off PodcastOne into a separate entity in early 2023. Acquired by LiveOne in 2020 for USD 18m, PodcastOne was valued at USD 68m following a financing last July. PodcastOne is the No. 7 most-trafficked podcast network in the world, and has 1.75m paying subscribers. “The podcast industry is exploding,” says Robert Ellin, LiveOne’s CEO.

Auddia [NASDAQ:AUUD], which is looking to insert original podcasting during the ad breaks of its live radio streaming service, believes the next iteration of podcasting will be to make them far more interactive. Podcast 2.0, predicts Auddia’s executive chairman Jeff Thramann, will be an “on-ramp to social feeds” that lets listeners discover, discuss, share and create. Auddia is looking to roll up podcast hosting companies, but it could equally become attractive to podcast companies that want an AM/FM radio streaming capability. “We see a lot of people looking for margin and differentiation, and we have both,” says Thramann.

Other opportunities include Audacy [AUD:NYSE], which hired a bank late last year to shop its podcast studio Cadence13; children’s podcast provider GoKidGo, which could sell a minority stake or raise funding in 2023, and Descript, a video and podcast editing startup that raised USD 50m in November.

For years, media companies under-estimated podcasting. Not any more.

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