Breakingviews - Podcast deals put new spin on sorry old tale

Headphones are seen in front of a logo of online music streaming service Spotify in this illustration picture taken in Strasbourg, February 18, 2014. REUTERS/Christian Hartmann

DALLAS/NEW YORK (Reuters Breakingviews) - Most podcasts are basically blogs with microphones. So media companies looking to invest in the relatively new medium – such as audio streaming company Spotify Technology – should consider the rocky history of blogging titans like Nick Denton and Arianna Huffington. Even blogging’s success stories have struggled to live up to expectations.

Last year Spotify acquired Gimlet Media, Anchor FM and Cutler Media, companies that either create podcasts or help others to do so. It may buy sports and pop culture podcast the Ringer, according to the Wall Street Journal last week. And the New York Times is sniffing around about the production company behind the hit series “Serial,” the Journal reported on Wednesday.

Individually the deals make some sense. Spotify is primarily a distribution company that makes money mostly from selling subscriptions. But with an enterprise value that’s 2.8 times the coming year’s estimated sales according to Refinitiv, almost 60% higher than iHeartMedia’s, it needs to keep growing. Meanwhile adding a podcast to the New York Times lineup could help bring in new users or upsell existing ones.

The trouble comes when media companies try to choose the winners and losers in a business that has low barriers to entry. Huffington Post was one of the more successful blogs that made money. AOL bought it in 2011 for $315 million. But Verizon Communications, which acquired AOL in 2015, has since taken a huge write-down. Denton’s website aggregation company Gawker Media was bought by Univision for $135 million in 2016. That was after a lawsuit bankrupted the company and Denton personally. Univision has since acknowledged its value has deteriorated. and Funny Or Die are two others that have similar stories.

To be sure, some podcasts have lasting value. Edison Research estimates there are 17 million more monthly podcast listeners in U.S. than there were in 2018. But the podcast company Blubrry puts the total number of active podcasts at 700,000. Like any basement dweller that had a computer in the aughts, anyone with a decent phone can now create a podcast. Today’s highly prized blockbuster could easily become tomorrow’s background noise.


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