Acquired - Acquired Episode 16: Midroll + Stitcher (acquired by Scripps)

Episode Date: July 12, 2016

The meta show: Ben and David turn their gaze inward and examine the podcasting industry through E. W. Scripps’ recent acquisitions of the Midroll podcast advertising network and Stitcher podcast client. Featuring discussion of our own product process and metrics at Acquired. Sponsors:ServiceNow: https://bit.ly/acqsnaiagentsHuntress: https://bit.ly/acqhuntressVanta: https://bit.ly/acquiredvantaMore Acquired!:Get email updates with hints on next episode and follow-ups from recent episodesJoin the SlackSubscribe to ACQ2Merch Store!Announcements: We’re pivoting! (not really) Our new show description: A Podcast About Technology Acquisitions That Actually Went WellBut we are launching a new feature! Since so many of you, our listeners, are also tech and startup folks and/or other builders, we wanted to create a space to feature cool products, companies and side projects you’re working on. Thus we’re adding a "Community Showcase” section to the show. If you’d like to be included just send us a Slack message or email, and we’ll choose one submission to feature on each show. This episode we’re highlighting BESTR, from community member David Resnick (aka @the_rezonator in Slack), which is an online platform to share lists of great things. Check it out and let David know what you think.   Topics covered include: Top Google search results for “acquired podcast"Midroll’s origins in the comedy podcast Comedy Bang Bang (now an tv show on IFC) and exit last year to Scripps The structural challenges inherent to podcasting as a medium and the gap between audience size/engagement and industry revenuesOpportunities for independent podcasters and our own audience and business metrics at Acquired Stitcher’s long corporate history as a venture backed company, first acquisition by French music company Deezer, and now second acquisition from Deezer by ScrippsProblems with Stitcher as a product and industry reaction to the acquisition including John Gruber's response, Ben Thompson’s article on Stratechery, and Ben & James Allworth's discussion on their excellent podcast ExponentHandicapping Stitcher+Midroll’s chances for success within Scripps, and opportunities for new startups & innovation in the podcasting spacePioneer Square Labs’ own past efforts in the podcasting space and their process for evaluating potential new company ideas Shoutout to Pocket Casts and our listeners down under   Followups: Twitch: bringing tipping onto the platform with the  launch of Cheering + Bits (H/t Slack community member jamesk)Facebook Instant Articles:  pour one out for Facebook Paper (developed by the Push Pop Press team)LinkedIn: the hotly anticipated SEC filing detailing all the negotiation drama is now live (scroll down to "Background of the Merger” on p.31)  The Carve Out: Ben: Mark Titus, AKA @ClubTrillion is joining the RingerDavid: OKR’s and regular goal setting, including great “how to" from  GV partner Rick Klau

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thank our one listener that we see in our analytics on Zune. And the one listener on Stitcher who happens to be my wife. It's a great way to lead into this episode. Welcome back to episode 16 of Acquired, the podcast where we talk about technology acquisitions. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts. Today, we have a few notes before we dive into it. I wanted to take a minute and say a huge thank you to one of our listeners, David Resnick.

He's known as The Resonator in Slack. David is an entrepreneur with a company called Bester, but in a former career, he was a recording engineer and music producer. David's been helping us tremendously with audio quality, so I wanted to give a shout out to his company. Bester is a platform to share the best things. Curate your best into topics with automated images and links. You can use their widget with your branding embedded on your website. Find out more at bestr.co. That's www.bestr.co. Which brings me to my next point.

David and I were grabbing- Big announcement alert. Yeah. Doo-doo, doo-doo, doo-doo. If this were a really high production podcast, we would have some- We'd have sound effects. That's right. That's right.

We wanted to do something a little bit different with this podcast. We're at about the size where we could start doing some advertising. And actually, we'll get into our analytics a little bit later this episode as part of the topic of the show. Instead, we wanted to do something called Community Showcase. And since so many of our listeners are entrepreneurs that are building things, product people at companies or venture capitalists or finance people, really people that are involved in creating products themselves, we thought it would be really cool to try and just do a community focus every episode.

Rather than advertising, at least for now, we're going to experiment with this. We're not charging anything or making any money on this, but we really just wanted to do it as a thank you to our community and listeners and especially those that are really engaged on the Slack channel and emailing us. So if you have something you're working on and you want us to talk about it on the show, either hit us up on in the Slack community or send us an email. And that's acquiredfm at gmail.com. Also on our website. And we will aim to do start with one and maybe do more of these every show. Let us know what you think. Yeah, that's true. You can hit us up on Twitter to add acquired FM. And we may do a more kind

of traditional advertising thing later, but if you're working on something, we'd love to give you a shout out on the show. So David, you ready to dive in? I think with that, all of the preamble here is very appropriate because this episode is a meta episode about podcasts. Yes. Today, on this episode 16, we will be covering the acquisition by Scripps of both Midroll and Stitcher. So I think we'll dive right into it. David, you want to do history and facts? Yeah. And I should say before we do this, the theme here was topic was first inspired by my wife, Jenny. I wanted to make sure I give her a shout out. She was trying to get to our website and she was Googling acquired podcast and realized

that we weren't in the top hits on SEO. So this is a unabashed SEO play to get to the top of the Google hits for Acquired Podcast. This is the first I'm hearing of this. So E.W. Scripps Company, for those that aren't familiar, is a very old company by technology standards, not a technology company. They are a broadcast media company. And historically, it had also been a newspaper publisher.

But they operate a number of cable networks and television and radio broadcasting stations locally around the country. And in the over the last two years, they've made two acquisitions that have made a huge splash in the business of podcasting space. Something that Ben and I have gotten to know a little bit about over the last year. So the first company that they bought was a bootstrapped startup called Midroll. And Midroll has a super interesting history. Some of our listeners might be familiar with parts of the company. It was started in 2010 by two guys, Scott Aukerman and Jeff Ehrlich. And it was started as a company called Earwolf. It was actually a comedy podcasting network. So Scott had a podcast that was in LA and he had a radio comedy show that I believe was originally called Comedy Death Ray, I think. And they

eventually changed the name of it as a podcast to Comedy Bang Bang. And he had a bunch of comedians on the show and it had a pretty loyal following. And so they decided to sort of start a podcasting network around it. So they added a bunch of other comedy shows, added culture shows and music podcasts over time. And yes, it was comedy death ray that started as an ended. And actually, it originally the origins of it were in the Upright Citizens Brigade stand up comedy in Hollywood that Scott had started doing there and and then it actually went on uh separate from what the company that became mid-roll uh comedy bang bang went on to become a television show on ifc a comedy television show so interesting roots for what is today the uh giant among midgets uh in the in the podcasting world so they bootstrapped this company for a couple of years. They were

just purely a content network. And then in 2014, they were doing their own advertising for all the podcasts in the network. They were direct selling ads. And they started getting approached by advertisers who wanted to buy ad space on other podcasts that weren't part of their own network of shows that they were producing. And they kind of thought, well, that's interesting. So they launched a separate product that was an ad network, one of the first, if not the first ad network for the podcasting industry. This was in 2014. They called it Midroll Media. That gives you a sense of how new this whole thing is. I mean, it is less than two years ago. Less than two years ago, which is crazy given that, you know, podcasting has been around for

over 10 years, you know, going back to the iPod. Yeah. Pretty new to an advertising-based revenue model. Yeah. Or really monetization at all. Yeah. And we'll get into this in tech themes and others. But this industry, the podcasting industry, is so fragmented relative to how many people, millions, hundreds of millions of people listen to podcasts. So from the press release when they launched Midroll, they said,

The new company, Midroll, offers a 360-degree suite of production, distribution, and monetization services to artists, entertainers, and thought leaders. Advertisers benefit from access to the talented hosts of more than 120 shows and their engaged audiences totaling more than 15 million downloads a month using the industry's first user-focused self-service platform so this is crazy this is 2014 the first self-service advertising platform for the podcasting industry has 120 shows i mean compare that to like ad networks for display ads or other forms of advertising adwords has you know millions and millions of advertisers millions like this is maybe millions of sites hundreds of thousands of ad millions and millions of advertisers. Millions. Or maybe millions of sites, hundreds of thousands of... No, probably millions of advertisers. Yeah. This is like a grain of sand compared to every beach on earth. Yeah. And we'll get to the dollar amounts too,

but again, a grain of sand. But they sign up some pretty large podcasts to be part of the network. So WTF with Marc Maron, which is one of the largest podcasts out there. Barack Obama was on it recently. They have Bill Simmons' podcast and all the Ringer podcasts. So about a year after this, and one year ago now, Scripps comes in and they buy the company. And it was not announced at the time how much they paid for it, but it has since come out, reported $50 million up front and another $10 million earn out to basically take out the giant in this industry, which is a pretty good return for Scott and Jeff, considering that this was totally bootstrapped. They never raised any money. Yeah. Yeah. I mean, $50 million is... Well, we're not going to beat around the bush. We'll get into

the numbers now. Podcast advertising, there's not that much money spent right now in podcasting as a medium. According to a Wall Street Journal article from earlier this year, advertisers are only expected to spend about $35 million on podcasts this year, and that's only up about 2% from last year. So the whole industry, $35 million across the whole industry, of which Midroll represents many of the largest podcasts, but nowhere near the whole industry 35 million across the whole industry of which mid-roll represents many of the largest podcasts but nowhere near the whole industry i don't know about nowhere near i think it's it's not ridiculous to say they're the majority of the the advertising spend goes through mid-roll of independent podcasts probably but the largest podcasts are probably ah good

point like npr this american life yeah yeah good point there was a there's a quote by the um They're probably NPR, This American Life. Yeah. Good point. There was a quote by someone at Midroll saying that a handful of their podcasters gross over a million dollars a year, and they have about a 30% take rate. So actually, factoring back, it looks like Midroll's annual revenue is somewhere in the neighborhood of $2 million a year. Yeah. Wow. So Scripps acquires this company about a year ago, almost exactly a year ago. They operate it for a year. The team stays intact. The CEO, the mid-roll had brought in an outside CEO, Adam Sachs. I believe he's still the CEO of the company. And then just a couple of weeks ago, the other shoe

drops. So one of the issues, which again, we'll get into that's been holding the podcasting industry back again, relative to how much usage and engagement it has as a media platform with, with people and users out there, the amount of advertising spend in it is all pillars of the platform are basically completely divorced from one another. So you have the way people listen to and consume the user experience, consume podcasts via clients or streaming over websites, that's completely divorced from where the podcasts are hosted, where the media is hosted, and that is also completely divorced from the advertising model. Yeah. As a quick aside, why don't I give kind of what our stack and process looks like so people get a sense. And this is not unusual. I

mean, these parts are swapped in and out, but they're rarely consolidated. Just to start the whole process,.fm domain names are expensive. So you're not going out and getting, you know, a $8 GoDaddy. So you drop 100 bucks on picking up your.fm domain name because that's the hotness these days. So you need some way to have a consumer-facing website. So we have Squarespace for that. So Squarespace generates our RSS feed and gives us a public-facing site. Now, the way that we deliver podcasts over almost any client is by submitting that RSS feed to the iTunes directory. Now, iTunes doesn't host anything. They merely have a URL pointing at your RSS feed, which they scan about once a day, unless you manually force it. And then they update their directory with where your MP3s are hosted. Now we need a place to host MP3s. A lot of people use SoundCloud. A lot of people

will use something like PodTrack. For a while, we were actually hosting them on Squarespace, but you don't get a lot of analytics that way. So then you need a hosting service. So we use Libsyn for that, who's actually been really great. So you pay for a hosting service to host your MP3s, which your RSS feed points. Yeah. So now we've got just to get this podcast in the ears of you, dear listeners, we have to go through three companies. And there's a player that ships with iOS, obviously, or you can use iTunes on the desktop that points at the iTunes directory, but it's made available for others to point to also. So Overcast or Pocket Casts, or there is a variety of players that a lot of you are listening to, mostly on your iOS devices, over 80% on iOS devices. And again, that's completely decoupled from all the other pieces of the ecosystem. So at the end of the day, if you're advertising on a podcast, all you really know

is that your name and company was mentioned at an MP3 that got shipped down to potentially an unknown number of people using an unknown number of platforms, and you don't even know if they heard it. Yeah. And compare and contrast that to other technology-enabled media platforms like Medium for blogging or Facebook, which we've talked about a bunch, or Twitter or Instagram. All of those, the consumption of the content by users, the hosting of the content for the content producers, and the advertising platform are all very tightly coupled into one product. Yep. Yep. And in fact, it's the reason that those industries, the incredible measurement and the very tight coupling of all those components are the reason why those became

dominant advertising platform. I mean, for direct response ads especially, but even brand advertising requires an amount of measurement beyond what's available in podcasting right now. Yeah. I mean, if somebody were to come along and like give Ben and me a boatload of money to read their advertisements on our show, we basically could tell them nothing about what happened with that. We actually, is this a good time? Should we share what our numbers look like here? Yeah, yeah. Let's do that and then we'll pick the story back up. Cool. So here's what we could tell them. We could tell them, I'm looking at our LinkedIn episode two episodes ago, that we have about 6,400 listeners, which is unique IPs that have downloaded the URL. We are non-representative.

Most of the time, 60% to 70% or higher of listens are going to come through Apple's iOS player. We actually have, of that, what did I say, 6,400? About 4,100 come from Pocket Casts since they were kind enough to feature us on the homepage. So a lot of you are probably listening through the Pocket Casts app. About 1,000 from Apple. 297 from Marco Arment's Overcast, and then trickling on down from there through various browsers of people listening on the website. But we basically could tell them a little bit about geography. We can tell them the IP addresses and cities that people are coming from and the clients.

But we have no idea how many people actually got to that point in the episode. That's one of the critical pieces. We can't tell them how many of you actually heard what we would be being paid to say. Right. And everybody, you hear those promo codes in a lot of podcasts that give you that nice 10% off. That is literally the only way that the advertiser has to attribute to that channel. So a lot of the times, you might hear an ad for Squarespace and you go to Squarespace and you sign up, but you don't type in the code. That never ends up getting attributed to that podcast. The loop doesn't get closed then. So you get a little bit of the picture of some of the challenges with the industry. So Scri so scripts actually and other people have tried this before but scripts actually is

really brilliant here like they see there is a huge arbitrage right now between the user listener numbers and engagement on podcasts as a whole medium and the complete cluster that uh is the state of any kind of advertising or analytics on the platform. And so the only way you can solve this is to own the full stack and bring it together. You know, one way to own any sort of advertising on the backend would be to be the hosting and to be the analytics, but you couldn't do the measurement unless you have the front end too. So on the web, you could run JavaScript and understand, you know, has an ad been served? Are people clicking it? How long has it been on site? How long has it

been shown? Anyway, in a podcast, you'd need to get a player that had a pretty serious market share in order to actually, you know actually understand impressions or do anything fancy around during this part of the podcast, there's going to be something popping up. And if you want to tap that button, it'll take you directly to the site. So you don't have to remember to type it in later. Or even just passively to know, just like on Instagram, did somebody actually see this picture or this ad? Right. So a couple of weeks ago, the other shoe other shoe drops and scripts acquires a company called stitcher uh we'd say we suspect many of you know about it and might be listening to us on stitcher

but our analytics tell us there is one of you thank you jenny jenny is my wife she loves stitcher so stitcher is a podcast client uh for mobile devices and it was kind of an interesting story it was founded in 2008 by three guys noah shank peter devrode and mike gaffrey and just like now in 2008 podcasts were were also experiencing a torrid growth pace. And Stitcher managed to raise quite a bit of venture money to go after this vision of creating the front door, the aggregated user experience client to become the dominant podcasting client. So they raised about $25 million over three rounds, first from New Atlantic Ventures, and then from Benchmark and then from NEA. And unfortunately, it didn't work. So in 2014, about the same time that mid roll was getting launched, Stitcher actually ends up getting acquired by the French music streaming company Deezer, the sort of Spotify competitor. And that didn't work out too great

either. It sort of languishes within Deezer. And then last month, Scripps bought Stitcher back from Deezer. And we don't know how much Deezer acquired it for, but we do know it was an acquihire, so probably not much. And so Scripps buys Stitcher for the princely sum of $4.5 million in cash. Yeah, that's a shame. So this is a company that had raised $25 million as a venture-backed startup, failed, been acqui-hired by another venture-backed startup, and then now is being bought by Scripps for $4.5 million. Yeah. And so the strategy makes a lot of sense. All of a sudden, you're coupling the ability to really turn on the ad sales funnel with Midroll with the ability to have a front-end client that you could instrument and do some creative things around to do advertising.

At the end of the day, iOS is still the dominant platform that people listen to their podcasts on and it ships with a podcast client. So the challenge ahead is to be able to figure out a way to make Stitcher appealing to people that they would actually go and seek out another way to listen to podcasts rather than use the built-in Apple one. And again, Scripps gets this. This is the play that you would run if you want to actually unlock the value in the podcasting ecosystem. So Adam Sissman, who's the chief digital officer at Scripps,

who led the acquisition, he was quoted in the press release as basically saying just what Ben said. We certainly have the ad sales force and the connections that make us a leader in the space. But today we depend almost exclusively on distribution into other channels. This puts in place with a very strong brand, arguably with Stitcher, a very strong brand, another piece of the puzzle in the ecosystem play. Yeah. I'm just going to throw it. I don't know if it's a bias or if it's a, well, whatever. I

think Stitcher is garbage. Like every time I open the thing it is is yeah so let's get into why stitcher is garbage so the um the tech industry and especially the corner of the tech industry that is concerned with podcasts or have podcasts of their own basically like erupted in an outcry when this happens uh john gruber who hosts the talk show which might be the largest most influential technology podcast um He wrote a blog post saying mid-roll owning Stitcher is not good for the podcast ecosystem. Stitcher is popular, but my show is not on Stitcher because Stitcher re-hosts the audio, compresses it to hell, and unless you opt out, inserts their own ads. That's not how podcasting is supposed to work i firmly believe podcasting should be open like the web yeah so gruber is a grumpy old man on this one

i mean i think that there's a lot of things where i don't believe that the user experience delivered by um by stitcher is very good and i don't think the fact that they're compressing the audios is great you know you want to let podcasters kind of have creative freedom on that. I think the way they currently deliver ads is kind of garbagey. The list goes on. However, is publishing worse than it was when you had to purchase your own rack mounted web server and install your own blogging software? Are we in a place where if somebody creates the blogger or medium or the worst case scenario in everyone's mind is the Facebook of podcasting, is the world worse? I think there's a very valuable business to be made there. And I think you can provide potentially podcasting to more people than here today,

because you can come up with a real sustainable business around it. There's definitely some sacrifices that would have to be made there because I think that ultimately it would be a programmatic ad network with a full bidding system the way that AdWords is or the way that Facebook ads are. And maybe that upsets a lot of people and changes the way that it works a little bit. But I think it makes podcasting a more sustainable business. I totally agree. I completely agree. Gruber's being a grumpy old man here. The problem isn't what Stitcher is doing. It's that they're doing a really crappy job of it and like the parallels here and i actually i completely agree i think the opportunity is huge to create as um terrified as gruber and ben thompson you know another one of our uh folks we talk about on the show are a lot he has a blog post about about this on stratechery and talks about it on his podcast which is excellent exponent uh that he does with james allworth um they're terrified of the Facebookization of podcasts.

But the difference between Facebook and Stitcher is, like we talked about in the Instant Articles episode, Facebook cares a lot about the user experience and about making things beautiful. And the analogy is exact between Instant Articles, where they're taking content that publishers have created, they're self-hosting it within Facebook, and then they are serving ads that they are inserting into it and then sharing that ad revenue with the publishers. It's the exact same dynamics. The difference is Facebook acquired PushPop Press to do this very, very. And Stitcher is a piece of crap. Yeah. And Stitcher is under new management now. So I'm very curious if Midroll... Midroll strikes me as a very tasteful company. And Midroll might do really good things with Stitcher. I worry

about it in its current state. Absolutely. There are a bunch of questions that we'll dive into. Um, the first question is what can Stitcher become as part of mid-roll and as part of scripts? And that's interesting, you know, talking about in the context of our show, we've never really seen something like this, at least on our show, go successfully before. We're acquiring a product that, you know, again, we're hating on Stitcher here. Apologies to all of the one stitcher fans listening to us but you know we've never really seen it a product be acquired that isn't fundamentally like a good product and then so they're sort of like betting on hope here

okay well that was a little different but but you. But that isn't like a technology company with a great team behind it and the capability within the company to at least deliver the minimum viable product. Here, it's a small subscale technology company that's part of an old school media company acquiring another vastly subscale technology company. And what they need to do is build an incredible technology-enabled user interface. Yeah. And have we seen an example? I don't think we've done an example on the show yet where a company does... Actually, I take that back. We sort of saw it with Office. But where I was going is a company does multiple acquisitions and sort of combines them in a kind of a classic conglomerate way to build a new product from combining existing ones. And the example I'm thinking of there is

with the Accompli acquisition, building Sunrise Calendar into Accompli. But we have yet to see if that is a product success or market success yet. Yep. Yep. Well, and they were, you know, the difference there too, is like the parent company acquiring them all was Microsoft and, you know, you could say whatever you want about Microsoft, but there are a lot more, their technology chops are a lot better than scripts. Yeah, for sure. Um, so we're, uh, um, we're obviously biased by being part of the startup ecosystem, but I'm, um, I'm very excited to see what entrepreneurs come up with new de novo businesses to tackle this problem. Yeah. And so, you know, we're talking about all the weird forces at play in podcasting right now and kind of the weirdness of the ecosystem.

There's sort of secret meetings going on with Apple and some of the bigger publishers and existing podcasters to understand, you know, should we make this something where it's actually a monetizable platform and they own the ecosystem top to bottom. And one of the things that's sort of playing into that, the reason everyone's making a big deal is because the cost per thousand impressions or the CPMs that podcasting commands, at least right now, and may be attributable to the audience that it has, being a very high value audience, but they have $100 CPMs. And for anyone in sort of advertising or who has done online advertising- That's pretty unreal.

Yeah. The average YouTube CPM in 2014 was $14. Web display ads can get anywhere from $10, $5. Podcasting is like total breakout. And that's the ceiling with $100 CPMs. And I think for this show, we'd be somewhere between $25 and $50. But the people that are making their living as independent podcasters right now are doing great. They're doing great. If you have an audience and you're an independent podcaster, you can do great. Yep. And actually, Ben Thompson makes a good case a while ago before The Ringer started about how Bill Simmons could move to solely podcasting, how it's much more economical, actually, if you're a writer, but you're also someone who could do a show, to write for free and publish that as your lead gen and then monetize your podcast audience.

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125,000 businesses now using Huntress, and they rave about it from the hilltops. They were voted by customers in the G2 rankings as the industry leader in endpoint detection and response for the eighth consecutive season and the industry leader in managed detection and response again this summer. Yep. So if you want cutting-edge cybersecurity solutions backed by a 24-7 team of experts who monitor, investigate, and respond to threats with unmatched precision, head on over to huntress.com slash acquired or click the link in the show notes. Our huge thanks to Huntress. All right, let's maybe jump into acquisition category. Yeah. So, I mean, I think it's pretty clear here.

This is a product acquisition that is getting rolled into this suite of products. Yep, yep, gotta be. If they can daisy chain these things together correctly, there's a bunch of money to be made. I think it involves having exclusive content. It's hard for me to imagine a reason to go download a podcast player to play. Well, it's hard for me to imagine going and downloading Stitcher to listen to content that I could get otherwise. But if it became sort of a Netflix type thing where they're producing original content and signing exclusive artists, and maybe it doesn't quite use that model where I'm paying a subscription fee, but it does use the model where I have to be listening on the very place where I can be advertised to, then they might be able to create a real business there. Yeah. And this is very explicitly, they've said, so this is their plan. And so Midroll has already had two pieces of the ecosystem together with the content network and the advertising network.

In a news article, in an interview after the acquisition of Stitcher, Midroll has just come out with a new premium service called Howl, which offers original shows and ad-free archives of popular podcasts. So they're clearly moving into this kind of Netflix type category. And they interviewed the VP of Business Development at Midroll, Eric Dine, and he says, clearly, at some point, the two will intersect. Yeah. Yeah, yeah. Okay. Moving on to, do you want to do what would have happened otherwise? Yeah. I mean, I think in this case, this is sort of the first real splash that's been made of somebody trying to do the obvious and bring the three pillars of this medium together. So I think otherwise, we would just continue to drift.

Yeah. Stitcher continues to languish. Midroll continues to grow incrementally and is able to sell ads to some of the big but not network big podcasts. And we continue to see a lack of consolidation and no money go to podcasting. Yep. And what's interesting in the, this is almost like not what would have happened otherwise,

but what will happen now. I do wonder if this is like the shot across the bow that wakes up some folks in the entrepreneurial and startup community to realize, man, there's a big opportunity here and build or attempt to build, you know, what Stitcher tried to in the beginning. Pioneer Square Labs. And we were really interested in podcasting just based on the growth trajectory of the amount of people that have started listening to podcasts in the last couple of years. It's still not a huge number of people, but the growth rate's really good. And one of the reasons, I mean, for all the reasons on this show that we've already talked about, we shied away from it, where there's only $30 to $40 million spent a year on it. You can't really stick your toe out with an MVP.

You have to be the hosting, the analytics. You really have to have a client out there and your client has to have some reason to be better than Apple's client because shipping with the platform is a huge advantage. There was one thing that we really wanted to do and that was dynamic ad insertion so that we could sell ads programmatically and one thing that we felt was super important was for the host to be able to read the ads because that's been one of the things that commands the really high cpms in the world today and one way that we were going to do that is have the host go through and record ahead of time the ad reads. And then we could insert in the host's own voice anywhere throughout the audio.

Oh, that's cool. The ads. attend mp3 urls and dynamically generate those episodes with the appropriate ad for that person at the moment that it gets downloaded by their podcast client and send it specifically to them we started looking around there really are some some people tackling this right now there's a company called acast that's doing dynamic ad insertion and actually just recently panoply launched a company called megaphone or i guess a product called Megaphone.fm. And they also are doing the dynamic ad insertion. They've got this cool UI where if you're an advertiser or a host, you can go in and select the spots where you want to insert the ad. So, you know, some people are

making runs at this. I continue to think that you need to be able to show real measurement from the client side. But who knows, maybe something crazy will change and Apple will have an API to plug into for that. You know, they're suddenly not averse to... Services revenue? Well, yeah, and an advertising model, as we're seeing with changes in the App Store. And if they can find a way that continues to ensure user privacy, but makes podcasting more valuable, maybe we'll see a way for Apple to open up reporting of podcasts to advertisers. I don't know. Yeah. Two things I want to mention. One, just mention real quick. I feel like we haven't quite sharply pointed out yet. The other dynamic that's really interesting in this industry is Apple. I mean, Apple created this medium or it was created around Apple.

They're still the dominant player, but they don't care about it at all. It's funny. They sort of inherited it too. People were creating podcasts and sending them around ad hoc. And people were putting them on their iPods. And then finally, Apple put a podcast section of the iTunes Music Store, which was just a directory and not a hosting service, for people to do this. And it's so funny that it's still even called podcasting, right? Nobody has an iPod anymore. And Apple has just accidentally had this nascent, huge opportunity unfold

that they're really not taking advantage of because it's really not an Apple-type business. You know, Apple classically sells hardware and makes a profit on that hardware and then has software and services to differentiate that experience. And that doesn't sound like what this is at all. But in this new kind of shifting Apple, maybe we'll see this, but my bet would still be on Apple letting it exist. And it also, you know, I want to bring up one thing that we've thought about, I've thought about, you know, before and in preparing for this show is like, I bet a lot of listeners are saying, well, hey, I mean, like what you guys are talking about already exists. It's called SoundCloud. And like, that's true to a certain extent, but I think

SoundCloud and Apple both, like they're very focused on music. Um, I actually just right before we started recording the show, went through the, um, for some reason, my old SoundCloud account got deleted or something. And I, I went through the onboarding process like it's super clear that soundcloud is about music and that they're pushing people to music not to podcasting and and same with apple you know they're invested they bought beats uh maybe we'll cover that in a future show you know and redid apple music they're investing a lot in that um but nobody is really doing this you know i think you if you're gonna build a really great client and consumer experience, it has to be about podcasts. Yeah. Agreed. Second thing I wanted to mention real quick. Ben, this is a great example since you were talking about PSL. I'm curious. I bet a lot of our listeners are curious. What's your process

at PSL? How did you guys, when you were diving into podcasts, like, what did you do to validate the market? Like, how did you look at this? Yeah. So, a lot of the times we start with a space that we think is interesting. And that's what we did here. And I really, you know, I'm kind of the guy that buys all of our ads on social and search. And in sort of knowing exactly how that world works, it was kind of like blindly obvious to me, like, wait a minute, if I want to buy ads on a podcast, I have to do what? Like manually get in touch with someone at mid-roll and there's a minimum spend. Or at the podcast directly. Yeah. It's a completely immature market. And so we started pushing on that opportunity and trying to figure out, okay, what would it look like if we actually pursued this?

So we do two things. We do kind of a top down and a bottom up. And from a top down, you know, we look at what is the market today and what market forces do we think will make, you know, what does it look like in five or 10 years? And obviously that's a guess, but we try and make that an educated guess. And we look at things like, you know, in this, Apple could be either a big risk or potentially make this a lot easier. And it would be all about timing. So we look at sort of that top down of, okay, how much money could this business really make? What's the TAM there? And then we do a bottom up. And I think that if we were a VC firm, we would kind of just do the top down. And if I was an entrepreneur, we would just do the bottom up. house in the early stages, deciding whether to go after the opportunity and actually doing some of the building. Once it kind of passes that sniff test of this could be a big business, which this

one didn't, then we start really validating. Can we acquire customers for significantly less than the lifetime customer value, you know, building as lightweight of stuff as we could. And we really couldn't think of a good way to lightweight test this because again, you'd have to be the host, the analytics provider, ship the client, get client adoption. It's a years, years long process. And it could be an interesting business, just not one that we could do in sort of a short early validation timeframe. Which again, kind of brings us back to this dilemma. And we know we'll see what happens with this set of acquisitions from scripts but this dilemma that the industry's in where like it's kind of hard to just start a company to fix this like to just start facebook you know or just start instagram right you have to do a lot more heavy

lifting than they did up front and you have to contend with these players like Apple that are hugely dominant in the industry, but a really complex set of motivations. Right, right. You would have to have a lot of confidence there to make a big investment in this that Apple wasn't going to flip some switch because it seems like while it's not in their wheelhouse, huge risk to your business.

Yeah. At the same time, like there is like, let's be clear, like as a VC, I believe, and you probably believe too, Ben, the numbers don't lie. There's a massive opportunity here. Yeah, something will happen in podcasting. It's not totally clear how it'll shake out. And our big question in grading this one is, do we think it's going to be these guys? cover that. So I feel like we were dancing around this a little bit in talking about how the distribution of the audience and listeners is across the industry and different podcasts. My tech theme is the power law. And we see this in so many areas of tech, whether it's the app store and that the top 10 apps are responsible for whatever, X 70% or whatever of downloads. And it's the same thing here in the podcasting industry. So Ben, you had, X 70% or whatever of downloads, you know, and it's the same thing here in the, in the podcasting industry. So Ben, you had some stats on this. I think,

was it that the top 10 podcasts are responsible for 40% of listeners in the entire industry? It's the, yeah, the top 10 publishers, because those top 10 publishers, NPR, This American Life, those sorts, WKYC, I believe, or W WNYC. Um, I think W WKYC is Cleveland, um, WNYC that they have, uh, uh, you know, a big portfolio of podcasts and they're sort of just the, the parent publisher, but yeah, the, the, the top 10 are responsible for 40%. So, you know, again, here's another, you know, puzzle you have to unlock to win this industry is you need those top 10 publishers to compete with the platform defaults. And, you know, Apple ships a podcast app. Even before that, they bundled podcasts into iTunes on the phone.

And, you know, that gets someone 90% of the way there. And are they actually going to go that extra mile and go look for a different podcast app? And are they going to look for yours? And is yours differentiated enough? And I think premium content might be the way to do it. But businesses have won, sometimes even illegally over the years because they were able to bundle with the platform. I mean, look at how IE achieved dominance on Windows or, yeah, being shipped with the platform is a very clear way to win. And actually, that's in the mobile world pre-iPhone. You know, it was really difficult to install those Java apps on your flip phone. And the way that those companies used to actually get their games and apps

distributed was bundling, because if it's on the platform, it's going to get used. And it's interesting, I'm thinking about the blogging space and Google acquired Blogger. And you could argue that that's an example of the platform, Google owning Blogger, owning the, having an unfair distribution of the distribution channel, owning the platform, Google owning, Blogger owning, having an unfair distribution of the distribution channel owning the platform. But Blogger never had the kind of market share that iTunes does, that Apple does with podcasting. Yeah, that's true. All right. You want to grade it? Should we bring this one home? Yeah. So I think we should grade them

separately and look at mid-roll and then Stitcher. At least that's how I want to break mine down. I like that. Mid-roll, while it is a better company, they're really taking a flyer on spending $50 million on that thing. Their revenues right now are, I think, like $1.5 to $2 million a year. And you really got to believe that there's going to be like a a big change in the way that you can stick these businesses together to make that change meaningfully and

were i a betting man i'd bet against them so i'm gonna on the other hand though you know in defense of mid-roll um they do have you know they are the uh the advertising network for some of the biggest podcasts which as we were saying was was one of the keys to unlocking this sure sure uh i still don't know if it's 50 million like i don't know i i this is to me a old media company that has money lying around sees their cash pile, and is concerned about the future. And sees the opportunity in podcasts. Sees the opportunity, but $50 million for something that makes $2 million a year? How much did Facebook acquire PushPop Press for?

We don't know, but a lot less than that. Yeah. Yeah, yeah. Midroll is a D for me. Of the two companies, Mid mineral is definitely my favorite but god that's a high price tag um stitcher could they have bought anything else i mean like if there's another podcast client out there i guess stitcher already has this ad pipeline built in that they wouldn't have to sort of do themselves but to to me, you know, just pointing mid-rolls ad sales at Stitcher,

I have more faith in that as sort of a small business than I do of them executing the large opportunity of creating the top to bottom ecosystem successfully. So I'd say, you know, I'd go a B on the Stitcher acquisition just because they've already got mid-roll and they can point those ads into Stitcher and I'm sure make some money out of it and get their four and a half million out. But I don't think they're going to pull this big shebang off. Yeah, the whole rodeo. Yeah, I think I'm with you. Looking at them separately, I mean, one of the things with mid-roll, I'm not going to be as harsh as you.

Really, even though the company was founded in 2010, mid-roll only started two years ago. So yes, that was a very healthy multiple. Whatever their revenue was, it was a healthy multiple that they paid for it. But I'm sure it's growing very quickly. And if they can get, uh, start to get some of the big, big publishers and represent them, maybe there's more to it. You know, I'm not incredibly bullish, but I'd give it maybe a C plus B minus. Now, you know, again, the real issue is TAM, right? Like the whole key to this is you have to unlock the TAM, the total addressable market.

And you have to do that through an integrated platform, which brings us to Stitcher, right? And we have been hating on Stitcher in this, with probably with good cause in this episode. But again, like, you know, what you were just saying, Ben, I think is interesting. Like who else were they going to buy? Or like, what were were just saying, Ben, I think is interesting. Who else were they going to buy? What were they going to do? They knew they had to have a client.

And this is scripts that we're talking about. And Midroll, while a great company and a podcasting company, it's not a tech company. It's an ad network. And it's like a low-tech ad network, like spoken word. This is a people business, not a tech business. So they didn't have anybody that they could build this internally. And then who are they going to buy? They're not going to buy Overcast, which I use and love. That's great. Margot Arman. It's great.

He's not... No way he's going to sell this to anybody, let alone to Scripps. How many... I wonder how many users Pocket Cast has. Oh, Pocket Cast. Oh, I don't know. Pocket Cast could have been a potential one. But Stitcher, for all of its problems, and we don't know how engaged these users are, but they had 8 million registered users. Now,

I bet a lot of those were lapsed users. But if you do the math, they paid $4.5 million for 8 million registered users. So they paid just over 50 cents per registered user. Yeah. If, big if here, they can magically hire some great people to come in and actually build a really good user experience here. Like that's fairly cheap for like a pretty big headstart.

Again, I don't think they're going to pull this off. So I'd give that a B. You know, it's not terrible. They didn't spend much money on Stitcher. But I'm handicapping the odds of this success at low. But again, if they pull it off, right, they're going to look brilliant, right? Like if they can pull it off, I don't think they will. They will have spent, you know, $54.5 million to win this category.

I don't think they're going to pull it off. Yeah. Hey, I also just figured out in looking at Crunchbase to see if Shifty Jelly, the awesomely named parent company behind PocketCasts, if they'd raise any money. And according to Crunchbase, they haven't, but they are an Australian-based company. So that explains our Australian listeners.

Ah, very cool. Shout out down under. Yeah. If you know anything about Pocket Casts, hit us up in the Slack community or by email. We'd love to chat about it. Okay. Should we move on to follow-ups? I think it's time. Time. All right. Three quick, but super interesting follow-ups this week. First, Twitch going way back to one of our earlier episodes. We talked a lot in the episode about the massive volume of transactions that are going through the Twitch platform in tipping, which for those that are unfamiliar with tipping or did not

listen to the episode, go back and listen to it. I think it was one of our best early episodes. It's raw, but it was good. So tipping is very raw. It's this amazing phenomenon on Twitch where people will just give other people money. So if you're streaming on Twitch, and for a variety of reasons, but your audience will just give you money. It's called tipping. And when Amazon acquired Twitch a couple years ago, all of this was just happening off the platform through overlays and screen overlays that broadcasters would use. Could use Bitcoin or PayPal or stuff to do this. They've now brought this onto the platform and they just launched it with a feature called cheering on Twitch. And it uses a virtual currency called bits.

And super interesting. This is going to potentially unlock a massive revenue potential for Twitch, the company that was already happening in the ecosystem. And also want to give a tip of the hat to our Slack community member, James K, who brought this to our attention in the Slack group. I had not seen it. So that's one. Two, follow up to Facebook Instant Articles, Paper, RIP. Oh, man. It was the best iOS app ever, period. Hands down.

That was so good. High praise from Ben. Facebook Paper is being shut down, sadly. But the spirit lives on in Instant Articles within the main app. If you never experienced Paper, you have until the end of July to rush out, download it, play with it. Yeah. So pour one out this weekend

for Facebook paper. And then lastly, super interesting. We posted this in the Slack community, the SEC filing for LinkedIn, detailing all of the ins and outs and blow by blow of the acquisition process came out and it is super interesting. So we'll link to this in the show notes. And it's also in the Slack group. But

turns out, there were actually five parties involved in bidding for LinkedIn. So Microsoft, obviously, and then, you know, everybody assumed, you know, and we speculated on the show that Salesforce, it's now come out, Salesforce was heavily involved in the acquisition, but there were three others. Two have been identified as Google and Facebook. The Facebook story is pretty interesting. Apparently, assuming that Facebook is the party that is referred to in the filing, Reid Hoffman had a meeting with the CEO of the company, of Party D or whoever it was, Mark Zuckerberg, and said, hey, there's actually this acquisition process for LinkedIn going on. Would Facebook be interested in... And Zuckerberg was like, no. So that was not an involved process with Facebook. But Google apparently went pretty

far down the path. And then so did the mysterious Party C. Nobody knows who Party C is, but they also spent a lot of time looking at LinkedIn. The other interesting thing in this filing is the bidding war. So the first bids, first bid that Microsoft put in for LinkedIn was $160 a share. And if folks might remember, the deal got done at 196. And so what happened, and I think that was about $5 billion worth of value. That's the difference there. And so it turned out, so Salesforce and Microsoft were bidding against each other, started at 160. Deal was on track to happen. Microsoft had won it at 182 per share.

The merger agreement was being negotiated everything was going along and then salesforce or party a as it's referred to in the filing just comes in over the top after after having you know essentially pulled out um with a 200 per share bid kind of out of nowhere but the bid was not all cash it was mostly stock and so that kind of threw the process through a big wrench in the process. The whole deal with Microsoft had to get renegotiated and ended up getting done at $196,000 all cash. Wow. Great move, Salesforce. Yeah. I hope that Reid Hoffman and Jeff Weiner sent a really nice bottle of wine to

Mark Benioff after that. Yeah, no kidding. And we'll now compete against him. Yes. Should we do the carve-out? Let's do it. Alright, nice. I have a quickie this week. It's funny, we mentioned The Ringer twice already on this podcast, and The Ringer itself has been my carve-out

the week that it launched. But my carve-out this week is one of my favorite writers of all time announced this week that he will be starting at the ringer. And that is Mark Titus. Mark is a fellow Ohio State alum who was known or still is known, it's his Twitter handle, as Club Trillion. And it's the most awesome name of all time because Mark would ride the bench um and would get put in for one minute per game so his stat line read one zero zero zero zero zero zero zero and so he started this blog

called club trillion while he was at ohio state with the the tagline views from the end of the bench and he became this phenomenal sports writing personality. And it's just hilarious to follow on Twitter. And he wrote, I think he wrote for Grantland actually when Bill Simmons was there. So really excited to see Mark's writing come back to life at the ringer. That's awesome. I love that. Was he there when you were there? He was. Yeah. I'd get to watch his few seconds a game when they'd throw him in. That's awesome. My carve out for the week is actually a concept, a management tool, self-management or of your teams that probably a lot of you are familiar with called OKRs, Objectives and Key Results. And I bring it up because we just passed the midway point in the year. So I was doing my mid-year sort of self

review and check in. I've been using OKRs for a couple of years. They're really great. So the idea, there's a cool history behind it. Google uses OKRs and they were introduced to Google when they were still a tiny startup by John Doerr from Kleiner Perkins, who was on their board. And so there's a great, we'll link to it in the show notes, Rick Clow, who's a partner at Google Ventures and had been at Google and YouTube before that, gives a great kind of hour-long kind of overview about how the objective and goal-setting process works at Google. It's really good. I just use it myself, but it also is great for teams. And the idea is that you set a small finite number of objectives for yourself in any period. And an objective is a high level thing. So one of mine is help my portfolio

companies. And then you set KRs or key results under each objective. And the key results have to be smart. So specific, measurable, actionable, realistic, and time-bounded i think that's it anyway but so like one like one i have is spend at least 15 hours per quarter face to face with each founder of each portfolio company i work with so like it has to be super clear did you hit this yes or no at the end of the quarter anyway it's a great system the concept is you should really stretch yourself and achieve half or less of your key results. But anyway, shout out to OKRs. Awesome. We want to thank our longtime friend of the show, Vanta, the leading trust management platform. Vanta, of course, automates your security reviews and compliance efforts. So frameworks like SOC 2, ISO 27001, GDPR, and HIPAA compliance and monitoring, Vanta takes care of

these otherwise incredibly time and resource draining efforts for your organization and makes them fast and simple. Yep, Vanta is the perfect example of the quote that we talk about all the time here on Acquired, Jeff Bezos, his idea that a company should only focus on what actually makes your beer taste better, i.e. spend your time and resources only on what's actually going to move the needle for your product and your customers and outsource everything else that doesn't. Every company needs compliance and trust with their vendors and customers.

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and they even integrate with over 300 external tools. Plus, they let customers build private integrations with their internal systems. And perhaps most importantly, your security reviews are now real-time instead of static, so you can monitor and share with your customers and partners to give them added confidence. So whether you're a startup or a large enterprise, and your company is ready to automate compliance and streamline security reviews like Vanta's 7,000 customers around the globe, and go back to making your beer taste better, head on over to vanta.com slash acquired and just tell them that Ben and David sent you. And thanks to friend of the show, Christina,

Vanta's CEO, all acquired listeners get $1,000 of free credit. Vanta.com slash acquired. Well, that about does it. If you aren't currently subscribed and would like to hear more, you can subscribe from your favorite podcast client. And if you feel so inclined, we'd love a review on iTunes or to tell your friends on Twitter or Facebook, too. Thanks so much for joining us. Till next time. Till next time. Who got the truth? Is it you? Is it you? Is it you?

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