Smarter, more sustainable deals in second wave of podcasting M&A

A second, more measured cycle of deal activity is underway in 2024, according to industry sources. This time the focus is on scale, profitability and a better long-term business model.

‘…If there’s one thing we’ve seen changing over the past 2-3 years, it’s an industry that’s learning to build more sustainable, smarter deals,’ - Will Pearson, President of iHeartPodcasts

Between 2019 and 2021, the industry was in rapid growth mode, prompting a frenzied wave of dealmaking. Spotify made a range of acquisitions including Anchor FM and Gimlet, The Ringer, Megaphone and Parcast and signed exclusive deals with Joe Rogan, Harry and Meghan and the Obamas. Meanwhile, Amazon bought Wondery and Sony bought Somethin’ Else.

Strategic buyers were in hibernation mode during 2023, according to Yale Yee, founding partner of Telos Advisors and a leading M&A advisor to the podcast industry. Many audio groups made redundancies last year.

Key players are still active in the M&A space, despite some caution following events of 2023, said Georgina Howes, principal consultant at research group Omdia. She noted Sony’s podcast division’s acquisition of production company Neon Hum Media in April.

The sources flagged the healthy growth in the industry. Advertising revenue will surpass USD 4 billion in 2028, according to Omdia.

Yee noted that it was still early days and a transformational time for the audio industry. He highlighted the uptick in major licensing deals signed during recent months. Some of the world’s biggest celebrity hosts - such as Alex Cooper, Dax Shepard, the Kelce brothers and the trio behind Smartless - have all signed new deals over the summer.

An industry executive added there was ‘a lot of M&A left in podcasting’.

Buyers and targets

Buyers from outside the industry are needed for a strong second wave of dealmaking, such as Hollywood studios, ad tech firms and diversified media players, said Yee. He noted that the large podcast companies could also be buyers.

Sister Entertainment group has reportedly increased its ownership of Campside Media - a leading narrative producer - to a majority stake, according to Deadline. Sister was founded by entertainment industry heavyweights Elisabeth Murdoch, Jane Featherstone and Stacy Snider.

The biggest market remains the US, with interest in Spanish-speaking countries and other English-language areas, noted Yee.

Both Pearson and Yee flagged the opportunities across growth areas including AI, monetisation and distribution. “As the world of podcast translation continues to evolve, we see a huge opportunity for AI here,” said Pearson. The text-to-speech AI platform Sonantic was acquired by Spotify in 2022.

Key growth genres are sports and children’s podcasts, according to the industry source. They noted that leading talent agency UTA had backed Starglow Media, an audio company creating only content for families and children. Starglow was founded by former UTA agent Jed Baker, who said that kids and family is the fastest-growing segment in audio due partly to concerns over screen time, according to The Hollywood Reporter.

iHeartPodcasts recently launched the Women’s Sports Audio Network alongside Deep Blue. “With this launch, we’re working to address the significant underrepresentation of voices and options in the women’s sports space,” said Pearson.

To appeal as potential targets, companies need to separate themselves from the pack and be a market leader in their niche, noted Yee.

Valuation and fragmented market key challenges

Overcoming valuation hurdles and a fragmented market are the main challenges to dealmaking, said to the sources.

Valuing podcast companies is difficult due to some deal details remaining private. As a listed company, Spotify discloses the value of many of its acquisitions in its annual report.

Also, the nuances of the audio industry aren’t well understood by large advisory banks, noted one of the industry sources.

Due to an influx of cash, some companies ended up on an unsustainable footing, creating challenges on the valuation front, said two sources.

A regional split is an issue contributing to a fragmented market. For UK players to grow, more international integration is needed, said another industry source.

One buyer working to address the market fragmentation is PodX. It is building a network that involves taking a large (51%) stake in companies and supporting them with business development, finance and international expansion.

Since 2022, PodX has acquired majority stakes in several - mainly European - podcast companies, including a recent deal with Platform Media. Its main backer is investment group Qarlbo, the private investment group of EQT founder and chair Conni Jonsson.

Many companies are opting for co-productions or blended models, rather than takeovers, noted one of the industry sources, who flagged Campside as an example. Alongside its tie-up with Sister, Campside has a ‘first-look’ deal with Wondery and recently partnered with Wavland on hit podcast Noble.

“I expect you’ll see a renewed interest in… those who are either creating great content, those creating new ways to produce content and those creating new ways to find content,” said Pearson. He added that there are several really good mid-tier companies finding their path forward.

A spokesperson for Spotify did not respond to requests for comment. Following several rounds of job cuts, Spotify is profitable and reported two consecutive quarters of net income this year.