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16 July 2020

SiriusXM, Omnicom pour cash into podcasts as market heats up

Faultline has been paying more and more attention to podcasts over the past few months, and a pair of huge investments this week has shown that our interest is not unfounded. Digital audio giant SiriusXM and marketing network Omnicom Media Group (OMG) have both splashed big money on podcast related ventures.

By acquiring Stitcher for $300 million, SiriusXM now hosts the largest addressable audience in the US within digital audio – over 150 million listeners.

This cements its fierce competition with Spotify, which has just forged a $20 million advertising deal with OMG – yet another huge vote of confidence in a company which is working flat out to take as much of the market as possible. Spotify has gone from strength to strength in podcasts this year, making it a core focus of the business and boosting its offering with ad tech updates and exclusivity deals.

These investments are further confirmation that podcasts are experiencing something of a gold rush, but the real question is where all this armament is heading. The next few years will no doubt see some heated battles over podcast audiences as Spotify tries to drain all it can from old-time players.

SiriusXM currently holds more of the US podcast audience, but there seems to be nothing holding Spotify back from stealing these ears.

SiriusXM’s acquisition of Stitcher – its largest ever – is just one of many recent movements, the most recent being the acquisition of Simplecast last month. This was integrated with SiriusXM’s programmatic ad platform, AdsWizz, to form its publisher business, providing all the tools needed to manage and monetize podcast content.

A titan of digital audio, SiriusXM has found success in housing companies that cover all bases of podcasts – delivery, consumption, and monetization. Aside from audiences derived from its namesake service and Pandora, the company has an exclusive ad sales arrangement with SoundCloud in the US.

“The addition of Stitcher is an important next step as we continue to develop and strengthen our offering in the fast-growing podcasting market,” said Jim Meyer, CEO of SiriusXM.

The company is paying Stitcher’s previous owner, E.W. Scripps, $265 million, with another $60 million promised in additional contingent payments if Stitcher achieves certain financial metrics in the next two years.

Stitcher has undoubtedly found a good home, but we are not sure that a good parent company is enough to take the company mainstream. While it was a pioneer in podcast streaming, pre-roll ads, and premium podcasts, there are now far more mainstream companies that do all this and more.

The only way Stitcher could make any sort of comeback is to scale massively and while SiriusXM has the infrastructure to try to make that happen, we doubt the consumer interest is there. Spotify and Apple Podcasts are now ingrained into how a growing majority of consumers access their podcasts.

Stitcher has been somewhat of an unwanted child as of late. Acquired by streaming platform Deezer in 2014, it was then sold off to E.W. Scripps, a media company with a focus on US broadcast television, for $4.5 million in 2016. It was in this second home that another of E.W. Scripps’ podcast-centric subsidiaries, Mid-Roll, was incorporated into Stitcher.

If only these acquisitions had occurred a few years later, there may have been more patience. In the past few years, podcasts have become an emerging force in digital media, with many rushing to the format as a new frontier for advertising.

The successive acquisitions of Stitcher reeks of the bitter irony that often plagues technology pioneers. Stitcher was one of the first podcast-dedicated companies, starting in the early 2000s with a focus on podcast discovery and streaming, rather than downloads.

But unfortunately, both these elements were ahead of their time. Podcasts were deemed too long by many consumers to attract spontaneous discovery. Equally, one of the key benefits of streaming was pre-roll ads, but at the time Apple had the market lead, and podcasts were available on iTunes and iPhones add free.

Equally, Stitcher was a leading force in paid podcasts – an increasingly popular model when you consider Spotify’s emerging market lead. Stitcher Premium was launched in 2017 at $5 a month, but this only offered ad-free listening on limited selected content, as well as some exclusives.

The impending threat of Spotify was strengthened this week by a $20 million boost from OMG, a subsidiary of ad agency Omnicom Group. The deal will fund Spotify Technology’s podcast ad offering, covering the second half of this year.

OMG’s Chief Investment Officer, Catherine Sullivan, said, “We know that audio works very well at increasing consumer attitudes and driving action, but we believe that adding addressability to the podcast format may increase metrics even further.”

Spotify’s podcast offering has gone from strength to strength this year, and this investment marks a clear vote of confidence. At CES in January, Spotify introduced real-time dynamic ad insertion, as well as a tool allowing advertisers to measure how many listeners heard their ad, rather than just providing episode download metrics.

And then in May, Spotify inked an exclusivity deal with one of the most popular podcasts on the planet, The Joe Rogan Experience. Racking up close to 200 million monthly listeners, this deal was a clear display of might from the audio streaming giant.

Spotify seems acutely aware of potential problems in the ever-more competitive podcast landscape. Dawn Ostroff, Spotify’s Chief Content and Advertising Business Officer, noted, “There’s not even a unified metric by which podcasts are being looked at by advertisers.”

As things start to heat up, we imagine the last thing on these companies’ minds is standardization. Rather, it seems Spotify’s strategy is to invalidate the need for such initiatives by conquering as much of the market as possible.