After Spotify's (NYSE:SPOT) recent string of podcasting deals, it's kind of weird to see a podcast acquisition where Spotify isn't involved. E.W. Scripps (NYSE:SSP) has been shopping around its Stitcher podcast platform for a couple of weeks, and it looks like it found a buyer in SiriusXM (NASDAQ:SIRI).
Sirius will pay around $300 million for the unit. That's a hefty return for Scripps. It originally bought Stitcher in 2016 for $4.5 million, combining it with its $50 million Midroll Media acquisition from the year before.
Still, $300 million is a good deal for the premium podcast platform, a specialized podcast advertising network doing sales for over 300 podcasts, and the owner of two podcast content networks, Earwolf and Stitcher Podcasts.
That compares to Spotify's acquisition of The Ringer earlier this year, for which it reportedly paid between $141 million to $196 million. At the time of the acquisition, Spotify CEO Daniel Ek exclaimed: "We bought the next ESPN." But Sirius arguably got a better deal.
A "Sirius" competitor in podcasting
Not only did Spotify leave another prominent podcast acquisition target on the table, it's allowed a serious competitor to take control of some valuable assets.
Sirius has been dabbling in podcasts for the last few years. Pandora was already streaming podcasts before SiriusXM acquired it last year. Sirius moved to add archives of its radio shows as podcasts on the platform. Last October it signed a deal with Marvel to license its characters for original podcasts.
With Stitcher, Sirius gets a much more popular podcast listening platform. While Spotify is still well ahead of any other third-party podcast platform, Stitcher is considerably more popular than most others.
Earwolf and Stitcher Podcasts produce over 40 podcasts in the comedy genre. Many are extremely popular shows with robust back catalogs of episodes. Stitcher gates some episodes exclusively for its Stitcher Premium subscribers as an incentive to sign up for the $4.99-per-month subscription. It also removes ads on podcasts for which it sells advertisements through Midroll Media. Midroll Media sells ads for over 300 podcasts, generating considerable revenue for Stitcher.
Overall, Stitcher generated $72.5 million in revenue last year. A price of just four-times revenue is substantially less than the multiple Spotify paid for The Ringer, which had $15 million in ad sales in 2018, according to a report from The Wall Street Journal.
Why Spotify may have passed
Spotify may see many of Stitcher's assets as redundant instead of accretive. While it's primarily interested in podcast content, it doesn't have as much need for an advertising network or a distribution platform.
Spotify's working on developing a programmatic ad-buying platform for podcast content. It could dynamically insert advertisements in podcast ad breaks based on what it knows about its listeners, which is substantially more than most other podcast listening platforms. It already has a large number of advertisers it's working with for its ad-supported music streaming service.
Meanwhile, a key part of Spotify's podcast strategy is driving listeners to its music platform and converting them into paid subscribers. Migrating Stitcher's listenership to Spotify would be a challenge. Sirius will likely leave Stitcher mostly as is, just as it's done with Pandora.
Still, Stitcher provided good value for the content and advertising media business. Spotify likely could've made it work while preventing a big competitor that was already dipping its toes into podcasting from diving in full force.