Sirius, Stitcher and a Howard Stern Theory

By John Lustyan | 3 min read

By John Lustyan | @johnlustyan | 3 min read

SiriusXM has bought their way into podcasting, spending up to $325m to acquire Stitcher, Midroll, and Earwolf from EW Scripps. While Spotify too has bought their way into podcasting with over half a $B in acquisitions of their own (Gimlet, Anchor, Parcast, Ringer, etc.), this marks the largest single acquisition in the space to date. Further, it loudly signals the satellite radio behemoth’s continued investment in their digital future, adding to their 2019 $3.5B acquisition of Pandora and rounding out a robust and diverse audio ecosystem. Across platforms SiriusXM’s collective audio portfolio now boasts leading satellite radio, podcasting, and music platforms that collectively reach nearly 250M users. 
There’s a lot of great reporting on the deal itself, so we’re going to focus on what it all means. Nick Quah, podcast reporter, illum friend and founder of the popular newsletter HotPod, sums his projection up as “my overarching hunch is that this acquisition was a ‘deal now, figure it out later’ kind of move.” At illum we spend a lot of time thinking about what ‘later’ looks like, so in the absence of an articulated strategy directly from SiriusXM, we’ll propose a few informed hunches of our own.

  • Stitcher’s Effective Sale Price Will be Closer to $265M than $325M.  Continued industry wide advertising shortfalls will leave podcasting well short of that $1B milestone so many thought realistic in February. Achieving ’20 and ’21 performance milestones ($30M in incentives each year) may prove unrealistic for Stitcher, resulting in earn-out challenges, org/culture strain and potential attrition. Let’s play this out, it’s realistic that Stitcher’s revenue forecast for 2020 was up a minimum of 20% from 2019’s $75M – figure somewhere in the $90M range. It’s also within the range of outcomes that COVID’s impact could actually see revenue drop by more than 20% from last year which may put Stitcher into an earn-out hole that even a strong 2021 can’t fully get them out of. 
  • A New Audio Ad Bundle Propels Podcasting.  SiriusXM will now boast a highly scaled, broadly diverse and highly competitive set of linear and on-demand audio inventory, and a new one-stop shop will emerge for advertisers to buy the bundle. Radio advertisers (and their $40B in ad dollars spent last year) won’t have to limit their buys to the confines of a car, adding on Pandora and now Stitcher inventory (we believe these 2 platforms will ultimately collapse into 1) will allow brands to more broadly and deeply extend their messaging to audiences that consume a variety of audio throughout all critical day parts (e.g., 80% of podcasts are listened to outside of the car). Expect marketers to increasingly bolster their buys with cross-platform campaigns, and further accelerate podcasting ad revenue growth by bringing larger brands and larger budgets into the fold. It’s likely an ad deal could be announced in the next year that dwarfs the $20M Omnicom x Spotify deal.
  • Howard Stern is Still a Big F$%ing Deal.  His latest deal with SiriusXM paying him $90M per year expires at year end. Stern is such a flagship for the premium satellite service, it’s been estimated 5-10% of subscribers may drop the service should he leave. At 5% that represents $230M in SiriusXM subscription revenue attributable just to Stern. Some argue he’s better off going it alone (see some overly simplified math HERE) and estimate his own standalone business could easily be valued in the billions. Interesting to see what was learned, good and bad from a talent standpoint and an enterprise value creation standpoint in the monumental Joe Rogan x Spotify deal. That deal saw Rogan lock in $100M for an exclusive license to his podcast, but also directly led to Spotify’s stock gaining $1.7B in value in just 23 minutes after the announcement. Rogan thanks Stern for “paving the way” for his success, but it may be Stern who soon is returning the thanks with a new high watermark deal of his own.
  • Spotify vs. Apple vs…. Liberty Media?  Just last week — after 6+ months of review —the DOJ greenlit a deal that would allow SiriusXM’s owner Liberty Media to increase it’s stake in iHeart Media (which reaches 250M Americans each month across digital platforms, podcasts, and 850 broadcast radio stations) from 5% to 50%. Just as Liberty rescued SiriusXM from bankruptcy in 2009, we expect them to rescue iHeart now. It might be time for us all to wake up to Liberty Media as a major player in the audio streaming wars. They have “quietly” (not to regulators, artist and consumer rights advocacy groups) been building a dominant (some may argue monopolistic) and diverse audio war chest to include live (30% stake in Live Nation), streaming (Pandora, Stitcher, JioSaavn) and broadcast (Sirius, iHeart). We’d bet news around increased iHeart ownership and more aggressive audio aggregation moves are just around the corner, and they’ll more publicly emerge as a formidable contender for future “share of ear”.