Wondery — the economics behind podcasting
The stats show that podcasting has become one of the fastest-growing content mediums out there and I’m willing to assert that audio will only continue to grow further. As of December 2020, Apple Podcasts hosted 1.7 million podcasts with 41.9 million episodes, this represents a 75% and 50% CAGR (compounded annual growth rate) respectively from the same stats in 2018.
A lot of the podcasts I listen to are conversational (The Receipts, Pivot, and 20VC are some really great ones) but one of my all-time favourites is ‘Business Wars’ by Wondery. The content is incredibly immersive, with high production value and *chef’s kiss* storytelling. So naturally, this week we will be delving into the company behind it and exploring how podcasts make money
Company History
Wondery was launched in 2016 by former Fox TV executive, Hernan Lopez with backing from 20th Century Fox (now 20th Century Studios). Lopez had been inspired by a true-crime podcast “Serial” and was convinced that the public radio series was the start of a new form of storytelling that would change the way we consume media.
Four years post-launch and Wondery has become the largest independent podcast publisher in the world. The company recently announced that it had signed an agreement to join Amazon Music and the deal is rumoured to have exceeded $300m
Some company facts:
- ~20m monthly unique listeners (just under 40% of these listeners are based in the US)
- ~57m global unique streams and downloads as of December 2020
- Prior to the acquisition, had raised a total of $15 million in funding from Advancit Capital, BDMI, Greycroft, Lerer Hippeau and others, according to Crunchbase
- WSJ reported that Wondery’s last funding round, in June 2019, valued the company at $100 million (the Amazon deal represents a 3x increase in valuation in just over one year and a half)
- The company’s founder Lopez is among two former Fox TV executives charged with money laundering and wire fraud over alleged bribery of football officials. Lopez has pleaded not guilty to the charges, which were filed in March 2020
Revenue and Cost Drivers
The company is estimated to have exceeded $40 million in revenue in 2020 (+75% year on year) and unlike most other podcast publishers, Wondery isn’t completely dependent on ads. Approximately 75% of that came from advertising and the rest through Wondery Plus, it’s recently launched direct-to-consumer app, where users can pay $4.99 a month for ad-free early access to shows and other bonus features.
I think it’s safe to assume that costs in podcasting are pretty low and that gross margins in the industry are healthy, let’s assume upwards of 40% (costs include hosting fees, equipment costs etc.). Wondery is reported to have just 65 employees.
Unit Economics
Podcasting is a numbers game and the bigger your audience is, the more money advertisers will pay. When a podcast gets advertisers, they typically charge between $15 and $30 per 1,000 downloads that ad gets. This is called CPM, cost per thousand.
According to Podtrac, Wondery had 56,962,000 global unique downloads and streams across 105 active shows
Assuming a CPM of $20 (a low estimate), 3 ads per show (Wondery shows are notorious for having a lot of ads), and equal distribution of downloads and streams per show, we get:
- Monthly revenue per ad: 56,962 x $20 = $1,139,240
- Monthly ad revenue: $1,139,240 x 3 = $3,417,720
- Monthly ad revenue per show: $3,417,720 / 105 = $32,550
Unique Business Strategy
It seems like everyone is buying a microphone and starting a podcast these days, “I’ve started a podcast” has become the new “Welcome to my channel”. However, it's important to note that 99% of podcasts aren’t profitable. In fact, data from Libsyn (one of the largest podcast hosts) is sure to dampen any hopes of becoming the next Joe Rogan
- 7.1% of podcasts get 5,000 downloads per episode
- 2% of podcasts get 20,000 downloads per episode
- 1% of podcasts get 37,000 downloads per episode
Advertisers usually refuse to work with shows that get less than 5,000 downloads per episode and in many cases are even unlikely to work with shows that get less than 40,000 downloads per episode!
Content creators will know that building an audience is tough, so how has Wondery become so successful? In my view, the primary reason is its content quality (give Business Wars a listen and you’ll know exactly what I mean). Wondery is transforming the entertainment medium new and exciting experience, where listeners are completely immersed in some pretty cool stories.
HTMM Opinion?
Ask most people where they listen to podcasts and they are likely to name a large platform such as Spotify or Apple Podcasts. Media companies and streaming audio platforms are all racing to make huge bets on podcasting. For example, Spotify made a series of acquisitions including podcast network Gimlet, SiriusXM acquired Stitcher and The New York Times acquired Serial Productions. Amazon has actually arrived at the party pretty late, so it will be interesting to see how Wondery helps them to catch up.
Podcasting is attractive to these companies for a variety of reasons:
- Increased engagement (especially with owned podcast content)
- Podcasts should bring in more listeners who will pay for a premium subscription
- Profitability with podcasting is likely to be meaningfully better than label-controlled music. Third-party podcasters upload their content for free and receive no royalties since they benefit from free exposure and potential ad revenue
So… let the podcast wars begin! The economics behind podcasting can be extremely lucrative (if you’re one of the few lucky enough to be successful) and with the added possibility of being acquired, it's probably worth entering the ring.
— Kemi
