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Are Media Companies Just Incubators For Spotify?

In its quest to diversify its revenue away from music and toward original, owned content, Spotify has been acquiring podcast creators left and right. Gimlet, The Ringer, Joe Rogan all are now part of the family and it doesn't appear that Spotify has any intentions of slowing down.

According to The Wall Street Journal:

Spotify Technology SA is nearing a deal to bring top podcaster Alexandra Cooper and her show “Call Her Daddy” to its service, according to people familiar with the matter, in the latest exclusive podcast tie-up.

Ms. Cooper and Spotify are discussing a licensing deal for around or over $20 million, according to some of the people. It also would involve a so-called first-look agreement with the intention of Spotify helping Ms. Cooper, 26 years old, develop other projects, the people familiar with the matter said. Her back catalog would be available only on Spotify beginning at the end of next month, they said.

This would be a huge win for Spotify. Not only would it get the "Call Her Daddy" show on its network, but it'll have the ability to new material to help deepen Cooper's relationship with the audience.

For Barstool, though, it's a bit of a mixed bag.

According to Podtrac, Call Her Daddy is the 5th most popular podcast in the United States. This is a huge podcast that likely does over a million downloads an episode. On advertising alone, my suspicion is that this show generates millions of dollars a year. But the real business is selling merchandise. Barstool has been able to generate considerable revenue selling shirts, hoodies, sweatpants, etc. all branded with Call Her Daddy.

I'm guessing, but my suspicion is that this was one of the biggest products that Barstool has, which is partially why last year's fiasco between the Call Her Daddy hosts and management was so important to resolve. To sum up what happened, we turn to the NY Post:

A few months ago, when the duo wanted to renegotiate their contracts, their lawyer sent Barstool a list of demands — including $1 million guaranteed, for each of them, according to Portnoy. They no longer wanted to be Barstool employees and they wanted 50 percent of all money earned from the brand, including merchandise and ads. And they wanted to own the brand.

“What did we get in return? Nothing,” said Portnoy, who cut off negotiations. “That is when they started  … shopping ‘Call Her Daddy’ around, looking to go somewhere else [and] break their contract with us.”

He added: “Barstool’s stance was, if you guys take ‘Call Her Daddy’ and go somewhere else, we’re going to sue the f–k out of you. Like, you’re under a three-year contract.”

Instead, Cooper and Franklyn stopped working completely. Portnoy said the company has been losing $100,000 for every missed episode. He offered them a deal that would guarantee $500,000 each, plus bonuses. It would also knock six months off the women’s contract and let them walk away at the end with their intellectual property. He estimated that the deal, which paid them both equally, would net millions.

Ultimately, Cooper came back to host the show solo. But there's an interesting detail reported by the Post:

He [Portnoy] added that Cooper wanted to return to the fold and negotiated a deal that would give her 75 percent of the brand, leaving a quarter for Barstool — and cutting out Franklyn completely.

This would mean that irrespective of where Call Her Daddy goes, Barstool still owns 25% of the intellectual property. That's the real secret here. It certainly hurts for Barstool to lose the revenue tied to distributing Call Her Daddy. It's millions of dollars a year in revenue. But, on the bright side, they ultimately get 25% of any revenue Call Her Daddy earns elsewhere.

This leaves me wondering... Barstool can't compete with Spotify from a resources perspective. Spotify can afford to pay much more to get a show exclusive to its network. It's nothing against them, but they're all in on sports gambling, and a show like Call Her Daddy doesn't entirely fit the narrative, so making a big investment here is a distraction. And yet, Barstool will still likely make money on this deal because of its partial ownership of the IP.

Is that the model going forward?

Will media companies that push a creator-first mentality simply be incubators for bigger platforms like Spotify? Cooper was on a three-year deal. During those three years, Barstool reaped the benefits. The show blew up in ways no one could have predicted (I'll write about building an environment for this to occur in the future). Revenue was amazing. But now that contract has expired and she's opted to go where her upside is probably greater. Will others follow that same path? Will they rely on the media company to help build the thing and, when the contract is up, leave?

Creators are going to start demanding more. And with how much money there is from major platforms, the negotiations are going to get harder. We may not always have exclusive ownership over the IP. And we may not always have an asset distributed by us in perpetuity. The reality is, some aspects of our business might become a bit more mercenary.

And is that the worst thing in the world?

This could be a good way for media companies to generate revenue from more sources. Vox, for example, has an entire Media Studios division, which makes content for premium OTT. It provides content to its clients including Hulu, Netflix, CNN, etc. This isn't entirely different. A media company could find a new creator, build a podcast, watch that creator grow, and then own a significant cash annuity as that show leaves. It's not ideal, but it's a game of financial analysis. What's the better outcome: 100% of nothing or 50% of something?

In hindsight, the smartest play would have been to retain complete ownership of the IP even if it meant that Cooper walked. Losing that ownership for one remaining year of revenue was short-sighted. But I also understand why it happened. April 2020 looked a lot different than April 2021; Barstool was likely hemorrhaging money because of Covid. Losing that kind of cash is hard to stomach. Being short-sighted when your business is struggling is often necessary. And going forward, these sorts of partial ownership deals might happen again. Creators understand the value of IP.

There are likely subtler details that make this hurt less for Barstool. For example... Who owns the RSS feed? Spotify would be acquiring the back catalog of the show, but would they get the RSS? One idea would be for Barstool to simply delete all Call Her Daddy episodes and then launch a similar, albeit differently named show, on the same feed. Having all of those people that are already subscribed is a great foundation for a new podcast, even if a solid chunk ultimately unsubscribe.

The one thing that has taken the media a very long time to understand is that we are not the only game in town. There are competitors that will seek out our best talent. But that can work to our advantage.

In all the discussion last year about how great the subscriptions are and that ad businesses were dead, there appears to have been quite the resurgence in the ad markets, reminding people that this is still a business worth hundreds of billions of dollars.

According to Deadline:

Disney’s ad sales group said it has closed its 2021-22 upfront, with double-digit increases in CPMs and revenue thanks to powerful interest in live sports.

The rate gains spanned all broadcast day parts, cable and all major sports, including college football, NFL and the NBA. Disney said more than 40% of total upfront dollars committed this year went to streaming and digital outlets. While streaming flagship Disney+ is an ad-free, consumer offering, Hulu and ESPN+ do have ads. Hulu’s ad revenue is forecast to reach $3 billion this year, which is in the same range as the company’s linear networks. CEO Bob Chapek has referred to Hulu advertising as a “secret weapon” for Disney.

...

Overall revenue posted double-digit increases across broadcast, cable and all major sports. Disney said strong categories in the upfront included consumer packaged goods, financial services, media & entertainment, pharmaceutical, retail, technology and telecom, and travel & leisure.

It's great to see and is something many of us that sell ads have been saying for some time. There is increasing demand, especially this year, for brands to get their message in front of readers and viewers.

According to eMarketer, digital ad spending in the United States is supposed to finish 2021 at $191 billion, up from $152.25 billion in 2020. This is a monumental amount of money being spent on digital advertising.

Here's my question...

Is this year a fluke? As we begin preparing for 2022 (we're almost halfway through the year, which shocks me), how should we anticipate growth next year? Disney's not the only company seeing CPMs go up and revenue jump by double figures this year. But can that last into next year?

From what I've heard, operators are not assuming that this is just business as usual. The advertising business is cyclical and this could just be an overcorrection after an uncertain 2020. Brands didn't spend money for a while, so they're now spending it faster to make up for that. When they have a new budget next year, will they do the same?

And yet, there's also excitement about the possibility of what a post-Covid life might look like. For many media companies, this has been the best 12-18 months they've had for as long as I've been working in media. They don't want to give that up and are hopeful that it won't just revert to the mean.

My guess? Next year's percent growth won't be as good as this year's, but more will be spent next year. In other words, with the economy continuing to get stronger and more people earning better paychecks, there's going to be a desire to spend more. And if we know one thing, advertisers always follow people with money to spend.

From 2008-2020, it was tough being in the media business. Very few things worked. People lost jobs. You can always tell how long someone has worked in media based on their scar tissue from these past 12 years. Many never get over it.

But I'm optimistic about this next decade. Publishers are more focused on building an engaged audience and that will translate to a healthier bottom line. Creating exceptional content for a valuable audience never goes out of style. Advertisers will follow that.