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Feb. 5, 2020, 12:14 p.m.

Spotify is buying The Ringer, expanding its podcast footprint (and dipping its audio toes into plain old text)

Can the streaming audio giant really turn Bill Simmons’ operation into “the next ESPN”? Or is the goal of building “the world’s flagship sports audio network” too ambitious?

“What we really did with The Ringer, I think, is we bought the next ESPN,” said Spotify CEO Daniel Ek during the earnings call this morning, shortly after the company sent out word that it had officially acquired The Ringer, the distinctly podcast-heavy digital media company founded by former ESPN personality Bill Simmons.

It’s something of a cheeky statement, given the tumultuous circumstances that led Simmons to exit ESPN in 2015, but it’s also an indication of the specific opportunity governing the thinking behind the acquisition: In addition to picking up Simmons, one of the more concretely valuable talents in the podcast space, and a prolific podcast operation that’s already generating considerable revenue ($15 million in 2018, according to a Wall Street Journal report a year ago), Spotify is establishing a strong presence in the sports category — a media genre that’s incredibly valuable.

More on that in a bit, but first some detail. Rumors of this acquisition starting bubbling up a few weeks ago, with the Journal picking up word of “early talks.” The official announcement went out this morning in time for Spotify’s earnings call. On Twitter, Recode’s Peter Kafka put out some additional detail: “Deal has been kicking around for months, moved into high gear in last few weeks. Teams negotiated through Super Bowl weekend, and did two overnight sessions; finalized after Spotify released its earnings this am.” It’s expected to close by the end of the Q1.

(Meanwhile, Spotify posted a largely good quarter — monthly active users, premium subscriber numbers, and revenue are all up — with positive gains on the podcast front. They claim to see “exponential growth” in podcast consumption, with more than 16 percent of its monthly active users engaging with podcast content and actual consumption hours in Q4 up nearly 200 percent from the year-ago quarter.)

The terms and size of the deal weren’t disclosed. Two things: First, we’ll find out soon enough, given that Spotify is publicly traded and will have to file the hard number at some point. And second, a likely reference point would be the price discussed during what were reportedly earlier talks between Simmons and AT&T’s WarnerMedia, which was thought to be around $100 million. Again, here’s a report from the dude Peter Kafka with that detail.

But we do know that the deal involves the entirety of The Ringer — that is, both its podcast operation and the broader digital media operation, which includes, among other things, a website and a YouTube-focused video operation. (Protect NBA Desktop.) All of that will be brought into Spotify, with Ek talking on the earnings call about the value that the audio and non-audio portions of The Ringer gives each other. This means that the Swedish streaming audio platform now owns a broader digital media operation, and it also means that all existing Ringer employees would have the opportunity to join Spotify. No layoffs are expected, broadly consistent with what we saw from the Gimlet Media acquisition a year ago.

Sticking to the labor front, there were some frustrations when word of the early talks hit the press last month. The Ringer’s workforce, which had unionized with WGA East, had issued a statement expressing dissatisfaction over having learned about the potential acquisition from news reports as opposed to management — a state of affairs that stretched out for weeks. This morning, the Ringer Union issued another statement in response to the official sale: “We anticipate a productive relationship with new management for all Ringer staff members…After weeks of public reports about a potential sale circulating without comment from our senior managers, we look forward to hearing from them about how this transaction will affect our day-to-day work.”

There will be questions over exclusivity — first in terms of the Ringer podcasts now available on platforms outside of Spotify. For what it’s worth, I imagine things won’t be much different from what we already see; remember that The Ringer had already experimented with Spotify exclusives via The Hottest Take, though the bulk of their audio output lives everywhere. (Also, Gimlet’s output hasn’t been completely dragged behind a Spotify wall.) Besides, there’s a good amount of value to be had — for now — from these Spotify-owned podcast publishers having their shows exist out in the open, where they can function as marketing assets that also generate ad revenue. Right now, I don’t think there’s much incentive to go fully exclusive. But it nonetheless seems like a strong card to hold onto in anticipation of, say, a bad growth year or some retaliatory action from a competing platform.

The second question of exclusivity pertains to Simmons as a key talent in front of and behind the mic. No solid word on that, but much like the Alex Blumberg-Matt Lieber situation, I imagine there’s some expectation that Simmons would be locked into Spotify for at least a few years. (Ek told Kafka he “wouldn’t have done the deal if I didn’t feel that Bill was in it for the right reasons, and didn’t want to build something much bigger.”)

Okay, back to sports. My original thinking about the value in this deal (laid out in an earlier column) mostly saw this as a Howard Stern-type situation — bringing in a blue-chip property in order to instantly increase a platform’s value in the eyes of potential audio consumers. That of course requires some amount of exclusivity — betting that the acquired asset is powerful enough to convert those previously happy doing their consuming on another platforms.

But today’s announcement positioned the acquisition as a means to drive a global expansion into sports, which opens up that thinking quite a bit. (The key lines, from Spotify’s chief content officer Dawn Ostroff: “We look forward to putting the full power of Spotify behind The Ringer as they drive our global sports strategy. As we set out to expand our sports and entertainment offerings, we wanted a best-in-class editorial team.” And this one from Simmons: “We couldn’t be more excited to unlock Spotify’s power of scale and discovery, introduce The Ringer to a new global audience and build the world’s flagship sports audio network.”)

There is indeed a lot of value to be mined from the sports category, which has been an audience and revenue driver across a wide spectrum of media — newspapers, radio, TV, websites, social media, and so on — but which still has major room to grow in podcasting. We do have some established operations working in the category — Barstool Sports and, yes, ESPN come to mind — but the prospect of a sports podcast operation that’s combined with the distributive reach of a streaming audio platform feels unparalleled. That’s especially true when that effort is globally oriented from the start; most of the money in sports media is still driven at the local and national level, so Spotify’s ability to build across its 79 markets is a huge potential advantage.

All of which is to say: There’s a good deal of growing that can be done from here, and I don’t think we’ve quite seen the shape of what this can or will be just yet.

That said, The Ringer isn’t just a sports media company; it traffics in a good deal of other areas, most notably pop culture. Spotify hasn’t owned a major digital media operation with a significant focus outside of audio before. So we should probably expect a fair amount of strange in this acquisition and the subsequent integration. There’s a general strategic direction that makes a ton of sense, but the details can get messy. And it’s the details that makes things work.

POSTED     Feb. 5, 2020, 12:14 p.m.
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