Weekly Thoughts


Weekly Thoughts: Gimlet

Here is something that caught our eye this week:


Our morning routine generally involves a walk and a podcast, so we were interested to see in the news that one of our go-to podcast providers, Gimlet Media, raised $15 million of venture capital at a post-money valuation of $70 million. With $15 million of projected revenue this year, Gimlet isn’t exactly a value buy, but the headlines did cause us to dig deeper into the economics of podcasting.

Although members of the Chenmark team are avid podcast consumers (we generally listen to at least one podcast a day), it would appear that our behavior is not the norm. Only 60% of the American population is even aware of the term “podcasting”, 24% of the population (67 million) listens just monthly, and only 15% (42 million) listen weekly. Of course, companies like Gimlet are raising capital because the industry is growing. Monthly podcast listenership has increased 40% over the past two years and data suggests that the most enthusiastic podcasters (those that listen at least weekly), really, really like podcasts by subscribing to an average of six shows and listening to an average of five episodes per week.

While user growth and engagement is great, the investment question is whether or not those producing shows can make enough money to support their ventures. As is the case for many content creators, the accepted practice to date has been to provide the episode for free and generate revenue from advertising. In terms of size, reports put 2016 ad revenue for the entire podcast industry somewhere around $120 million, with expectations for that number to increase to $250 million in 2017. To put this in perspective, traditional radio will produce $14 billion of ad revenue in 2017 and just one company – GEICO – will spend more on radio ads this year than all companies spend on podcast advertising combined.

Thus far, it seems that one of the big inhibitors for those putting advertising dollars to work is the relative opacity of podcast user data, which makes ROI difficult to calculate. From The Wall Street Journal:

“Podcast ads are sold based on how many people download an episode, but advertisers and producers are essentially blind to whether or not those people go on to listen, let alone whether they hit the skip button during the ads. The ad-skipping conundrum taps into a larger issue in the podcast world: Measurement challenges have kept many big-brand advertisers on the sidelines. ‘The big barrier to most brands is the measurability and the fact that you have to A) take on trust that a podcast is being listened to and B) that your particular ad has not been skipped over within that,’ said Jonathan Barnard, head of forecasting at ZenithOptimedia, a media agency owned by Publicis Groupe SA.”

Because of this data problem, podcasts have mostly been able to attract revenue dollars from “direct-response” advertisers (MailChimp, SquareSpace, Dollar Shave Club, Blue Apron, Casper, etc.) which use podcast specific promo codes to track whether or not their advertising dollars are generating a return. That said, we are on the cusp of a shift change in the podcast industry, with the largest platform around, Apple, announcing that this fall it would start providing podcast publishers with comprehensive analytics about listener behavior. From Vulture.com:

“There are tremendous and wide-reaching implications of this news; in short, we’re nearing a moment of truth, where we’ll finally get to find out if the podcast industry is everything it believes itself to be: uniquely strong in cultivating engaged listeners, capable of driving large amounts of audience, and a legitimate challenge to the radio industry and other content mediums. The new analytics are something many in the industry, particularly those looking to scale up their businesses and build out media empires, have been seeking for a while now, because such metrics will potentially enable producers to overcome the roadblock that is believed to be preventing more advertising money from flowing into the space: credible measurement accountability, and probably a more reliable general knowability of just how much listening is actually happening within a podcast episode.”

While only time will tell if Gimlet’s investors were onto something with their 4.6x revenue valuation, the Chenmark team completely understands the challenges and opportunities associated with investing ahead of highly accurate and granular information. In the small business world, collecting and parsing reliable data to analyze and track ROI is at best difficult and at worst misleading. A central part of our thesis is that by focusing on what we call the “business of business” – i.e., developing the back-office infrastructure of companies in our portfolio – we can solve the same problem that has been plaguing the podcast market. Ultimately, access to such data allows for intelligent investment decisions, more certainty around ROI assumptions, and over time allows for step-function type change to occur within the business, which is something any investor can get excited about.


Have a great week,

Your Chenmark Capital Team

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