If Joe Rogan of The Joe Rogan Experience, one of the top 20 podcasters, wanted to one day scale up by bringing on additional producers and podcast personalities to host multiple new shows, how much equity should he give away to investors for their investment? Or perhaps Dan Carlin wanted to turn his Hardcore History podcast into a company that published history textbooks. How much should he value his podcast if he decided to propose this business plan to venture capitalists? Basically the question is, how much is a podcast worth? How do you value a podcast and is it considered a company with a robust enough business model to value it?
While listening to the episode of Startup (the first show produced by Gimlet Media) on valuing their startup company at $10 million during their seed funding, I was curious to find out if podcasts could in fact be valued the same way as ordinary businesses. An investor might need to know the valuation of a potential podcast company. Or a podcast producer might need to know the value of their podcast if they’re looking for funding, exit, or if they want to see how their podcast stacks up against others. Or a prospective podcaster might want to know if it’s worth venturing into the world of podcasting.
In order to answer the question of how much a podcast is worth, I looked at three podcasts that provide enough financial data to work with. First, Gimlet Media, whose show, Startup, discussed some of their numbers and their valuation on their show and in the media. The other two podcasts I used are Smart Passive Income (SPI) and Entrepreneurs on Fire (EOFire) as they have consistently produced monthly income reports since the inception of their respective shows.
- At the end of 2015, Gimlet raised $6 million at a $30 million valuation. They forecasted $7 million revenue for 2016.
- EOFire generated an average of $3 million annual revenue in the last 3 years with an average of ~72% net profit margin. I then used the discounted cash flow method and forecasted a normalized level of revenue and profit similar to historical average levels with slow growth. I assumed a 35% corporate tax rate and a 10% discount rate*.
- SPI generated an average of $1.4 million annual revenue in the last 3 years with an average of ~74% net profit margin. I also used the discounted cash flow method here and forecasted a normalized level of revenue and profit similar to historical average levels with slow growth. I assumed a 35% corporate tax rate and a 10% discount rate*.
*Discount rate of 10% was derived using the industry standard discount rate for Advertising, Broadcasting and Entertainment as podcasting is not an established enough industry to garner a discount rate yet. Advertising has an industry discount rate of 6.6%, Broadcasting has an industry discount rate of 6.2% and entertainment has 7.9% (Source: Damodoran). An average of 7% discount rate + a company-specific risk factor of 300 bps was added as long-term success of a profitable podcasting company is too early to tell.
The average implied revenue multiple that I got from the valuation was 5.0x.
What does this mean? The multiples are certainly a lot higher than revenue multiples of cash flowing companies in general. The average industry revenue multiple for Advertising is 1.7x, Broadcasting is 2.9x, and Entertainment is 2.9x (Source: Damodoran). I suppose since podcasting is a whole new vertical compared to these traditional industries, it could be comparable to startups. Looking at startup valuations then, the revenue multiples range anywhere from <1.0x to 10.0x. In particular, digital media companies are valued between 1.1x and 5.9x (Source: Fortune).
Could 5.0x become the industry standard valuation multiple for podcasting (for the time being)?
How do Podcasts Make Money?
The value of a podcast depends on the types of income streams the podcast employs and the stability of revenue generated by each income stream. Advertising/sponsorship is the income stream that most podcasts rely on, but selling products and services catered to a niche audience is where a podcast makes the big bucks.
The possibility of coming up with a new income stream is endless. Some income streams require more creativity and don’t necessarily depend on the number of downloads (assuming they have a pretty legitimate level of audience already). And then there are other income streams where once you implement, you don’t need to keep innovating and are more predictable cash flows for the. The most common income streams and their characteristics are:
|Income Stream||Description||Avg Revenue||Predictability||Depends on Download #s||Creativity|
|Pre-roll: ~15 seconds at the beginning of the episode
Mid-roll: ~30 – 60 seconds in the middle of the episode
|~$20-$40 CPM (Cost per Mille); i.e. fee per 1000 impressions (or downloads)||High||High||Low|
|Affiliate Income||Clickable link on the website that directs to a 3rd party’s website with products and services to purchase||Wide range, e.g. $0.25 – $50 per purchase of 3rd party product using the affiliate referral link||Low||Mid||Low|
|Membership||Special privileges beyond free podcast listening||~$5-10/month||High||Low||High|
|Products & Services||Introduce new products (physical or digital) or services (webinars, online courses, in-person courses) catered to the audience||Varies depending on product/service
e.g. eBook could be $10 to purchase or an in-person course could be $1000 to attend
Download #s isn’t Everything
The good news is that you can rake in millions of dollars if you have close to or more than a million downloads per month. The bad news is that you have to get to a point where you’re drawing in close to or more than a million downloads per month. But, I won’t leave you with a bad taste. Here’s another good news: it’s that the number of downloads isn’t everything when it comes to generating revenue.
For instance, EOFire’s Revenue/Download was $3.53/download with ~850k downloads in the beginning of 2015. Put another way, every download was worth $3.53. Comparably, Gimlet had almost ten times the download numbers in a given month but was only able to sell $1 per download. Breaking out the income streams makes it clear that EOFire’s profitable success per download is because ~60% of their revenue is generated from additional products and services. SPI’s revenue per download is pretty healthy as well with $2.33, with ~20% of their income coming from products & services. Gimlet on the other hand isn’t leveraging their audience enough.
Of course, it’s a different story because Gimlet’s network of podcast shows is more journalistic and story-telling vs SPI and EOFire, which are geared towards a niche audience of entrepreneurs. But I still think there is a lot of opportunity there for Gimlet to introduce products and services to their audience (i.e. not just to their “customers,” that is, advertisers/sponsors, selling production/editorial services).
Podcasters: How much are you generating in revenue per download? What income streams have you employed and what new income streams can you add in order to scale up?