How Dropout came back from the brink stronger—and funnier—than ever
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I'm Yasmin Ghani. I'm Josh Christensen. And this is Most Innovative Companies. ♪

On today's episode, a special feature Josh reported on independent comedy streaming service Dropout. We were like in meetings with the higher-ups at IAC, but it felt like we had been taken out to lunch and we're trying to be like, let go easy. And don't worry, we're still ending the episode with keeping tabs. Kennedy Carter, who just outright shouldered Caitlin Clark to the floor. But first, here's the download. ♪

Well, Nvidia is splitting its shares at the close of the market this Friday. The company states the reason for the split is to make stock ownership more accessible. Meanwhile,

Meanwhile, in other chipmaker news, Advanced Micro Devices unveiled its latest artificial intelligence processors as well as a plan to develop AI chips over the next two years to challenge NVIDIA. AMD expects AI chip sales of roughly $4 billion in 2024, an increase of $500 million from its prior estimates.

Paramount and Skydance have reportedly finally agreed to the terms of a merger. The deal was finalized Monday morning and an announcement is expected in the coming days. In the deal, Skydance would buy National Amusements, which is owned by Paramount, and then Paramount would acquire Skydance, putting Skydance CEO David Ellison in charge. The overall value of the deal is $8 billion, up from a previous offer of $5 billion. This is a merger I totally understand the mechanics of.

Absolutely. All I can say is you should definitely read the book about the Redstones by Rachel Abrams and James B. Stewart. Oh my God, it's crazy. Sumner Redstone was insane. I need to pick that up.

After a three-year hiatus, Keith Gill is back, baby! Woo! Roaring Kitty! Roaring Kitty is back. Of course, if you don't know who Keith Gill is, he is the man behind the 2021 GameStop short squeeze. And he's returned to Reddit, and as of Monday morning, GameStop stocks rose. Say that three times fast. GameStop. GameStop stock. GameStop stock. GameStop stock. GameStop stock. Stop, stop, stop.

Anyways, that stock rose as much as 75% in pre-market trading. And as of late Monday morning, shares were trading up more than 32%. Gil's Reddit resurgence is just the latest and honestly, one of the most crazy meme-driven stock price driving weird stories that will ever happen. There's nothing like it, honestly. We've tried. Doge came close, I guess. But there's nothing like this.

Well, good luck to you, Roaring Kitty. To everybody else, diamond hands to the moon. The Japanese Transport Ministry ordered Toyota, Mazda, and Yamaha to suspend shipments of some vehicles after it found irregularities in its applications.

These top Japanese automakers have since admitted that they had mishandled vehicle testing on dozens of models over the past decade. So happy that I drive a 2021 Toyota RAV4. This investigation comes after a safety test scandal at Toyota's Daihatsu compact car unit occurred last year. The ministry will conduct an on-site inspection at Toyota's Aichi Prefecture headquarters on Tuesday.

Moderna announced last Friday that the U.S. FDA has approved its RSV vaccine for adults ages 60 and older. The vaccine will be Moderna's second product to enter the U.S. market after the FDA's approval of its COVID-19 vaccine, Spikevax, in 2022.

The approval came as a win for Moderna, as the decline in SpikeVax sales has caused a steep decline in revenue from $19.3 billion in 2022 down to just $6.8 billion in 2023. A Delaware judge has greenlit more than 70,000 lawsuits over heartburn drug Zantac, which was discontinued in 2020. The judge ruled that expert witnesses can testify in court that the drug exposed users to harmful levels of

And finally, Trump media shares fell more than 5% last Friday for no reason whatsoever. Nothing happened regarding Trump last week at all. You're right, Yaz. Did I miss anything? Mm-mm.

No, nothing. Oh, wait, I'm just Googling here. And apparently he was found guilty of 34 out of 34 counts in a New York City court. So stop the steal, y'all. I guess. Guilty, guilty, guilty, guilty, guilty, guilty, guilty, guilty, guilty, guilty, guilty.

I can't say it. You got through 12. Just imagine that in a courtroom now. I honestly don't know how you could be in that courtroom and not just start laughing at each other guilty. It's so funny. Trump media shares fell by more than 5% last Friday after the company's largest

I'm going to read this like a straight business story all right now. Keep this in. After the company's largest shareholder, former President Donald Trump became the first former U.S. president to be convicted in his criminal trial. On the same day, the MAGA coin, a cryptocurrency that trades under the symbol Trump, all capital letters, or like most of his truths,

rose posting gains as high as 15% before falling back to about 3% by midday. While not actually directly affiliated with Trump, many traders have been using the MAGA coin as a speculative bet on his campaign. Right. Well, bad speculation, but sure. Anyway, that's the news you need to know today.

So Josh, tell me about Dropout. Dropout is a comedy-focused production company and streaming platform. So think about them like a comedy troupe Patreon, but on steroids, like really built out. They produce a number of comedy series, mostly featuring the same dozen or so comedians, some guest stars on occasion. And those series live on their streaming app, Dropout TV, and fans pay $5.99 a month or $60 a year to see that content.

They don't license third-party content like other streamers, and they don't distribute the content they make on other platforms like most production companies. So could I download Dropout TV like on my Roku or, you know, where? Yeah, it's available anywhere you get your app. So I have it on my Amazon TV right now, or you can get it on your phone, just like any other streaming app. It sits right there with Netflix or Amazon Prime or Hulu or any of

those, but just on a much smaller scale. They are by design niche.

The reality is that most people probably aren't familiar with Dropout, certainly not in the way that they're familiar with Netflix or HBO. But they might remember this company by the name they used to go by, College Humor. I think many of us are familiar with College Humor. And I feel like a lot of their content was available on YouTube back in the day when I was in college. It was like a thing I used to watch. But I always lump it in as a funny or die type.

Yeah, they were a web company that started back in the 90s and really had their heyday in the mid-aughts, I would say, maybe sometime into the teens. But certainly that kind of waned as the last decade went on. So tell me why they rebranded and when they rebranded.

Yeah, so they rebranded in September of last year on the five-year anniversary of the launch of their streaming service, Dropout TV. They released this video with CEO Sam Reich announcing the rebrand. He was walking through their studios and interacting with cast member, and then he gets to the announcement. So to commemorate what is a huge milestone in the life of college humor, the website and YouTube channel that started it all. What?

One of the most storied and impactful and important comedy brands in history. We're going to kill it. Sam takes a sledgehammer to the computer that has the College Humor logo on it and stomps on the computer. They're a comedy company, so it's all about the bits. College Humor was a brand founded nearly 25 years ago by Ricky Van Veen and Josh Abramson, largely because the dot-com was available.

But after dropping out of College Humor, dropping out of advertising, dropping out of corporate America, the name Dropout somehow feels more appropriate. Ricky and Josh, myself and so many others owe our careers to you. Thank you for paving the way to who we are today. You're very welcome, Sam. It's like I always say, if you're going to use two brand names, just use one. Rest in peace, College Humor. We're Dropout Man.

Your dad's going to keep calling it college humor no matter what. We can't fix that. It's fine. Look, I think any listener knows you're a big comedy fan and you're a theater kid, but

Why did you want to profile this company? Well, I do bring theater kid energy to everything I do, and I am a comedy fan. And I'm genuinely a fan of Dropout's content. It's just all nerdy, alt-comedy with pseudo-game show formatted shows like Game Changer and Make Some Noise, which are hosted by Sam Reich, by the way. And then they do this Dungeons & Dragons actual play series called Dimension 20. It's just all...

all content that's right up my nerdy alley. But,

The reason I wanted to profile them is actually something Sam unpacked in that rebrand announcement video. He says they dropped out of advertising and dropped out of corporate America. And also that College Humor almost folded a few years ago. So I wanted to know how this 25-year-old comedy brand, once owned by IAC, went from the scrap heap to an independently owned streaming service that doesn't sell ads, doesn't take corporate money,

and is now profitable, and growing a subscriber base at a substantial rate.

And on top of being curious about their business model, I also am fascinated by Sam Reich himself, who is not just the CEO of the company now, he's the owner of this company, which we'll talk about in a minute. And then to throw another curveball in the mix, Sam actually happens to be the son of Robert Reich, who's the former Secretary of Labor from the Clinton administration.

So with all of that in mind, I went to LA to Dropout Studios to talk to Sam and some of the rest of the team at Dropout. I started by asking Sam to take me back to 2019 when IAC decided they were going to drop CollegeHumor. I'll risk wasting your time by giving you a little bit of context, right? IAC bought CollegeHumor in 2006. And whenever you have one of these sales...

The goal is to 10x a company, you know, to make it worth 10 times what you bought it for or more. College Humor was bought for a rumored $30 million. The goal was to turn it into a company worth $300 million. And throughout my tenure at the company, which was 2006 to 2020, and throughout my, I think, nine bosses, I think I counted that at some point,

There was always a get-rich-quick scheme of the time. It was ad sales, and social media took over ad sales. It became briefly television, which I was also a big part of trying to make happen. You all had an MTV show, the College Humor show, and then True TV, correct? Yeah, the College Humor show on MTV in 2009. We had Adam Runt's Everything on True TV. We had a show called Hot Date on Pop.

We had shows on like full screen and Comcast Watchable and Facebook Watch and YouTube Red. And all of this sort of like short-lived. Quibi maybe? Did that end up in there at any point? We would have if we had lasted or Quibi had lasted. But we were pitching them for sure. We didn't outright fail at any of these things, but we didn't succeed well enough for IAC to be like that as our ticket to fortune. Yeah.

So subscription was simply the latest one of those efforts. We developed subscription through 2017, 2018. We started production in 2018. Sorry, we started production in 2017. We launched in 2018. And we had 75,000 subscribers at the end of year one. And IAC's feeling about it was it just wasn't enough. And they started talking about dumping us online.

And I say that like a relationship because it felt that way. We were like in meetings with the higher-ups at IAC, but it felt like we had been taken out to lunch and were trying to be like, let go easy. Oh, no. We were told there was going to be a sales process.

And then what started to happen... So they were looking for someone to buy you from IAC. To buy us. Starting at the end of 2019. They didn't have a price tag. They didn't know. I remember someone at IAC asking our then CEO, Rich Cusick, what he thought the company was worth. And him giving them a number and them being like, well, I'd take that in a heartbeat. And I went, uh-oh. And what happened at that point...

When IAC started to indicate that the goal was to sell the company and then became explicit in their intentions, is the higher-ups at our company at College Humor started fleeing like rats from a sinking ship. So we lost our CMO, our chief marketing officer, after the meeting, like immediately after the meeting.

where IAC said they were going to dump us. We lost our CEO, who, by the way, I adore. And if not for this man, Rich...

He taught me so much in the last two years of the company. I probably wouldn't be prepared to be CEO today if not for this man. He also fled very, very quickly. So what kept you around? Yeah, I think a sense of loyalty to the staff, honestly. The thought was like, well, if we could do this, if we could sell the company,

We would save jobs that way. And so suddenly, especially with Rich Out of the Picture, it was me and Natalie Maslick, our then CFO, sort of going around town singing the song and dance of Here's Why to Buy College Humor. So the problem was we had invested a lot of money in subscription.

On paper, the business plan that we had in place had us spending $10 million before we flipped profitable. So it was a business plan that we were putting in front of potential buyers, not only by the company, but sign up for a $10 million loss before you start making money. Yeah. In Silicon Valley, they call it pre-revenue. Yeah.

Sure. Which is a wonderful term of art. Yeah, pre-revenue is a great way to say lost. Yeah, exactly. Which is where a lot of streaming services are right now. Paramount Plus isn't profitable right now. Some of the big players that have been around for a while are turning profits, but they're seeing...

Netflix is adding advertisement to what they're doing. They had to really combat churn rate in a pretty significant way. And we can break all of this down in further details, but I just want to stick with after IAC officially dropped you, what happens? I know you cut staff immediately, but you buy the company.

Yeah, basically, 15 interested buyers drop out one by one. It comes down to me and one other potential buyer. IAC decides to go for my unique deal. It takes us something like three months to sign an agreement between each other. They lay everyone off except for seven people that I pled them to keep in January. We don't sign our deal until March.

Two days before lockdown here in LA. So we signed our deal on a Tuesday. I think the basketball teams. Oh, the Rudy Gobert. Yeah. Microphone thing. Yeah, the whole. That whole thing happens on like a Wednesday, like Tom Hanks. Maybe it was like the week before Tom and Rita Hanks getting COVID. I remember that. And then Thursday is lockdown. Yeah.

Oof, so great timing. Oh, the best. And really at that point, you're basically with a little bit of a head start with some brand identity and like at least some semblance of the subscriber base, but essentially you're founding a new company for all intents and purposes.

Right before you go into lockdown. And, oh, by the way, you're a content company that works on a set in a studio that you could no longer do anymore. We had some content saved up, luckily. Yes, which is obviously a godsend at that point of rolling. And then you did do COVID remote-based productions for a while. But...

To that point, College Humor had only been occasionally profitable in its history and was not profitable at the time, which obviously influenced IAC's decision. But you set out on a path to build a business, no corporate money. Yep.

No advertising, which was one of the major revenue centers for CollegeHumor. When you're really interested in turning profitable quickly, you want to cut off entire sources of revenue. Yeah. It makes a lot of sense strategically. Yeah, it's a move that you made. And now, I mean, I work in media. Fast Company goes through the throes of digital ad revenue. It's not a stable market, but it is a revenue stream overall. And you also cut off branded content at that point as well. So you went all in on...

streaming. How did you get to profitable from there? Oh, boy. Well, I mean, honestly, the honest answer to your question is that we were profitable the moment we began by a small margin because there were so much less people working for CollegeHumor and we weren't spending much money. You had a little over 100 people at that point? We had something like 105 people before the layoffs. We went down to seven. I mean, this was like a

It wasn't even a skeleton of the company it was before. It was like a toe bone. The problem wasn't exactly how do we tip profitable now? The problem was that we were looking at a company that, like if you shut down Dropout tomorrow, it would make a certain amount of money and then everyone would realize there wasn't any content coming out. And so it would fizzle and die. The problem was how do we grow from this

little seedling of a company now in a way that's slow and responsible and sustainable, in a way where we're protecting profit margin. Do you have a sense of how much Sam paid for the company? So Sam paid nothing for the company. The deal was that IAC maintains a minority stake in the company, but they're not involved personally.

And in the day-to-day running, they basically just have this stake in the company. There really were no serious buyers at that point. Like 15 that they had flirted with kind of dropped out overall. And then really they were left with this deal of some sense of continuity. Clearly IAC didn't see much of a return or value in it overall.

And Sam mentioned something to do with how IAC was valuing the company. But what can you say about IAC sort of courting buyers and what they were originally looking for?

Sure. So there were some reports around the time that IAC was looking for about $100 million. But that just ended up not becoming feasible, particularly with what the financials looked like. Even $100 million would have been far from the kind of like 10x profit that most people want out of companies that they acquire. They had acquired CollegeHumor in 2006 for, I think it was $26 million at the time. So that's

Even getting that $100 million clearly didn't happen, and there just wasn't much to buy at that point. It just wasn't profitable. There was a long way to go in the initial business proposal to get to profitable, and it was a pretty bloated company at the time that wasn't bringing in much revenue. How many subscribers did they have when it was purchased? Back

About $100,000 when Sam purchased the company, and I think they were charging $399 a month at that point. Clearly, that's not enough to support 105 people on staff overall, let alone the cost of production.

Just to be clear, when Sam took over, it seems like there were less than 10 people on the team. And you said there was a little bit of content. Tell me what that looked like. Yeah, so they had some content banked because usually production companies will film stuff three, four, five, six months, sometimes more in advance. And that's the case with Dropout as well. So they had some episodes of...

you know, shows that I had started running already that they had launched with the streaming service in 2018, but it was about six months of content overall. And so now they're entering with the skeleton team that I see had, uh,

Slash down to that they were rolling into a pandemic with with not enough content and history of as Sam would call it get rich quick schemes around video content. So the answer for dropout to the question that Sam posed at the end of the last clip how do we grow was for them to go all in on subscription because it's basically all they had at that point especially going into a pandemic.

And I wanted to dive deeper into the revenue breakdown and the operations. So I also talked to Dropout's chief operating officer, David Kearns, while I was out in LA. And I asked him specifically about this revenue breakdown. So at this point right now,

I believe roughly subscription accounts for about 85% of our gross revenue. Maybe 80, but somewhere it's the vast, vast majority of our business model, of our revenue stream. And that allows us to be incredibly focused. We all know that

Dropout itself, the subscription service, is the main source of the business. And we should all stay super focused on that. And what that means, the engine running that, is content, is making good quality content that people can relate to and that feels fun, exciting, funny, comforting, all that stuff. So that really has made us a lot more focused. This is like a long-winded kind of touch on the other stuff of...

subscription was an endeavor that IAC originally decided to get into because every year the kind of the history of an independent media creator online was changing every year or two since the internet began and

and with less and less control over the whims of the algorithms that were dictating how revenue and business models could even perform online. So we were just one of many who decided around the same time that subscription was the only way to really have any sort of

over one's own destiny online as a media creator. And we went in that path like a lot of others have and have been very, very thankful that we have survived. Knock on wood, because every day there seems to be another amazing, great media creator that is

not having as much success with their longevity. But we're very, very lucky to have survived that ability to be self-sustained through fans that want to think that we're worth subscribing to and come back to see us month over month, year over year.

So it's kind of interesting because it's almost like Dropout has created or has adopted a model that many creators have. You know what I mean? It's like a legacy media company that is trying to act like an independent creator. Yeah, I mean, they've kind of had to in the way that they're structured. There's a lot of overhead that goes into trying to generate meaningful ad revenue and content.

branded content subscriptions and these sort of plays to be on cable networks and be this production company. Ultimately, the subscription model was the most controllable way that they could generate revenue without ballooning their costs overall. But,

It's not foolproof. No, it's not a foolproof model overall. And they have been profitable. And they really had a big explosion of subscribers over the past year and a half or so, where they've roughly doubled their subscriber number, according to them. They estimated about mid-high six figures in subscribers, which is still very niche relative to, obviously, the Netflix numbers and even some of the

more niche subscriber numbers of a shutter or something like that. And all of these are either huge corporations themselves or owned by large corporations. But even that is not...

a recipe for success all the time on streaming. And now this is the time for the obligatory references to Quibi and CNN+, which were obvious streaming failures, but it's a mixed bag with streaming models being successful. I mean, even some of the big ones that are out there, Disney+, is not profitable, Paramount+, as I mentioned,

is not profitable. Churn rates across subscription streaming services have roughly tripled over the past five years by some estimates. Shudder, which I just mentioned, is not profitable. And content's not getting cheaper to produce. It costs a lot of money to make video content.

Although it sounds like is Dropouts content maybe a little bit cheaper than, say, like a Stranger Things? Is that fair to say? Oh, absolutely. And we get into this a little bit more with Sam in the interview, but it's not even just about what you can do.

There are certainly things that they could try to do with Dropout and have done in the past, but even if they could afford to do it, can they do it as well as their competitors? And really what they found the most success with is these improv-based, single-set, kind of game show, panel show-type formats, and then the actual play stuff with Dimension 20. I mean, it's kind of like, I think about it, you know, we've talked to Jason Blum before and Blumhouse and how their model is very...

is very cost-controlled. And they broke from that with, I think it was The Exorcist. The Exorcist was a big one, yeah. And that did not go well for them overall. Now, Blumhouse is going to be fine because they've established much more of a base, but...

But that broke from their normal model, and there's a reason why they have this model of lower costs, you don't have extra speaking, so you don't have to pay those rates. And they could not only do that and afford that and project off of that, but...

they could do it better than, or at least as well as anyone else could. Like they could make horror movies with that format that competed with other horror movies. So that's always the question when you're smaller. It's not just can you make content, but can you make content that competes in the marketplace? And so we get into that more with Sam in this next clip.

So picking back up with my interview with him, we get into the topic of diversifying revenue streams a little bit first and how they're currently generating that extra 15% or so of non-subscription revenue. You mentioned to me about 10% is from merch. I imagine the rest is some miscellaneous... Black market organ sales. Yeah, exactly. Exactly.

But live events I figure is figuring into that. Sure, it's a mishmash of stuff. Yeah. Yeah.

So roughly speaking, you have what, around mid-six figures is the number I've seen out there in terms of subscribers. Back of the napkin math, you're probably in the range of mid-eight figures in terms of annual revenue overall, which is a lot more than a lot of indie streaming services overall, but it's still, again, not a billion-dollar company. Sure.

It's not getting cheaper to produce these videos. What other revenue streams, I know you're not doing digital advertising again, and you're not doing that, you're not taking corporate money, at least not anytime soon or maybe ever. What other revenue streams outside of your streaming service are you hoping to grow as a larger part of your business?

Nothing. Okay. That's the honest answer. Merch, I think, is super interesting. I think that there's experiments that we'd love to do in merch along the lines of, like, we'd love to break out into video games at some point. We'd love to try our hand at a card game, like Cards Against Humanity or an Exploding Kittens, especially given the success of something like Game Changer. Still feels very experimental.

Live, we do not see as a money-making opportunity at all. We certainly could, but the way that we look at live is way more marketing content in the sense that we are taping these shows and putting them on the platform and an opportunity for the talent. We're not really interested in levering live for profitability's sake. We are really 90 percent focused on growing the platform.

And that focus so far has paid off. You know, people ask me like, well, where do you think that ceiling is? And I, given the fact that Crunchyroll is still considered niche subscription and has 5 million paid subscribers, I think, I still think our ceiling is like

maybe 10 times our current size away. I think college humor suffered from shifting objectives a lot, and so remaining like myopically focused on this objective is kind of my thing. Yeah.

And with that growth model, I suppose there's a content limitation and a benefit to being small overall. But essentially, there's certain things that you're not going to do because it's too expensive and it doesn't have the return on investment or doesn't put your talent in.

in the best place to succeed overall. At the same time, you're able to do stuff that big players, a Netflix, for example, wouldn't be able to take a risk on. I think about six years ago, you started an actual play, Dimension 20, one of your most successful products right now,

I don't think Netflix even now with the kind of explosion of D&D would be able to take a bet on something like this. So the question is, after all of that context, how big is too big?

for Dropout? That's a good question. We'll find out. No, it's true. I suppose you hope you find out. It's a champagne problem to have. Totally. Well, it's interesting about Netflix. I mean, I think like, first of all, I watch a huge amount of content on streaming. I'm obsessed with TV and I love scripted premium content. I do think there's a way in which

Our audience is this kind of era of like hyper premium content has created a reactionary market where folks are really interested in stuff that feels a little bit more GarageBand-y and authentic. There's some term for this, I can't remember what it is, but what it means is that a big player or a small player can come in and be disruptive.

Because a big player can't adopt their business model without disrupting their existing business model. I think that's a little bit of what we're up to. There might be one answer to your question, which is, how many shows can Dropout really support? Well, at this point, how many shows do you have? Right. So at this point, we have 10 or 11 shows on the platform, depending on how generous you are in terms of what you call a show. And by the end of this year...

there will be 15. Yeah. And you figure, like, once Dropout has 25 shows on it, it's like, are you diluting the value of each show by putting more shows on the platform at that point? I don't know. I don't know what the answer to that is. It's a tricky balance because you need to drive... One, with streaming service, you're driving two things. New audience acquisition and minimizing churn rates.

Right? So you need to keep people on longer. So maybe, I mean, it might be good to break this up into those two buckets. So starting with the sort of new talent, a new audience acquisition, how are you approaching content development from that standpoint? I mean, this is entirely how we're approaching audience development, right? In the sense of what we do is we give birth to new shows. We market those shows specifically using social media to do so.

And then when those shows are really successful on social media, that's where we see influx of subscribers onto the platform. And so far, we're seeing that scale, meaning as we launch new shows and those shows succeed or don't, you know, based on their own merits,

we're not seeing diminishing returns in terms of folks coming into the platform. Now, what that means is that we've had to spend very little on paid marketing, but there may reach a point where that whole mechanism

starts to be less effective. And we need to get a little bit more creative in terms of how we're reaching out to new audience. Now, there are other ways that we can reach out to new audience. Like, I think bringing name talent into the mix helps with that a little bit. Creating big PR moments helps with that.

We're doing specials for the first time this year. Each one of those specials stands alone as a little event into itself. I think that'll be really interesting to see. But I would guess that we continue to play the organic game versus the paid game. I've sort of seen, it's interesting, a lot of folks in our space, in the subscription space, are sort of doing a version of paid arbitrage, which is like...

We're going to market aggressively. We're going to bring folks in. Here's their lifetime value as a customer. So long as we're spending less than that, then our cost per acquisition of customers less than the lifetime value as a customer, then we have a business. And

we are doing a little tiny bit of paid marketing we're sort of developing competency in it it's like not even a tenth of the audience that's coming in at the moment i mean it's so easy to spend money the wrong ways yeah and paid marketing and get dependent on it almost like a nasty habit yeah it's a huge thing i mean i'm in the podcast game mostly over there paid has become one of the

Shift from organic growth to paid growth in the podcast industry has really shifted as the marketplaces become so saturated and you don't own your own marketplace, really, in a very significant way. Precisely. But you're going to see diminishing returns on that overall. Yeah. But in terms of then keeping people on your platform, you have a churn rate. You basically have...

Someone stays on the platform about 18 months. Is that correct? That's your sort of average? This number keeps creeping up and up. So right now, I think this number is hovering around like $115. The average...

users coming in for that amount of time. I think that is about a year and a half. Yeah, we're probably closer to two years at that point. Yeah, I mean, I think that the annual subscribers are kind of offsetting the average there. Yeah, yeah. Where the monthlies don't stick around for that amount of time, but between the monthlies and the annuals, the average at about...

a year and a half to two years. And that's well over industry average on that. Intern rates continue to go up and up and up across. And now that's obviously heavily weighted towards issues that big streamers have had. So that throws off the average a little bit. But nonetheless, you have to have a strategy to keep people on. So what are you doing to keep people on dropout TV? I'm tempted to answer this in such a way that it makes me sound a lot more clever than I actually am. Because...

A lot of these are just happy accidents that I think have to do with the ecosystem that we've nurtured on Dropout. Right. Which is, once you're a fan of our talent, you're not watching them on one show, you're watching them on several shows. It's very hard to be a fan of one of our shows without being a fan of another one of our shows. And once we get you, I mean, the trick is getting you at all, right? The trick is, are you interested in

Comedy, all comedy, unscripted comedy, improv comedy, TTRPGs, etc. But once we have you and you're in, there is such an amount of stuff to watch, all featuring these people that you've fallen in love with. I think that's a big part of it. Also, I hear this a lot these days in regards to other streamers. There is this sense of, well, once I'm committed to a show...

I'm afraid they're going to cancel it as soon as I've committed myself to it. So what's the point of making that investment? And I think what we've shown is we're interested in really continuing to invest, not only in the formats, but also in the talent. So God forbid a show doesn't work, you'll see that same talent pop up again and again. Yeah. Well, that brings me back to the blessing and the curse of staying small, is you can give more leash to projects overall.

I think the kind of running joke is that nothing lasts beyond two seasons anymore in the streaming network there. But your cost to produce a Game Changer or Dimension 20 or thinking of Dirty Laundry, which we just saw the set of downstairs, relatively speaking, while still an investment and a cost, especially as your commitment is to pay people equitably and all of those good things, is still nowhere close to, let's say, that...

ridiculous Lord of the Rings TV show that Amazon made. Totally. They can't make a billion-dollar television show two times if it's not successful. Totally. There is a quantity thing here. I mean, like, people speak nostalgically about the days of, like, Seinfeld and Friends, these comedies that they would hang out with for years and years and years, people of The Office for that reason. We don't make those shows as much anymore because the streaming model is so different from...

From the network television model. So the streamers, to the extent they're making comedy at all, and like, it's not very much. No. Are making short prestige comedy. Yeah. Which is almost an oxymoron. Feels like I just watched Baby Reindeer, which is excellent. Yeah. I'm in the middle of it right now. Oh, you're in the middle of it. Yes! Oh, no! Ha ha ha!

Okay. If anyone who's watched Baby Reindeer, you know what the middle of it is. Which is terrific, but that's, I think, what, and I think that's very much of the samples coming out of Edinburgh Fringe. Fleabag is another example of what is a comedy right now. And I love this content, but hard comedy doesn't exist

on major platforms the way it did in, say, the mid-aughts or before. Or even comfort comedy. I mean, these shows like Fleabag and Baby Reindeer, like... Not comforting. Yeah.

At all. I mean, very much not. If you want to laugh a few times and then feel empty. They're works of art, don't get me wrong. For sure. I mean, worth every award they have or will get. But like, I don't hang out with those shows because they make me feel good. So I think like, quantity is something to consider there. You know, make some noise. We're about to enter into our third season. It's a 20 episode season. The

The library of Make Some Noise is growing and growing. And that library is worth something to the new subscriber who comes in and says, well, I have 50 plus episodes of Game Changer to watch. I have every season of Dimension 20 is like anywhere between, well, at this point,

four and 20 90-minute long episodes or more. 90 minutes is a short episode. I do have to say, so it's true. I rediscovered college humor...

over the summer when you all released Dungeons and Drag Queens. Cool. I'm a big drag fan, big RuPaul's Drag Race fan. So on TikTok popping up Alaska and Bob and Monet and Jujubee and this elven drag figure in the middle, which of course is Brett and Lee Mulligan, who I came to learn, who was vaguely familiar because I think I remembered him from the Target CEO commercials, which are very funny. Yeah.

I started to notice this content popping up and then I started getting served Game Changer content as well. Eventually, I was just like,

What is top out? Yes. And so I dug in. That's how we get you. Exactly. And I subscribed. Yeah. Good for you. And I binged just about everything on the platform. Incredible. Because it's, but to your point, yeah, music to your ears, I'm sure. And I'm still subscribing, so I'm well within your channel. I want to stop here again and unpack what we bookended this section of the interview with.

Dropout at their size and relative production cost is able to take chances on and give a long leash to niche products. They don't need to convert millions of subs or drive huge audiences or relatively huge audiences to attract advertisers.

And personally, I have niche interests and maybe more of an alt-comedy sensibility like we talked about. And those aren't always represented in mainstream content. Sometimes on big streamers, but certainly not on network television. We mentioned Dimension 20, that Dungeons & Dragons actual play series. And I actually got to talk with Brendan Lee Mulligan, who hosts Dimension 20. And I asked him about this very thing.

Having the opportunity to make a show about something that, at the time, in 2018, was not remotely in the mainstream. But more importantly, how the ability to take a chance ended up coinciding with a renaissance for D&D to the point where it is kind of in the mainstream. Dungeons & Dragons' cultural relevance was being pushed by a number of things. Stranger Things, absolutely part of the conversation. The Adventure Zone.

critical role. The redesigned rules around 5E that made it a lot more approachable for new players were a big part of the conversation. Probably the Marxist sort of infrastructural reading of barrier technology for podcasting and streaming comes down. All of a sudden...

Improvised storytelling can compete. No one's going to blow 32-millimeter film on long-form improvised content. You're going to say this needs to be as precise and measured as possible. So the technological change allows for experimentation. Many different kinds of things are experimented on in the internet age. One of them, long-form improvised content, which I think the technology really does help. Podcasting, streaming platforms, all of it. Live streaming, right?

Dimension 20 comes along at a point in time, and I think there is luck that I am both the beneficiary of and then also luck that I was able to bring to the equation of Dropout as it was launching, which was just being a guy who'd been running games since he was 10 and

head writer for a LARP for many, many years, UCB-trained teacher. So a couple of things that go, oh, if Dropout's going to do an actual play show, this guy might be the guy to go do that, right? And I think that as that launched—

I would never have believed, like, I love D&D so much. It has meant everything to me. But it was almost a bashful thing to be like, are people going to want to watch my hobby? Like, that feels, don't I have to do more or make it a little? But the thing that at first, you know, when I first heard about actual play made me go like, people are watching hours of people play their favorite game. It's

Suddenly you change the angle you look at it from and you go, oh, no, the appeal is really potent here. So Dropout has created some successful shows like Dimension 20 that obviously ride this cultural wave. We mentioned, you know, the popularity of D&D was already surging. Sam also mentioned that they use talent across projects, which is a big strategy piece.

play for them or part of their strategy. But you know, at their size, they can't really compete monetarily, at least with a bigger platform that could decide to hire their talent away if they wanted to, right? Yeah, I mean, it's kind of inevitable at this point. And now, like, looking across their shows and their platform to this point, they have retained...

more or less all of the talent they've based a lot of their shows on five years deep, but they've also never seen this kind of growth and popularity and that extends to people like Brennan, who we just talked to, which means when you get more popular as a performer, more job offers come your way. So it's inevitable that

major players are going to get big job offers and go somewhere else at some point. And because that happens everywhere, it's not a knock against a dropout. That's just what happens. And we're at a point with dropout where there haven't been since Sam bought the company. It's been a pretty much upward trajectory, a pandemic notwithstanding, but,

There's going to be major challenges that come down the road. And some of those challenges are going to be because they have become more successful. Well, I guess there's two questions here. The first is how do they attract talent? Because to me, it's like, look, if you're already a comedian on the Internet, why not just work for yourself? And the second is how are they compensated? Are they contractors? Are they part of the company? What does that look like?

So there is a very small amount of talent who is actually staffers at the company. I believe Brendan Lee Mulligan, he was one of the original seven people that were allowed to stay on at the time when IAC slashed them down. And Sam is talent on their own shows, but most of them are contractors. So many of them are already doing other things. A large amount of them are

on house teams at Upright Citizens Brigade. So again, just structurally speaking, that keeps your costs down and they have pretty tight filming parameters when they do go into shows, but it also means that you don't have the amount of control over your talent in the same way. And I think it's a little bit by design, both from a cost standpoint, but also from how Sam works

And his team want to approach workplace equity in a way. Remember that Sam is the son of Robert Reich, and you can see a lot of that progressive labor values in the way that they manage their company.

And I will say that that probably does help with retention to this point. Although at some point, it doesn't matter how well you're treated. If you get a big old check from Netflix, sometimes you're going to take it. But I did talk to a lot of dropout employees and contractors for this story. And to a T, everyone told me how valued they feel there. And that's not insignificant when it comes to keeping them around, even if it's not a place that can pay you as much as you could somewhere else.

I'm going to switch gears into workplace equity, which there were two things that really shocked me in a good way. Okay, great. About my research around this interview. The first one was in your video that you put out on the five-year anniversary of Dropout. You put

valuing workers' time front and center. Not a normal thing for a company to do in a five-year celebration of a streaming service. The other thing that absolutely blew my mind is, I believe it was, it might have been in an interview you do, Variety, and it was glossed over, at least in the edited version, but you talked about doing profit sharing, that you did it for the first time in 2023, and that you...

included people who auditioned for you in the profit sharing. One, that you paid people to audition for you. And two, that then you sent them a check. If I...

ever got a check from someone who didn't give me a job for their profit sharing, even if it was 10 cents. Sure, sure, sure. I don't know what I would do. I don't think I would cash it. I mean, there's a big problem with unpaid work in our industry, period. I was just reading something recently that talked about how, for instance, writers used to be paid per draft of a screenplay, and now there's just so much work that happens on spec in our industry. Like,

writers and actors are expected to audition in so many ways that are unfair, especially considering how much of that spec work is part of a career. So paying for auditions is just a way that we feel like, you know, we can be that much more respectful than anyone else. I do think it helps that

All of us now, business partners at the company, executives in the company, we're all of us creative people who make things ourselves. And so we really do value these contributions. Like we don't just see it as, there's always this sort of like chasm of appreciation that happens when you have people who don't come from this world or make stuff themselves.

who come and see what we do, meaning comedic performance or whatever it is, writing, improvising, as like hanging out or flippant work between the people who actually make the stuff and know what that means, like how precious this stuff feels, how valuable our time has to be in order for us to treat ourselves in this career seriously. So I think it just comes from a place of respecting the craft, right?

Honestly. Do you think, and this is tying back to how big is too big, is there a point at which dropout is too big where the people making the decisions are too far removed from the people making the content? Well, this is probably partially why we've been so slow to grow the full-time team. I think as of these most recent hires, there's like 22 of us now or 23 of us.

And we really have, like, deliberately hamstrung back roof. And part of that is that I think myself and...

other leadership at the company, we want to remain feeling really intimately involved in what we're doing. And yes, I think there does become a point where a company is too big, where you lose some of that intimacy. I don't know exactly where that is, and we'll certainly continue to do everything we can to fight that. That's really important. We're not there yet. Yeah.

Hopefully we can put best practices in place now too, where we can afford to extend ourselves a little bit. And so long as those best practices remain, they'll do some of the work for us. Right. I think that's a great place to transition to just a last, more fun question out of the business. What are you most excited about coming up at Dropout? So we began this development sprint...

imagining that we wanted like one show that would really perform for us. We thought to ourselves that like if we develop a bunch over the course of the year and we end up with one show a year that really works, good for us. Yeah. The first show out the gate was Very Important People and that has killed it. Smarty Pants is like right out the gate right now. So far that's killing it. We have like

three, four more shows in this development tranche. So, holy shit. Honestly, if, like, most of these shows work, we're almost in trouble. Because we have to make more of all of them. Yeah. I'm really excited about these specials we're doing. I think that there are...

Maybe, like, some tactical errors that our competitors are making in this space right now. If not, I won't maybe go so far as to say errors. I think what's happening in the special space right now is a little confusing, right?

And I think that we have the opportunity to do this in a kind of a better and more exciting way than anyone else is doing. And we've sort of done it. It's like in the can. It just has yet to premiere. I'm really excited about that too. This is Dropout Presents, which you're starting with Hank Green, correct? Starting with Hank Green, Pissing Out Cancer. And then there's, we have one other standup special. We have three improv specials and then two shows that I saw at the Edinburgh Fringe are

are also one-person shows. And what... You spoke about what your competitors are getting wrong. What are they getting wrong, specifically, in your view? Well, this has a little bit to do with the fact that we're a production company as well as a distributor, and most of these networks aren't. But the deal right now, their sort of whole deal is, here you go, talent, you take this money and go film your special with it and bring it back to us. And what...

we realized it's just that by partnering more deeply with the talent, we could achieve a result that was both more creative and more professional feeling in my opinion, and lets the talent do what they're good at, which is creating and performing, not necessarily putting that stuff on camera. I also think these fringe shows are so profoundly creative and interesting,

And it's, again, one of these things where I just think they're too weird for a conventional streamer to take a risk on. But they represent such an opportunity in comedy. Like, this scene, alt and clown and the meta-comedy that sort of persists all throughout Fringe is so ripe and interesting. And I'm really, really, really excited about it. Yeah. Could not be more jealous of...

of you going and scouting and bringing shows back from Edinburgh, French. Honestly, that's a dream. And now that I've been so loud about it, I'm going to have to wear a disguise. Oh my God. I think that's a great place to wrap it up. Sam, thank you so much for talking to me. Thank you so much. This is great. Really appreciate it.

And that's where we left the conversation. I have to admit, I'm a bit biased when it comes to this story, and it's not just because I love their content. It's just really hard not to like Sam and the team at Dropout.

They occupy this middle ground in between indie creators and the creator economy and big studios, streamers, and corporations. I think it's important to have a more robust creator middle class, so to speak.

Also, as someone who was an aspiring actor and comedy writer at one point, I've seen just how awful this industry can be to workers. Paying and supporting workers equitably in the arts or anywhere else is not and should not be the enemy of profitability. There will undoubtedly be challenges in the future for dropout, whether it's subrates plateauing, churn rates going up, or talent getting hired away.

but I can't help but root for their success. We're going to take a quick break, followed by Keeping Tabs.

Okay. Me and Josh are back and it's time to wrap up the show with keeping tabs. This is where each one of us shares a story, a trend or piece of pop culture we're following right now. And Josh, since you did the special report, what are you keeping tabs on? Yeah. Sorry y'all. Sorry to disappoint you, but we've each brought three keeping tabs a piece. Uh,

Uh, so you're getting three daily mail headlines is what I'm telling you. No, my keeping tabs is simple. First of all, happy pride to everyone of our listeners in the LGBTQ plus community and all of our brothers, sisters, and siblings out there that celebrate. So, uh,

I did want to say that first, and it's a great time, particularly for allies, to go out there and donate to an LGBTQ plus charity out there doing great work, especially with our trans neighbors really under attack right now. Trans Lifeline, the Trevor Project, the Trans Legal Defense and Education Project, just three possible charities you can donate to to help the LGBTQ plus community, especially as

particularly conservatives and Republicans really go after that community right now. So that's the first thing I'll say. But the second thing I'll say for keeping tabs is I'm following the WNBA and

We talked a few weeks ago to AJ Hess about how we wanted a brawl in the WNBA. We're close, though. I can feel it. Haven't quite gotten that yet, but we are close, really. We truly are. So, Kaitlyn Clark's obviously been taking the league by storm, and...

I think a lot of the women in the WNBA have been taking some issue to that. They've been here longer. They've been putting up good stats and good performances, and they're letting Kaitlyn Clark know that she's in the professionals, not college anymore, including Kennedy Carter, who just outright...

I shouldered Caitlin Clark to the floor the other night in a game. And there was a lot of like toxic discourse around it afterwards. Similar to like the Angel Reese conversation after a year ago with Caitlin Clark and the women's final four. But I absolutely love it. These are super competitive people. It's getting chippy. I love it.

this WNBA season. It's been awesome. So fun to watch. I haven't watched it yet, but I'm here to say that I will become a viewer if an LLAD brawl happens.

Yaz, what's your keeping tabs? So as many of you know, I watch and think about Love is Blind a lot. And I read the long-ass New Yorker piece about whether Love is Blind had unsafe working conditions or not. Oh my god, yeah. That piece was insane. Pretty interesting. Vulture has a new piece out now. And the thing that really got to me is that they were talking about the guy who, like,

founded the reality show, like runs it. His name is Chris Cullen. They say many things are not remarkable about him. He's tall, he's a little dorky, wears transition lenses, which that shit never looks good. Anyway, he wears T-shirts and jeans. People look like such dorks when they're like inside and it looks like they wear sunglasses. I'm sorry. I've never met anybody who can pull them off except my mom who looks cool in them.

Wow, just that's the bury the lead right there. I love you. Anyway, the thing I wanted to get to is dropped into this profile. There is one small comment about him and tells you everything you need to know about this man. And it is that he eats his cereal with water instead of milk. Oh, what? Isn't that crazy? No.

How did they miss that? And they trusted that man with the reality show. Jesus Christ, man. He's demented. He needs to catch more fire than Andy Cohen, who also just had a new profile on him come out on Vulture, on Vulture, I believe. I was dying to write a profile of him for Fast Company, so I'm kind of sadly got to it, although it was kind of just like out there. Like, obviously somebody was going to write it soon. Yeah, it's been sitting there and it's not like the first profile that's been

been written of Andy Cohen, but it is pretty juicy now with everything that's been going on in the reality sphere. But he's just like, he seems like Teflon. I don't think he's ever going away. Because also, it's great content. It's really great TV shows. But honestly, this Love is Blind person, more scrutinized. That's what I'm saying. It's not rich Upper East Siders that he's exploiting. It's these regular, probably pretty broken people. I'm like, Andy Cohen...

or you've exploited some rich people. You've also exposed people guilty of federal crimes. True, but you brought traders to the U.S. And for that, you deserve a Nobel Peace Prize. And that's it for Most Innovative Companies. Our show is produced by Avery Miles and Blake Odom with an assist from our interns Claire Zhao and Ellie Stevens. Mix and sound design is by Nicholas Torres and our executive producer is Josh Christensen. Remember again to subscribe, rate, and review and we'll see you next week.