What Happened to Kast...

I’ll probably tell my story in detail sometime. Sign up if you want to be notified if/when I decide to.

Until then, here’s a brief overview of what happened from inside the failure of Kast.

I have also written an Open Letter to the Creator Economy, advocating for systemic improvements based on my experiences.

"Public sentiment is everything. With it, nothing can fail; against it, nothing can succeed." - Abraham Lincoln

First of all, I accept responsibility for certain of my business decisions that led to Kast’s exposed inflection point in 2023. I believe in accountability, and I put the company and all of its stakeholders (including employees, creators, investors, etc) in that position. 

I should have been more careful, and I am sorry.

The following is not an excuse for failure – failure is simply that, and stands on its own.

However, given the extent of the misinformation that was spread at the time, I do feel the need to publish a concise account.

To state plainly upfront: If the lies spread about me were true, the bankruptcy court would have made it clear, and the outcome could have been very different. In Chapter 11, every bank statement, transaction, contract, email, text, Slack message, internal memo – is dissected and examined by the very people with the biggest vendetta against Kast and especially against me personally.

After thousands upon thousands of pages of discovery, answering questions for probably more than 16 hours under oath, the court found no evidence for the accusations and approved Kast's restructuring.

I'm grateful that the court confirmed our plan after a long, invasive, and thorough investigation. That confirmation speaks volumes.

So what happened?

I started Kast in 2016 with a simple fee-for-service business model: we charged creators a per-episode fee to cover production costs. It was low-risk, profitable, and sustainable. In 2018, we began selling ads with a revenue split. But having money flow both ways – from creators to Kast for production and from Kast to creators for ads – wasn’t efficient, and we saw an opportunity to provide more value to creators by fronting production costs and recouping those expenses before (or after) applying the split.

This made Kast a more creator-friendly company, but included more cashflow and hard cost risk. Advertising revenue fluctuates, but production costs are relatively fixed.

With COVID came an influx of celebrity-driven podcasts that changed industry dynamics. Hollywood agencies started demanding Minimum Guarantees (MGs): fixed monthly payouts, regardless of ad performance. These MGs, combined with upfront production costs, continued the trend of fixed instead of flexible expenses underpinning our revenue.

At the same time, major tech companies entered the industry. Spotify, Amazon, and SiriusXM poured around $1.5 billion into podcasting at a time when the entire podcast industry was generating only around $1B, creating a massive cost-of-content bubble. Deal sizes and MG expectations were inflated far beyond what was sustainable for the industry.

We had two choices: Get left behind, or compete.

What would you do?

We offered MGs based on our own historical sales data: 40-60% of projected revenue, which we believed would leave room for margin. Later, we would be accused of "promising the world" to creators, but the reality is that our offers were sober and based on our historical performance. Relative to our competition, these MGs were conservative.

Our first-ever MG offer was for $1.25M on a podcast that ended up generating $2M - making it a tremendous success. We felt confident in the formula and structure. While we never made as aggressive an MG offer again, we strategically rolled out offers based on the formula.

We usually didn't have enough cash to pay creators before getting paid ourselves, so most of our contractual payment terms were structured accordingly. Therefore, at any given time, we owed creators 3 to 6 months' worth of payments, because the money had to go through several steps:

• Advertisers paid brand agencies in 30 - 90 days.
• Brand Agencies paid us about 45 days after that (30 days from end of month in which payment is received).
• We paid creators about 45 days later (30 days from end of month in which payment is received).

In total, it often took 4 to 6 months for money to reach creators after an ad ran.

Extended payment terms from advertisers have been well - documented - over - time, and 90 days is not unusually long – some pay after 4 months, some after 6. An analysis of Kast's accounting records showed that we paid on average within around 30 days across all vendor types prior to the advertising downturn in the second half of 2022.

But the shift to hard costs (especially MGs) underpinning revenue would become our O-ring. Revenue primarily came from advertising, which was variable, whereas expenses were fixed. When “The Great Podcasting Market Correction” came, the entire 3 - 6 months' balance owed to creators was at risk. The changing market conditions put several other networks in a similar position, and lawsuits - began - to fly as networks were forced to renegotiate and restructure contracts and debts, and to pull offers that had made sense for the previous era, but now were destined to lose money.

At this point, instead of simply filing bankruptcy (probably should have), which would have sealed Kast's creator’s fate, I facilitated a deal with PodcastOne wherein all of Kast’s creators were offered at least 70 - 80% recovery of what they were owed by Kast (some in excess of 100%).

The PodcastOne deal was not the best option for me personally (because owners retain equity in Ch 11 Sub5), but it facilitated the best possible outcome for creators – so I chose that route.

I remain proud of the decision, despite the way it has been sometimes misconstrued.

Unfortunately, likely due to some of the misinformation spread at the time (later thoroughly discredited in the courts), many creators soured on the deal.

It was painful to watch creator after creator act fully against their own financial interest, even as I was working behind the scenes to secure the best possible offers for them. But that’s what happened. Probably only 30 - 40% of creators took the deal. The rest simply left. Kast then filed for Chapter 11 bankruptcy protections in early 2024.

While I have no meaningful insight into PodcastOne’s ongoing operations, my understanding is that those who took the deal recovered 70 - 80% as promised; those who didn’t will get paid a much smaller amount over 5 years in the bankruptcy process.

It’s ugly, messed up, and there's simply no reason it had to go this way.

I have to live with the fact that my business decisions over time contributed to putting everyone in that position, making a decision they shouldn't have had to make.

At the same time, I have to calibrate my guilt. My decisions, combined with the changing marketplace, put us and therefore our creators in an exposed financial position. Yet, in that position, I successfully found and executed an off-ramp option wherein creator losses could have been minimized if a more pragmatic approach had been taken. And I did so at my own personal expense.

I expressed with absolute clarity the duality of the choice to creators at the time, and they made their decision.

Personally, I’ve learned a million lessons. I have plenty of regrets that inform how I now operate. Maybe we can talk about all of it over drinks sometime.

My Open Letter to the Creator Economy lays out my view of the systemic flaws exposed by Kast’s failure, and attempts to start a dialogue about improved operational practices to keep it from happening again.

Kast has restructured and learned from its painful mistakes. As we emerge from bankruptcy, we have put our learnings into practice with our initiative: PACT: Platform for Advertiser to Creator Transparency. This is our solution to the systemic problems outlined in the Open Letter and protects Kast's Revenue-Share creators.

My hope is that ultimate good can come from bad, and that the scars from the past can become a blueprint for future systemic improvements throughout the Creator Economy.

FAQ:

• What happened to the money owed creators?

From 2020 through mid-2022, minimum guarantees were generally profitable. But by the second half of 2022, during the Great Podcasting Market Correction referenced earlier, those same commitments began losing tens of thousands per month. At the same time, we faced two unexpected and costly legal issues during 2022. These two categories – MG losses and legal expenses – consumed most of the available funds.

As we searched for a solution, our investors declined to continue funding the business at the end of March 2023. This put the entire revenue chain – millions of dollars expected throughout the 3 - 6 month waterfall – at risk. The mechanics of the revenue waterfall are described more fully in my Open Letter.

With insolvency looming, we faced the reality that if you can't pay one vendor 100%, you can't legally or ethically pay any vendor 100%. That meant we had to initiate serious settlement conversations with everyone immediately, which we did.

Our line of credit was secured by our receivables, as is often the case in business. That meant we couldn't simply assign those receivables to creators – even if we wanted to – because legally, they were owned by the bank.

With many creators unwilling to consider either the PodcastOne deal or settlement negotiations, litigation intensified, and legal fees put us deeper and deeper into the hole, until bankruptcy was the only option.

Unfortunately, the above was not adequately conveyed or believed at the time. Misinformation spread at the time contributed to a lack of trust and pushed creators away from meaningful settlement conversations that could have mitigated losses across the board.

• Did Colin Thomson “steal” from creators?

The courts found that I was paid an appropriate amount. But you don’t want to hear it from me, so I’ll quote the Judge in Kast’s case, after an entire day of examination, and thousands of pages of bank statements, communications, transactions, etc, handed over in discovery (the whole thing is available publically, case no. 1:24-bk-10396-MB):

“I was actually really quite impressed as to how well he (me) knows his business. I was not impressed with the suggestion that he’s an incompetent manager because he was overcompensated or something untoward happened in terms of him taking more compensation…I understand what the objecting parties set out to prove…I just didn’t see any of it…When you look at these things in hindsight it's easy to say he got paid too much because later that year revenue went down…but I think he and the company were responsive to those developments. So…I don’t think the company has been run in an irresponsible way.”

• Why would creators turn down 70 - 80% recovery?

I can only guess – but consistency/transparency in business communication is one of my big learnings.

If you expect 100%, of course, you’re going to be upset at the idea of 70 - 80%. You may even decline it if either you aren’t convinced of how truly bad the situation is, or you believe something untoward or inappropriate happened – a narrative a few high-profile creators were pushing at the time.

I clearly failed to successfully manage communication with Kast’s partners at the same time that certain creators with large followings were weaponizing their platform against me and Kast to spread misinformation and libel.

The outcome was, unfortunately, a bunch of decisions made by creators, fully against their own and fellow creators' financial interests.

• Did PodcastOne offer you stock at the expense of creators?

All potential PodcastOne stock in the deal was owed to Kast, not me personally. Kast owed creators money, and obviously, stock can be utilized as / converted to money. In 2023, as described, the assets in Kast were not enough to pay what was owed. Debt-holders are higher in the priority stack than equity holders. Therefore, no stock could be available to equity holders like me until the debts were paid.

The PodcastOne deal was the only shot at evening the balance of assets in Kast with the balance of debts owed, without the use of bankruptcy. If the deal had been successful enough, we could have used that stock to pay creators what was owed, and bankruptcy wouldn’t have been necessary. This is why blatant (and admitted) attempts to derail the deal hurt fellow creators more than anyone. I tried to explain all of this at the time, but clearly failed.

There's a ton more to the story, and I expect I'll tell it someday. Sign up if you'd like to be notified when I decide to do so.