The Audio Wars: Buyer-verse Expansion (Pt 2)
The RockWater Roundup: Podcast Episode Notes and Listener Links
Today’s episode is part 2 of our Audio Wars coverage.
Since 2018 we’ve tracked over 30 M&A deals on our industry Audio M&A Watch List, like Amazon / Wondery and SiriusXM / Stitcher. There’s also been numerous talent and IP licensing deals like Amazon / Smartless and Spotify / Call Her Daddy, as well as upstart fundraisings for companies like MeetCute, BlueWire, and Headgum.
Why?
Because we’re in the Audio Wars, where music streamers are aggressively spending to capture growing listener consumption, and podcasts are proving to be one of the most powerful assets for user acquisition and retention…just like the video streamer wars! In this 14 minute part 2 episode, Chris and Andrew quickly recap the rends around spoken word audio, and then discuss four new buyer groups that will further drive market activity; smart speaker manufacturers, social media platforms, traditional Hollywood and OTT streamers, and sports media and betting operators.
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EPISODE TRANSCRIPT:
Chris Erwin:
So Andrew, I think last week we recorded Audio Wars, part one, and there is a lot more that we wanted to get into, but we realized, we’re going over our 15 minute limit and we’re going to probably have to cut this one into two.
Andrew Cohen:
This is our first sequel. So maybe the beginning of more sequels to come, but definitely once you get us to started on audio, it’s tough to keep us under 15 minutes.
Chris Erwin:
Yeah. Exciting development for the RockWater Roundup. All right. So yeah, last week, a quick recap, as we were talking about the audio wars, where we had written about this on our blog, which is on our website, that we’re seeing a lot of capital flows, M&A exclusive licensing deals, venture investments in the audio space. So Spotify buying Locker Room in March of this year, Amazon buying Wondery, Sirius XM, buying Stitcher, exclusive licensing deals for SmartLess and Call Her Daddy, just a lot more. So we talked about, and you did a good job, Andrew explaining why is this happening? And we made parallels into the video streaming wars where there’s a land grab for audio listeners. So as audio listenership is going up, a lot of the major platforms are spending aggressively to capture market share. And in addition, I think a lot of platforms, including the social networks like Facebook, like others are looking at audio to create additional stickiness and user engagement on their platforms.
Chris Erwin:
So it’s driving a lot of activity. But something that we often talk about with our clients is we get asked, well, hey, there’s all this capital flows right now, but is this going to start to Peter out over the next like couple years? Like, are we in peak podcasts? And it’s funny because I’ve been covering the audio space for multiple years now, I’ve heard peak podcasts for like more than half a decade. And I think Andrew, that we agree that this is definitely not the case. We think that the audio space is growing a lot more, buyers are going to emerge and we have some specific ideas about that, which we’re going to get into now.
Andrew Cohen:
Absolutely. Yeah, no, this is, if anything, it’s just the early innings and the audio wars, I think were the impetus that started off a lot of this capital flow, but it’s not like once that kind of land grab is settled, the bubble is going to burst. Because we’re already beginning to see new waves of buyers emerge and investors. And definitely think that the audio wars might have been wave one, but we definitely think that wave two, three, four, and who knows how many others are going to follow.
Chris Erwin:
Exactly. So I think you’ve broken out there’s four different categories of buyers that we’re going to get into today. Right? Want to give a quick preview?
Andrew Cohen:
Yeah. So these are just four. Definitely think that there’s even more than this. Even just this week Substack and WordPress got into the audio game. So there’s tons of different types of players and stakeholders that a year ago, you would’ve never thought would be intersecting with audio that are now investing heavily in this space. But four that we’re going to talk about today is smart speaker manufacturers, social media platforms, Hollywood and traditional media, and sports, both sports broadcasters teams and sports betting operators, but let’s get into it. I know Chris, we’ve been big on the rise of microcasts, following tailwinds of the boom of smart speakers and how smart speakers might trigger kind of what we’re calling the at-homeiffication of audio and the birth of microcasts. So clearly we’re big on microcast. We’re on one as we speak. So this might get meta, but what do you think, why are smart speakers so exciting in terms of what it can do for audio?
Chris Erwin:
So, yeah, this is another topic that we’ve covered extensively on our blog. Smart speakers, we consider it one of the largest new consumer frontiers. So let’s first talk some numbers. This year, it’s projected that there’s going to be over 163 million smart speakers installed worldwide. That’s 21% year over year growth, but this install base is going to grow to 640 million by 2024. So in just a few years. Now break out the US, the US is a market leader here with over 90 million devices and 45% year over year growth. And then of note, since COVID Andrew, 35% of US adults smart speaker owners are listening to more news and information. That means that smart speaker podcast listening is going up. And in recent months, Amazon, Google and Apple, they’ve all announced additions or updates to the smart speaker product suites, signaling that this is a priority sector for them.
Chris Erwin:
And I think it’s also worth noting. I was talking with a new point at the Alexa startup fund just yesterday at DD dash. This is a $200 million dedicated fund to nurture use cases around the smart speaker ecosystem. That feels very reminiscent to me of the YouTube Original channel program that really sparked the growth of digital video that I was a part of over the past decade. So some very exciting developments, but why is this relevant? Why would smart speakers become buyers of audio? Well it’s because their product can be very commodified, right? A lot of the audio hardware is similar and we know that Google, Apple, and Amazon are really going to control the leverage in smart assistant integration. So how do these manufacturers build a moat or have competitive differentiation? And we think a proprietary content library, like we see moves in many other goods and services companies.
Chris Erwin:
So just like how the video and audio streamer platforms are buying media companies and doing exclusive content deals, we think the smart speaker makers are going to start doing the same. And the reality is Andrew, it’s already happening. Right? So last year, Sonos invested in QCode series a round, and we expect more speaker brands to follow suit like Amazon, Apple, Bose, Google, Samsung, Sony, and a growing list. But a question I think, we were debating this before is like, how much of a lift is investing in content? How much content is needed and how expensive could that be to make a difference for these manufacturers? And I think that was like a caveat that I raised, but you had a good counterpoint, Andrew.
Andrew Cohen:
As a reminder, a lot of the leading smart speaker companies are already investing in content. If you look at it, it’s Amazon who just acquired Wondery and has Amazon Studios, it’s Apple, which is already investing a lot in content. We’re hearing that they might be acquiring A24. It’s Google that owns YouTube and a bunch of YouTube Originals. So it could be something as simple as when I asked for an update on soccer scores to my Apple smart speaker device Ted lasso is talking back at me. And how cool would that be?
Chris Erwin:
Ugh, speaking of Ted lasso, I adore that show and I actually was just watching episode one of the new season. So good.
Andrew Cohen:
Oh, I haven’t started the new season yet. No spoilers, but I’m pumped for it.
Chris Erwin:
Andrew. So okay, a second buyer group here is social media and social audio. So what are you thinking here in terms of like how they expand into this audio buyer verse?
Andrew Cohen:
Yeah. So really 2021, just speaking of buyers that we had no idea would be involved in audio. A year ago the phrase social audio meant nothing. In 2021 it’s everywhere. I mean, Clubhouse raised a series C at a $4 billion valuation, Spotify acquired Locker Room, Twitter acquired Breaker and launched Twitter Spaces. And on top of that, Facebook, Reddit, LinkedIn, Discord, Slack, and Telegram all announced major investments in the live and social audio this year. So as social audio moves into the mainstream and becomes a more prominent feature on all of these platforms, I’d definitely expect social incumbents to become even more acquisitive. I think it’s going to help them differentiate from other social audio platforms and other social media platforms by adding exclusive premium content that can compliment their existing UGC offerings and make acquisitions across the podcasting stack, including IP, production, monetization, data, there’s all sorts of different stakeholders within the audio universe that I think social media companies are going to start acquiring, investing in, and kind of adding to enhance their overall social audio experience.
Chris Erwin:
Social audio is interesting Andrew. I was actually, again, in the conversation with this partner rep at the Alexa fund yesterday, they were mentioning that there’s some really cool new social audio startups in LA that were not even on my radar. So this definitely feels like it’s a fast growing burgeoning ecosystem. And I think we’re going to see a lot more developments here in the future.
Andrew Cohen:
Totally. Very exciting space. So then number three, Hollywood and international studios. So we’ve already kind of seen a lot of film studios starting to get into audio, definitely expect this to happen more. But what do you think about that?
Chris Erwin:
I think in 2020 audio became a much more valuable weapon in the streaming wars. And there’s a few different angles here as we kind of analyze this world. One was the ability to really amplify marketing. The top streamers use podcast to drive users to their platforms by developing companion content, which what we like to think of as generating cultural relevance around their tent-pole programming. A really good example of this is what HBO did with their tent-pole Chernobyl series. So they produced a Chernobyl podcast in partnership with Pineapple Street Media, a venerable producer in the audio space, where the series creator of Chernobyl joined the host after each episode to discuss the true stories that shaped the scenes, themes, and characters on the show. And I was actually just doing a little bit of online exploration about the show yesterday. And I went on YouTube where they are actually publishing the series.
Chris Erwin:
The first episode of the season had over 2.5 million views over 1600 comments and over 19,000 likes. Pretty amazing numbers. And I think it speaks to creating once and then you publish this content everywhere and it really hit a global audience. As I was going through the comments, there was feedback from users all over the world. So it’s really expanding the global conversation around the hit show. But in addition to marketing and amplification for content and development and acquisition, we’ve seen actually like the audio, video, and IP pipeline flow both ways. So we’ve seen top streamers start to extend their IP into audio to launch new franchises and series. A good example is Marvel’s recent announcement to launch a new audio series of Sirius XM. So this is similar Andrew, to when Marvel expanded it’s franchise into multiple character breakout series on Netflix, right? Like Jessica Jones, and Luke Cage, and Daredevil.
Chris Erwin:
It’s now doing a multi-part original scripted audio series called Marvel’s Wastelanders, which actually just wrapped its finale episode. What I like about this is that again, it’s not just extending the franchise. It’s also creating new ways for fans to engage with Marvel and it’s facilitating new community dialogue and deeper franchise affinity. So this is very similar to what HBO did with Chernobyl. This partnership now has the Marvel Method Show. It’s a weekly podcast on Marvel fandom hosted by Method Man, a rapper known for being an avid comic book reader and Marvel Declassified, it’s a nonfiction deep dive into Marvel comics. As part of this to a IP pipeline, what we find even more fascinating is that streamers are looking to audio to incubate and discover new IP and formats and personalities, and to not have to bid on the open market for IP. Right?
Chris Erwin:
So Homecoming, which came out of Gimlet Media back in 2018, that went onto a exclusive show for Amazon Prime. It had Hollywood heavyweights like Sam Esmail and Julia Roberts behind it. And then, Wondery is one of the largest premium content producers in the audio space. Their Dirty John went to Netflix, done two seasons. Their Dr. Death is now on Peacock. So I think that’s pretty exciting because Amazon just bought Wondery and probably that pipeline is going to be exclusive to Amazon Prime platform and Audible.
Chris Erwin:
So yeah, that’s yet another Andrew, very exciting buyer category here. And we think a lot more activity is going to ramp. So Andrew, I think a closing point about streamer activity that is ramping in audio is, you look at Netflix announcing a new head of podcasting over the past month, rumors that Apple is launching a subscription podcast service to bundle with Apple TV plus. But we really haven’t seen any audio M&A except for Amazon buying Wondery. And I think we’re going to see that change in a big way, going forward, particularly as the streamer wars really ramp up even more. But let’s talk about this final fourth category of buyers in sports.
Andrew Cohen:
Yeah. So over the past year or two, we’ve seen the booming business trajectories of both audio and sports media, two things that we love talking about, they intersected. And we saw the rise of sports audio, is everything from new player centric podcasts, and podcast network launches like from Kevin Durant, Blake Griffin, Pat McAfee, and a ton of others. Blue-chip strategic partnerships and joint ventures like what we saw with WynnBets and Blue Wire. We’re seeing IP and talent deals like the blockbuster deal between DraftKings and Dan Le Batard’s Meadowlark Media. We’re seeing MMA like, they’re acquisitions of Barstool and The Ringer. DrafKings acquiring VSiN, capital raises again, Blue Wire is a big series A this year and a slew of new sports centric companion podcast launching to drive attention to big marquee events. We’re seeing right now, Blue Wire just launched a podcast with NBC to promote the Olympics.
Andrew Cohen:
So I think with the rise of sports betting and with the rise of sports streaming and how live sports rights are now intersecting with the streaming wars, all of this money is now converging. And definitely think that because of this, I expect to see investments in the audio space from different stakeholders throughout the sports world, from leagues, teams, broadcasters, and betting operators to escalate over the next year or two. So again, stakeholders throughout this ecosystem whose core revenues come from kind of stoking the flames of fandom and live engagement for them, podcast is going to become an even more valuable component in their overall content strategy. And so rather than remain relying on third party podcast networks, which is what we’re mostly seeing right now, definitely anticipate that many are going to choose to invest in bringing those capabilities in house via M&A and investment, and definitely excited to see what that looks like.
Chris Erwin:
Exciting times, Andrew. Well, look, I think we’re getting to the end of this. So before we make this into a three-part series, let’s wrap this up so.
Andrew Cohen:
I think so.
Chris Erwin:
Till next time, Andrew.
Andrew Cohen:
Later.
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