The Audio Wars: Buyer-verse Expansion (Pt 2)

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 a