Podcast
RockWater Roundup
Hosted by RockWater, Chris Erwin · EN
Chris Erwin and Andrew Cohen quickly break down Media x Commerce and Creator Economy news. From digital video and social audio to livestreaming, NFTs, sports betting, and more.
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Riches in Niches and the 40% of Non-Whites (2022 Prediction)
Feb 24, 202200:10:22Tap to summarizeWe’re in the midst of not one, but two, once-in-a-generation paradigm shifts: the “Streaming Wars” and the “Audio Wars”. And industry players are spending big on "land grab" strategies to own tomorrow's consumer. But in 2022, we expect the deal flow to evolve, where streaming and podcast platforms will:Expand their audience acquisition efforts beyond “core” consumers and into underserved communities (e.g. BIPOC, LatinX, AAPI, Women, Gen-Z, etc)Generate incremental audience reach, while increasing platform stickiness and deepening monetization by onboarding passionate affinity-groups (e.g. sports fans, true crime fans, kids & families, etc.)These two goals share one solution: specialized content creators dedicated to valuable niche verticals. There’s a lot to break down here, so we've split up this analysis into a 2-part episode. Today we walk through how the next phase of the “IP Wars” -- across both video and audio -- will be impacted by a renewed emphasis on studios and production companies that cater to underserved / multicultural audiences. Then on our next episode, we’ll break down the role of creators that cater to passionate affinity-groups.Subscribe to our newsletter. We explore the intersection of media, technology, and commerce: sign-up linkLearn more about our market research and executive advisory: RockWater websiteEmail us: rounduppod@wearerockwater.com--EPISODE TRANSCRIPT: Chris Erwin:So Andrew, you just wrote a beast of a piece that is our first 2022 prediction. And that is that the IP wars will evolve to prioritize specialized creators that super serve distinct communities. I will say, look, the feedback I got from some of our readers is how long did it take to write this thing? Andrew Cohen:Well, we wrote a long one about the IP wars and M&A in the fall. And I guess had a lot more to say. There's a lot going on. So excited to get into it. Chris Erwin:It's funny, every time you and I talk about an outline for our predictions, we're like, all right, let's try and get this down to two pages. And then it comes out five times the size and we're okay with it because it's good content. Andrew Cohen:I appreciate the leeway. Chris Erwin:All right. So let's set this up for our listeners. We are in the midst of not one, but two once in a generation paradigm shifts, right? The streaming wars and the audio wars, which we've written extensively about in 2021. Both markets are undergoing transformational growth. So for example, the OTT video market is projected to be worth 218 billion by 2026, that's a 19% CAGR from 2020. And then in terms of audio, monthly podcast listenership is expected to hit 164 million by 2023. That's a 41% increase from 2021. So as a result, both industries are undergoing land grab spending sprees, operating on a similar principle, spend aggressively on IP and talent that will attract and retain audiences in an effort to win market share today while each market is in its formative stage, and consumers are developing their routine. Those who do this successfully will become the default destination for generations to come when the market is fully matured. Chris Erwin:So there's a few different deal examples I'll quickly walk through here. I think we had initial like 30 deals on this list, but we got it down to four. So on the video side, we're seeing studio and production company M&A, we saw Candle Media acquire Moonbug Entertainment for three billion in November of last year. And then we've also seen interesting IP and talent deals on the video side as well. So I think ViacomCBS paid $900 million to expand and the universe of South Park Studios. That includes in creating more content and then moving into different mediums like gaming, film, TV, and much more. Chris Erwin:And then on the audio side, again, studio and production company, M&A, we saw Amazon acquire Wondery for 300 million back in December of 2020. And then similarly, also some IP and talent deals are ramping up. Spotify signed Joe Rogan to an exclusive distribution deal for what was initially reported at as 100 million by The New York times. But which I think just out this morning or yesterday, I think the updated estimate is that it's a $200 million deal. Pretty impressive numbers here, Andrew. Andrew Cohen:For sure. And definitely think looking forward, this land grab is far from over. Definitely do not expect the deal flow to disappear in 2022 when it comes to the IP wars, but we do expect it to evolve. So we wrote about it in the piece and we'll talk about today. So we expect both streaming and podcast platforms are going to do two things. One is that's expand their audience acquisition efforts beyond kind to these core consumer groups and into what we consider underserved communities. So that's BIPOC, Latinx, Asian Pacific, women, gen Z, all of these other communities. And two, they're going to want to generate incremental audience reach while increasing platform stickiness and deepening monetization by onboarding passionate affinity groups. So things like sports fans, true crime fans, kids and families, sneaker heads, all of these kind of really sticky communities. Andrew Cohen:And as you we think about it, these two goals share one solution, which is specialized content creators that are dedicated to these kind of valuable core communities. And there's a lot to break down here. So what we're going to do is split up this analysis into a two part episode. So today we'll walk through how the next phase of the IP wars across both audio and video is going to be impacted by a renewed emphasis on studios and production companies that cater to underserved and multicultural audiences. Then on our next episode we'll break down the role of creators that cater to these passionate affinity groups and how that's going to affect the next wave of M&A across these IP wars. How does that sound? Chris Erwin:Yeah, sounds good. It'd be way too much for one episode. And I think we're still biting off a lot here. Let's dive into underrepresented communities. So as future phases of the streaming war and the audio wars unfold, right, the consumption preferences of early adopters, they're all but cemented. Therefore, the high growth demographics will become increasingly valuable targets for customer acquisition. As a result, platforms are increasingly focused on providing inclusive storytelling with diverse representation so that consumers from all backgrounds can find programming that brings them onto these platforms and keeps them there. Chris Erwin:So let's look at some key stats. These are pretty eye popping to me. Non-white consumers account for about 40% of the US population. And that number is steadily increasing. Also, the buying power of non-white consumers has grown by 555% since 1990. So that went from 458 billion to three trillion. So no platform will win its respective land grab without this 40%, right? This is probably going to be the new majority over the next few years. So as the initial target audience is all but acquired, the next phase of the streaming wars and the audio wars will be focused on multicultural audience expansion. Now, although this trend is universal across both streaming and audio, there are nuances in terms of how these trends will manifest themselves this year. So let's break them out one by one, starting with the streaming wars. Andrew, take it away. Andrew Cohen:Yes. So taking a look at how underrepresented audiences are going to impact the streaming wars in 2022, just like we've seen in the past with the investments in Moonbug, Hello Sunshine, all of that, the flow of investment capital from private equity funds in 2022 is going to mirror the capital flow from the major content buyers, which is mostly the streaming platforms. And we believe that in 2022 content spends are going to be redirected towards talent and IP that can help them reach new multicultural demographics. This is important. BIPOC audiences, for example, they over index on streaming. And despite making up only 13% of the US population, they actually make up anywhere between 15 and 39% of the viewership on top OTT platforms. Yet, despite this less than 5% of the leading actors on streaming shows are black. So it's no surprise that a recent study showed that the film and TV industry can unlock an additional 10 billion in annual revenue. That's a 7% increase by, "Addressing the persistent barriers around diversity and representation." That's huge, but also not to mention it's just the right thing to do. Chris Erwin:100%. This gap in the market Andrew has enabled the emergence of niche streaming platforms like Tyler Perry's BET plus, which reach 1.5 million paid subs in its first 18 months. This increased demand is already leading to a surge of investments in supply via new production companies that focus on expanding representation through storytelling. A few examples here, ViacomCBS partnered with Kenya Barris and others to launch BET Studios, which provides equity ownership to black creators across premium TV and film content. Also MACRO, a film studio with the state admission of the voice and perspective of people of color in film and media recently raised 150 million. Chris Erwin:Now there's other examples like LeBron James’ SpringHill Entertainment and more, but we got limited time. So we got to keep moving. As the streaming land grab expands, we expect these p...
Transcribe →Birth of the Ownership Economy: 2021 Year In Review
Feb 10, 202200:20:50Tap to summarize2021 was the year acceleration stuck. It was also the year in which the “passion economy” gave birth to the “ownership economy”, which blurs the line between creators and fans into communal ownership. All driven by the Web3 boom. And it reveals a glimpse into a possible future where all platforms are built, operated, funded, and owned by their users, who are rewarded with tokens that are proportional to the value that they’re able to create. Chris and Andrew explain this paradigm shift, summarizing in just 20 minutes the 15 industry articles, 31 podcasts, and 7 industry watch lists the RockWater team published in 2021.Subscribe to our newsletter. We explore the intersection of media, technology, and commerce: sign-up linkLearn more about our market research and executive advisory: RockWater websiteEmail us: rounduppod@wearerockwater.com--EPISODE TRANSCRIPT: Chris Erwin:So Andrew, it is the end of January and we are recording our first Roundup podcast of the year. I think we've left our listeners hanging a bit. Andrew Cohen:Pros and cons of not being a full-time media company, try our best to turn out excellent content, but not always the most timely we do our best Chris Erwin:We're full-time advisory and just added doing some direct balance sheet investing this year into digital goods as well, trying to have all of... Stay updated on all things content, a little bit of a challenge, but we do our best. So we just published a piece that summarized all of our amazing thinking and all of our articles and podcasts in 2021, it was our year in review and we talked about two key themes. So I'll talk about the first one. And then you could talk about the second. How does that sound? Andrew Cohen:Sounds good. Chris Erwin:All right. So looking back on 2021, one thing that didn't surprise us was sticky acceleration. So we defined this as that there was certain things, dynamics of the economy that were pulled forward during COVID in 2020. These things include e-commerce penetration, content consumption, and content spending. And what we saw in '21 was that this acceleration, it wasn't a reversion back, it was sticky. It stayed with us in 2021, actually continued along it's trajectory. So let me review a few key stats on that front. On the e-commerce front, reminder that in 2020 during COVID e-commerce sales grew 32%, 2021 they grew by another 16%. Incredible. On the audio front in 2020, 52% of consumers said they began listening to more podcasts. Last year, monthly audio listenership was up 7%. Chris Erwin:In OTT video by the end of 2020, 73% of consumers were streaming more OTT video content than they were before the pandemic. Last year in '21, the average number of streaming services per consumer increased 28% year over year. For the creator economy 2020, we saw Cameo grow its bookings by 350% and its GMV by 4.5 times while Only Fans grew its user base by 75% month over month during COVID. But last year in '21, the number of digital creators increased 48% year over year growing the total value of the creator economy market to $104 billion, which we covered in a pretty foundational piece at the end of last year. Chris Erwin:So look, a lot of things I think people had been anticipating were going to happen in the digital content e-commerce economy for a while, got pulled forward during COVID 2020, that stayed the trend last year. But as a result of these macro shifts, capital flowed accordingly, right? So we saw $5 billion of investor capital flow to the creator economy, total telecom, media, tech, aka TMT investments hit $233 billion, 27% year over year increase from 2020 and total content global spending increased 14% to $220 billion. Really some staggering numbers here, Andrew. So that was sticky acceleration, but something else happened here too. Tell us about that. Andrew Cohen:That might have surprised some people that kind of sticky acceleration, but I think we were always bullish that COVID was more of an accelerant than an aberration and I think that proved true in 2021. But I think one thing I could admit that I definitely did not see coming the beginning of 2021 was the birth of the ownership economy. So just take a step back first, we had the attention economy, let's call it 2010 to 2020, where social media incumbents empowered traders to reach and engage audiences at scale and monetize that reach through ad revenue and grant partnerships. Then last year we wrote about this at top of 2021, we were seeing the birth of the passion economy, where immersion creator economy platforms and services were empowering creators to monetize their fandom directly with things like subscriptions, merch, tipping, you name it. Andrew Cohen:And now what we saw in 2021 with the mass adoption and integration of crypto, it allowed creators to drive value beyond merely kind of transacting with their fan communities. And through the implementation of digital scarcity, web3 has enabled creators to monetize and engage their audiences in totally revolutionary new ways. So through limited edition drops and auction models, creators are now able to create and monetize new classes of the super fans, which can be capitalized upon far beyond the price of a single branded hoodie. And in these ecosystems, fans transcend the role of being mere consumers and actually become shareholders and collaborators they're incentives are now completely aligned with those of their favorite creators and their platforms. And the result is what we're calling the ownership economy, which blurs the line between creators and fans into communal ownership. And it reveals a glimpse into a possible future where all platforms are built, operated, funded, and owned by their users who are then rewarded with tokens that are proportional to the value that they're able to create. Andrew Cohen:And so the seeds of this ownership economy, we saw begin to sprout in 2021, and we definitely expect them to blossom beyond in 2022. Just a couple stats that really stand out from 2021. First of all, NFT sales in 2021 hit total sales volume of $23 billion, which was up from only $340 million in 2020. So again from $340 million in 2020 to $23 billion in 2021 is pretty incredible. And so as a result, we saw things like the NFT marketplace OpenSea, they recently raised a $300 million Series C for a $13 billion valuation. We saw similar valuations from Dapper Labs and other in the space. This is definitely something that we think is going to continue to emerge and grow in 2022. But as a reminder, we don't believe that this is at odds with the passion economy, see this as kind of a new subset of the passion economy. Definitely think that there's room for the web2 and web3 versions of this to continue to evolve together and not necessarily a zero sum game. Chris Erwin:Andrew, I'm just looking at those numbers when you say the sales volume for NFTs from $340 million in '20 to $23 billion in '21 that reminds me when I first started investing in Ethereum and Bitcoin back in 2017. And I just remember the trading volume, I felt like it probably like 10X during that year. And everyone was talking about it, all friends were like, "Are you investing in crypto? Where are you at?" And this year I could say, now the amount of texts that I got from friends and industry peers are saying, what's your status? What's your portfolio in NFT? Looking at these numbers, it explains all that context. Andrew Cohen:Very jealous of you, I wish my friends were telling me to invest in crypto in 2017, would be in a lot better place right now. Chris Erwin:Well, Andrew on the burgeoning ownership economy, right? So I think what we've established is this is going to be a recurring trend in 2022. And we have some predictions that I'll come out and talk about this. But before we get into those for the year ahead, let's take one last look back at how these trends shaped our priority coverage verticals in 2021. So as a reminder, if you go to our website, wearerockwater.com. You'll see all the different verticals where we specialize. So this includes audio, food, livestreaming, media and commerce, OTT video, and sports, and probably and it's something that we should add will be web3. I have to talk to our website developer about that. Chris Erwin:So we are now going to walk through across those main categories. What are the main highlights from last year? And keep in mind. There's a lot here. Our team wrote articles, industry watch lists and podcasts on all these topics. So they're all on our website wearerockwater.com go and check it out. So I think the first key theme, Andrew, is the creator economy and all things at the intersection of media and commerce. What's a highlight that stood out to you? Andrew Cohen:To me, when I think back on the creator economy in 2021, I think of the creator war which is yet another wars add to the list. Then we saw these emerging creator economy platforms like Patreon, Substack, how they began to establish market share and raised big money to build out tools and services, to empower and expand creator monetization. And in response, all the incumbents, the Metas, the TikToks of the world, YouTube, they began to replicate those tools in house. So like Facebook launching basically its own version of Cameo and its own Only Fans, as well as billion dollar creator funds that it launched to keep these creators in their ecosystems. I think tha...
Transcribe →The US-China $295 Billion Livestream Gap
Dec 9, 202100:15:35Tap to summarizeLivestream shopping festivals in the US are ramping up during the holiday season. From Facebook and YouTube to even Twitter. And our RockWater team has been participating in all of them. Yet livestream commerce sales forecasts of $5 billion in the US still significantly lag China's sales forecast of $300 billion. Chris and Andrew therefore analyze the key market drivers explaining the revenue gap. Subscribe to our newsletter. We explore the intersection of media, technology, and commerce: sign-up linkLearn more about our market research and executive advisory: RockWater websiteEmail us: rounduppod@wearerockwater.com--EPISODE TRANSCRIPT: Chris Erwin:So Andrew, over the past few weeks, our team has been tracking some interesting activity in the livestream shopping space. So we've seen some holiday livestream shopping specials from social incumbents, like YouTube, like Facebook, and even Twitter. You and the rest of the team have really been digging into some of these case studies to learn more. Andrew Cohen:Yeah. No, we've been having a good time going through watching all of these big, new launches from all the major social incumbents for livestream shopping. And they're all have varying degrees of qualities, all are doing some things right, something's not as right. All in all it's been a big kind of improvement for the US livestream shopping ecosystem. But all of them still remind me of actually a 2021 prediction article that maybe we got right, maybe we didn't get right because the problem that we called out in that article really still seems to be persisting. That's the common theme that I'm seeing across all these streams. That problem is what we're calling the product gap. Chris Erwin:The product and the authenticity gap is part of that. Andrew Cohen:Exactly. Chris Erwin:So let's dive into that. Listeners, if you're familiar with our writings and some of our forecast dating back around 12 to 18 months ago, you've probably heard us talk about this before, but we're going to go through this observation that we cited dating back nearly a year ago. Talk about how it's evolved and then how we think things are going to change in solving this product gap going into 2022. So let's dive in. Chris Erwin:There's currently an authenticity gap in the US livestream shopping market, and it's preventing creators and thus consumers from really adopting the medium. And although the current sales volume in US livestream shopping is low. I think we're looking at some numbers of around 5 billion. The investor interest is quite high at, I think around 220 billion of investments that we've been tracking. So we surveyed around 10 prominent digital talent managers over the past year who represent hundreds of clients that influence hundreds of millions of fans. And the goal is to learn about their initial experiences with livestream selling in the US. And Andrew, I think to our surprise, there's only one manager we spoke to who ever had a client actually participate in livestream selling. And even then it was only one client in one campaign. Chris Erwin:We were surprised to hear that livestream selling is barely on the radar of most major US creators. Despite the fact that all the major social and commerce platforms have been developing products and features to make it easy for them to host livestream shopping experiences. So we asked them why and Andrew, one of the answers that we heard a lot was, and it really stuck out to us is many US creators view livestream selling as an overly commercial venture that will alienate their core fans through perceived in authenticity. And to quote, one manager told us specifically, "My clients don't want to be a walking, talking billboard. You can only ask your fans to do so many things. Pushing too many things, especially when you're doing a ton of brand deals is not a good long term look." Andrew Cohen:Seems like right now, amongst traders livestream selling is kind of being framed as a choice. Choosing either direct to consumer revenues or fan delight, but really at its best, we believe that it's an opportunity to do both. And I was surprised by the sentiment because digital creators are already massively influencing purchasing decisions. The US influencer marketing industry has grown about 50% year over a year since 2016. I think it's currently valued around 14 billion, 44% of gen Z consumers say that their purchasing decisions are based on recommendations from a social influencer. So, and made us ponder, where is this disconnect? How do we bridge this gap between the indirect influence of social marketing and this kind of direct salesmanship of livestream to commerce? And how come one is accepted as organic and natural and is part of our kind of everyday commerce experience and the other one is more distasteful? And I believe and we believe that it's due to a lack of access to sellable product inventory. Basically in other words, it's the authenticity gap, which is a direct byproduct of the product gap in the US livestream shopping ecosystem. Chris Erwin:Before diving into explaining the authenticity gap. Also just want a note, Andrew, so estimating the influencer marketing ecosystem around 14 billion, and I think just another number to add on to that, which you had actually wrote about the creator economy just over the past few weeks that that's estimated at over 104 billion. And that creator economy intersects in a very strong way with livestream shopping. So I think it just reinforces just how big the opportunity is here. But on your last note, I think as you're talking about the authenticity gap, I think we want to better understand why does that exist? Can you give us a little bit more color? Andrew Cohen:Really we think that the authenticity gap, this idea that creators feel that they're being inauthentic by pursuing livestream shopping is really because of this product gap, which is that creators don't have enough products to create genuine livestream selling content on a frequent basis. So it's always, let's look to China for an example. So on average, the top grossing streamers in China go live more than 300 times a year. They average about eight hours per stream, featuring all sorts of different items in each stream. And as a result, 25% of livestream shopping consumers in China are daily active users. And 71% consume it at least once per week. So this recurring active engagement is one of the major differences that explains why China's total livestream revenues are so much bigger than those in the US. I think China is running 300 billion today because Chinese viewers, they tune in on a regular basis because their favorite KOLs stands for key opinion leaders, basically their word for creators or influencers, but they always have cool new products to offer that they can authentically endorse. Andrew Cohen:So Chinese creators are able to stream every night without having to worry about being inauthentic because they have enough access to product inventory to enable them to service and delight their fans by consistently offering discounted access to the products that they genuinely love and personally endorse, which just makes for a much more engaging experience. And this is because brands and retailers in China are fully invested in this livestream shopping economy and it's become a vital part of its infrastructure. So over 100,000 brands and retailers participate in the Chinese livestream shopping market. On Singles Day, for example, Alibaba's version of Prime Day, it generated 75 billion last year in total livestream sales and over a thousand different brands participated. Chris Erwin:Yeah, the numbers from China are eye popping and particularly when you compare it to the current situation in the US. So let's talk about that. So by contrast in the US livestream shopping market, many creators, including those with millions of fans, they often don't have products to sell besides their own merch or products from a brand sponsor. Right. Now that may be enough to host a few successful live streams, but in order for a creator to go live on a recurring basis, like you were just talking about in China, they need a recurring stream of products that they can authentic and enthusiastically endorse. So then the question arises, why are US creators so limited in the products they can sell? Again, going back to our talent manager and talent rep survey, we've heard from their reps that even if they were interested in pursuing more direct commerce initiatives between product sourcing, development, and deal rights management, that procuring a wide array of products that fit their brand in audience is a logistical nightmare, right? A ton of work. Chris Erwin:So despite the creator's ability to influence purchasing and the high profile celebrity led product launches that circulate across all of our LinkedIn feeds and on social media, the reality is that most US creators rarely sell products directly to their fans. Their D2C commerce footprint is usually limited to just a few skews of brand and merch. So as a result, many established US creators are reluctant to pursue live stream selling because they believe that continuously pushing the same few products is actually going to alienate their fans and really dilute the sense of authenticity and trust that their influence is built upon. Andrew Cohen:But then the flip side of this is by only participating in livestream...
Transcribe →Cameo Buys Represent and Content x Commerce B-B-P
Nov 11, 202100:16:34Tap to summarizeOver the last few weeks we've tracked various Content x Commerce activations. From Cameo buying Represent and Fanatics exploring RSN acquisitions, to Walmart partnering with Netflix and Barstool, and Shopify partnering with Spotify and Mailchimp. Based on this activity, we explain three different ways Content x Commerce companies go to market via the Build-Buy-Partner framework, and which model we believe is best.Subscribe to our newsletter. We explore the intersection of media, technology, and commerce: sign-up linkLearn more about our market research and executive advisory: RockWater websiteEmail us: rounduppod@wearerockwater.com--EPISODE TRANSCRIPT: Chris Erwin:So, Andrew, our team has tracked, over the past few weeks, a lot of different activations and partnerships within the content and commerce space. Have you been seeing this too? Andrew Cohen:Yeah, definitely. I mean, the convergence of content and commerce is definitely one of our core themes that we cover at RockWater that we help clients on, so always tracking those and definitely feels like over the past couple weeks, been seeing a few big news stories around announcements of deals, partnerships, acquisitions and everything like that. Chris Erwin:So, yeah. I'll go through some of the recent announcements, and then we could talk about what are the different structures that we're seeing in terms of building, buying or partnerships between content and commerce, and which ones do we think are best pros and cons, and then where it's headed. So, with that, let's get into it. Chris Erwin:Over the past few weeks, Shopify has partnered with Spotify to enable artist storefronts and has also announced a partnership with MailChimp and I think TikTok over the past month as well. We also saw Walmart partner with Netflix to create a Netflix branded storefront on walmart.com organized by IP. In addition, another partnership with Walmart and Barstool, which builds upon past kind of media brand partnerships with Camp and Tasty for BuzzFeed. So, a few stats on the Barstool partnership, sold 150,000 units of Barstool's pizza from the first 10 days of launch, and on Buzzfeed Tasty, I think they sold five million units of Tasty Cookware with just the first year of launch. We don't have any data, I think, on how much Squid Game product has been sold, but just to get a sense of that we think the numbers are going to be pretty eye-popping, sales of white Vans have increased by 7,800% since the show debuted, right? Pretty impressive stuff. Chris Erwin:We also saw that Cameo acquired Represent, which is a celebrity merch platform and that Fanatics, I think like a 15-year-old sports commerce company, is exploring the acquisition of RSNs or regional sports networks. So, it starts to raise the question, Andrew, of why is this interesting? What's one of the questions that stands out to you. Andrew Cohen:Yeah. So, what was really interesting to me about this is that it shows this kind of convergence between content and commerce happening through a few different models. You're seeing acquisitions. You're seeing partnerships and outright builds. It's interesting because it's something that we talk to clients and help them work through a lot at RockWater. We work, we specialize in this convergence of content and commerce. We often help commerce brands expand into content and content brands expand into commerce. The difficult question is always how. Do you do it via buy, build or partner? It's really, there's no one size fits all solution. There's no silver bullet. It's really case by case, and there's pros and cons for all. So, yeah. So, to me, I think it's interesting to see a couple different cases represented here. Chris, yeah, maybe we could just walk through it and break down in general the pros and cons of each model. Chris Erwin:Yeah, and even before doing that, Andrew, I think you're right that it is ... When we go to our clients and they're saying, "Okay, we want to enter this new market. Do we build by partner?" it's like, well, that's a decision that you're going to make a few times over a sequence over the next few years, right? So, for example, I think like in the beginning, we often say, hey, your goal is that you want to build enterprise value for the company. You want to drive outsize revenue and financial performance, but you also want to be capital light and lean in the beginning. So, from a sequence perspective, maybe doing partnerships in the beginning to learn, try things out that are low capital commitments, and then as you learn what's best fit and what's the opportunity for you, then you can think about maybe acquiring another company in this space or building out a dedicated team. So, I think that's one important highlight before we dive into this. Chris Erwin:Then, second, Andrew, I think like you said, it's very case-by-case specific. So, for certain companies and certain industries, there might be more acquisition opportunities out there than others. So, it's like, you know what, yeah, it makes sense to buy, but if there's not a lot of acquisition targets, you might say, "You know what? Really want to enter this new market or product category, and I guess we're just going to have to build the team to do that." So, it is very circumstantial. It's important to understand. Andrew Cohen:Well said. So, maybe we can go through it. We'll start with buy, the acquisition route. You mentioned a few. So, we see both content buying into commerce and commerce buying into content. The more common approach that we've seen is commerce buying into content. So, you mentioned Fanatics, the big sports e-comm and merchandiser. They're looking at acquiring some regional sports networks. Hasbro, the major toy company, a couple years ago, they bought Entertainment One, a major film studio. In terms of content buying its way into commerce, you had just mentioned Cameo. They bought merch platform called Represent, but we've also seen other examples of this like MeatEater buying First Lite. So, if we were to break down this approach, the buy route of acquisitions, how do you assess the pros and cons? Chris Erwin:A few quick highlights here. So, pros is buying is speed to market, right? When you compare having to build out a new business unit and hire a new team and really build all those capabilities from scratch, getting to market faster by buying a company that has this unique expertise and all the operations set up and allows you to kind of enter the market and beat out your competition that isn't there is very valuable. Yeah, I think it's really hard to build these capabilities. If you're a content business, your DNA is in creative and building amazing content experiences for audiences. That's very different DNA than building out a supply chain, developing product and getting in the hands of your consumers and vice versa. Chris Erwin:So, I think some cons though to highlight is that there's often in M&A, there's an acquisition premium to take an asset off the table. You have to convince leadership, founders, investors, and the board that it's like, hey, the value that you're going to get from us buying you versus you continuing to run your company, you're going to have to pay up for that. Then, you can enter deal conversations, Andrew, and a deal, more likely than not, is not going to get done because you got to reach out to the target. You got to go through their representation. You got to line on a growth vision, agree on a price, get a bunch of lawyers and accountants involved, do your due diligence, see where the bodies are buried. At the end of the day, you might go through 18 months of talks, and then a deal doesn't happen. That's wasted time where you could have just said, "Should've just built this out ourselves." Chris Erwin:Then, in addition, once you buy the company, almost in a way, that's like the easy part. Integrating the operations where you're aligning on the growth vision, is the leadership going to come together? They're going to be like one leadership from just the acquisition target or from the acquire. How do you get the different teams and the cultures on the same page? Then, the un-sexy stuff like integrating offices and software, that's a lot to do there. That could be a lot of friction, and that takes time, and that takes money. Andrew Cohen:The next approach of build, building it out themselves. So, we see commerce building into content. Most famous example being Amazon building out Amazon Studios, Amazon Prime Originals, Amazon Live. Shopify, another example. They actually recently built out Shopify Studios, which is a film and TV studio. Mattel Studios, they are kind of emerging as one of the major traders of features with 17 premium films in development, but we're also seeing content building in the commerce. A couple weeks ago, we saw Netflix announce that they're building out Netflix Shop. Food52 has done a really great job of building out their owned and operated cookware line. So, Chris, we talked a bit about the pros and cons of buying a company. How about building into a new space yourself? Chris Erwin:So, some of the pros here, it can definitely be cheaper than buying. You're not paying that acquisition premium, right, but we've seen the examples where actually trying to build a team yourself can be more expensive so that's one that there's nuance too, but another pro is that you can build as you see fi...
Transcribe →NTWRK + Whatnot Raise More $$, and Twitter Commerce
Oct 21, 202100:16:59Tap to summarizeThe Livestream Commerce market in the US continues its rapid expansion. Whatnot just raised a $150 million Series C, valuing it at $1.5 billion and its third fundraise of 2021. And NTWRK raised a $50 million Series C (we estimate valuation at $300 - 400 million). Chris and Andrew discuss each platform's different programming strategies (UGC scale VS premium O&O), niche to adjacent vertical growth strategies, cap table alignment, expected market consolidation, and what role Twitter can play in social commerce.Subscribe to our newsletter. We explore the intersection of media, technology, and commerce: sign-up linkLearn more about our market research and executive advisory: RockWater websiteEmail us: rounduppod@wearerockwater.com--EPISODE TRANSCRIPT:Chris Erwin:So Andrew, a few weeks ago, there was two big announcements about livestream commerce fundraises. Were you tracking this? Andrew Cohen:Yeah. Of course. Livestream commerce finally broke into the unicorn status. We've got a billion dollar valuation. And I love to say, "I told you so," so I was very happy to see that. Chris Erwin:So there's two big fundraises that caught our eye. We've been tracking this space over the last couple years ever since we saw some of the initial growth figures in China, which were in the hundreds of billions forecast over the next few years. And we're like, "This is something we got to pay attention to in the US." So building off of our research and some of our other reporting, here's two big deals. So Whatnot raised $150 million series C at a $1.5 billion valuation. It's its third round of fundraising just in 2021 alone. Some key figures, GMV is up 30x since March, and there's a couple thousand active livestream sellers on the platform. Use of funds - they plan to launch an NFT vertical, expand into thousands of potential new commerce categories. Chris Erwin:That's up from the hundreds that the founder had said I think just a few months ago in the last round of funding, they're going to rebuild their mobile apps for iOS and Android. And they're going to launch a pre-bidding feature. The second big capital raise is for NTWRK. They raised a $50 million series C. So the valuation was undisclosed, but our guess is assuming that they're giving up 10 to 20% of their cap table, valuation's probably in a $300 to 400 million-ish range. So some key figures, Andrew. To date, they've had two and a half million app installs. From a conversion rate perspective of how many of their viewers convert to paying customers - I think that's our assumption of definition, but they're saying it's 10 to 15% in the low end and 70% on the high end. I find that very high, I'm a little bit skeptical, but think it all depends on the definition. Chris Erwin:Also of note 250,000 attendees from one of its virtual shopping festivals called Transfer, right,this is NTWRK's flagship festival that celebrates culture and design. Not a surprise here since their founder and CEO comes from a very strong events background. So use of funds - they're going to expand into NFTs like Whatnot. They're going to expand their marketplaces, including sneaker resale, trading cards and vintage items. They're going to be ramping up their marketing and also expanding their premium, original content and quote on quote shopping festivals. Then of note, there's a rumor that Twitter is going to be launching a livestream shopping product as well. So Andrew let's break down Whatnot versus NTWRK. And I think you have some thoughts here. Andrew Cohen:Yes, Let's get into it. So some differences, some similarities. Let's start with the differences. To me, the biggest difference between NTWRK and Whatnot is Whatnot is much more similar to the major Chinese livestream shopping platforms that we've seen like Taobao Live, Pinduoduo, which are basically UGC marketplaces. Andrew Cohen:Whatnot does have, you have to be a verified seller and you have to apply to be able to sell on their platform. But it's a model that is more made for scale. So think about like eBay, but if you are enabled with all of the tools and capabilities of a live streamer. So you can go on, if you are a collector of trading cards and you want to buy or sell and you can get on and on either side of this marketplace, engage. On the other end of the spectrum is NTWRK, which I would say what it lacks in scale, it makes up for in conversion rate, Chris, as you mentioned too at the top because it's not a UGC platform. Andrew Cohen:It's actually, they take a much more highly curated and premium and selective approach to their content and their programming. They have original content franchises and formats around. They have one around the comic books. They have one around trading cards and each one has a host. I think the host for their training card show is Scott from HQ Trivia. And apparently for some of these shows that have production statuses of up to 35 people. So it's kind of, I would say they go less wide than Whatnot, but definitely go a lot deeper. And then on the other end, they also have these festivals that you spoke to, which are also big in China. Andrew Cohen:We've talked a lot about Alibaba Singles Day. So what NTWRK does here is, they theme the shopping festivals around certain categories. So they've done ones around sports. The one you mentioned is around design. And so they're really good at rallying around talent and premium content to draw in audiences and drive conversions versus Whatnot, which is more about just like training ecosystem and letting the buyers and sellers do their thing. Chris Erwin:So it raises some questions, Andrew. And so what I am wondering about is what is the business model advantage of each? And so I think about NTWRK and if they're going after more premium, original and curated content, is it because do they perceive that there's going to be a market for them to syndicate some of their original livestream commerce programming. For example, are these new FAST platforms going to start to integrate shoppable commerce into their linear streams? And is that going to be a really lucrative market? And if NTWRK is pre-creating best in class livestream commerce content, then they're going to be the go-to player for that. I also wonder about for some of the social platforms that are going to be licensing content in the future as TikTok is making a lot of very rapid advances into social commerce, right? Chris Erwin:We've seen their Shopify partnership and more. Are they going to be interested in potentially licensing like high quality livestream commerce content? I think that NTWRK has done a partnership with Snap. I'm not sure about TikTok, something may have happened, but maybe there's a bigger market there that NTWRK knows more about than we do. I also think about NTWRK with its higher quality programming, is it trying to go after the biggest and most premium talent and designer collaborators that are going to say, "Hey, NTWRK is our destination and partner platform for who we want to be in business with. The longer tail UGC non-premium creators and sellers, they'll go to the Whatnots of the world, but we want to go to NTWRK." And that's the business model that the NTWRK platform gets excited about. That's what I'm riffing on. Andrew Cohen:Totally. And I think it's a bit of a fork in the road moment for livestream commerce in the US from a content perspective, as all these other platforms are getting into it as Facebook and Instagram, YouTube, TikTok, are all figuring out what livestream shopping is going to be on their platform. What's it going to look and feel like. These are really two distinct models. Is it going to go the kind of high-end premium programming route, or is it going to be more of the UGC marketplace route? I think it's interesting to see how that plays out right now. Whatnot has the higher valuation, but like you said, NTWRK’s model is able to attract much more high-end premium partners and promote the creator and brand side to the max. So it's going to be interesting to see how it all unfolds. Chris Erwin:Maybe it's like the HBOMax versus Netflix parallel. Andrew Cohen:Exactly. Chris Erwin:All right. So Andrew and I think you noted that there's some key similarities as well. What does those include? Andrew Cohen:Yes, for sure. There's a few. So one is that we're seeing both of them do is starting from kind of a core niche in terms of its category focus and then expanding into adjacent verticals over time. And we've talked about this with our clients in the space that that's really the best pathway to grow and scale in livestream shopping is to own your niche. For NTWRK, it was kind of the streetwear crowd. For Whatnot, it was the collectibles crowd in the toy space. And then how do you kind of find these organic adjacencies that were, it can still be kind of organic to your brand and to your fan base, but also allow you to broaden the tent and expand out. So, we're seeing Whatnot and NTWRK both do that. Whatnot is expanding from collectibles. Right now their top categories are sports cards, Pokemon cards, and Funko toys. To now, as you mentioned the founder saying he sees potential to expand into thousands of new commerce categories. Andrew Cohen:For NTWRK, they start off with just limited edition pop culture-inspired product drops, things like merge, apparel memorabilia. Now ...
Transcribe →The Future of Creator Funds and Tools
Oct 6, 202100:11:37Tap to summarizeSocial platforms are investing big money into creator funds and products. Like LinkedIn ($25 million), Facebook and Instagram ($1B), YouTube Shorts ($100M), Snap ($1M per day), Only Fans (£80K), and the list goes on. The platforms are also aggresively launching new creator tools ranging from social / livestream commerce and live audio to self-publishing, fan payments, and subscriptions. Chris and Andrew explain why, and how this trend could evolve into program pullbacks and creator illwill, investment in creator-owed businesses, different incentive structures for different content types, and more. Subscribe to our newsletter. We explore the intersection of media, technology, and commerce: sign-up linkLearn more about our market research and executive advisory: RockWater websiteEmail us: rounduppod@wearerockwater.com--EPISODE TRANSCRIPT:Chris Erwin:So Andrew it's time for another Roundup podcast. But before we talk about the topic of this week, which is creator funds, just a quick explainer to the audience we have been off for about a month since we last published. We took a little break at the end of August and through Labor Day. We think it's helpful to refresh and energize. I was off surfing in Portugal. And then was at my brother's wedding in Texas. What were you doing Andrew? Andrew Cohen:On a wedding tour as well. Chris Erwin:Hopefully we're coming back with a Roundup that's going to be better and stronger, version 2.0. Andrew Cohen:Yes. Feeling well rested. Hopefully it's rest, not rust. Chris Erwin:I've never heard that before, but I like it. All right. So let's talk about creator funds. So what's happening? Platforms are investing big money into different creator funds and initiatives, really to keep creators on the platform. Right? So some news like LinkedIn over the past couple of weeks launched a 25 million dollar creator fund. Facebook and Instagram have announced that they want to pay out over a billion dollars to creators. Snap has their spotlight program initially a million dollar per day, but pulling back on that, talk about that in a sec. YouTube has a shorts fund for 100 million, and then there is a long laundry list. They're Square, and Linktree, SoundCloud, Pinterest, OnlyFans, Twitter, and a bunch more. But clearly Andrew, a lot of activity in the space to try and get creators excited, right? Andrew Cohen:The formula is simple. Creators bring audience and audience brings revenue. So the way it used to work was that these incoming platforms, they would offer a really broad reach and that they would monetize creators and publishers audiences via advertising by connecting marketers with the customers. And creators and publishers, they would make revenue through a piece of the advertising on the social platform, but really the real outsize revenue and big enterprise value would come through monetizing their fandom off a platform through merge, through product licensing, through upstream TV and film sales, subscriptions, everything else. So really it would be social media is kind of the top funnel for audience reach and engagement and the bottom funnel would happen elsewhere where the creators would make the real money, but it started to change. Andrew Cohen:So first, emerging creator economy platforms as we'll call them, things like Substack, Patreon, OnlyFans, Cameo, they began offering more ways for creators to monetize their fans. And so creators and fans then started spending more time on those platforms. So quick lists, Substack has 500,000 paid subscribers and their top writers make over a million dollars annually. Patreon has 200,000 traders on their platform and they pay out over a billion a year to its creator community. OnlyFans had 85 million users. And last year in 2020 paid over a billion dollars to its creators. Chris Erwin:Andrew, I just have to pause you on OnlyFans. I can't believe 85 million users. Like that's huge. And a question. I don't know if you know this, but in the past couple of months OnlyFans, weren't going to cater to sex workers or sexually explicit content. Do you know if that user count fell since then? Andrew Cohen:I'm not sure. Because they did kind of do away with that decision almost within a week of making it. So I'm not sure if there was even long enough for a backlash to really manifest in user count. Chris Erwin:Sorry, tangent, but go ahead. Andrew Cohen:All good. Numbers made me step back as well. And so finally Cameo last year in 2020 had 100,000 new creators showing the platform and paid out 75 million to its creators in 2020. Yeah. So because of that, creators started spending more time on those platforms and their audiences did too. Secondly, platforms started to realize that how much revenue they're missing out on by only providing this top of funnel because outside of these immersion creator economy platform, there's a lot of top publishers and creators were using social platforms to build an audience and then they monetize elsewhere. So for example, Parcelforce said that this year that they're making 200 million in revenue in 2021. I bet social media is a huge part of their audience development strategy, yet a very minor piece of their revenue strategy. Andrew Cohen:MrBeast, remember MrBeast Burger last year, which has a projected revenue potential of 300 million. His whole audience comes off of YouTube. And finally Ryan's World last year in 2020 made 30 million in consumer products, which was more money than he generated off of YouTube ad. So I think between those two things, social media platforms saw that they've got some work to do to keep creator community and then their fan community on the platform and keep them happy. Chris Erwin:Andrew, based on all of that, I think now what we're seeing is that these incumbent platforms, they really want to better cater to creators. They don't want to just be like the top of funnel solution and distribution platform for their content, but really the ability to be an end to end funnel where they can allow creators to really engage more deeply with their fans, develop new monetization and revenue relationships, and really drive more time on platform for both audiences and publishers. So there's a few themes from these different product driven initiatives that we've seen platforms like Facebook, and YouTube, and Twitter do. And look, we really saw a spike in these product announcements from the end of 2022 to the first quarter of this year in 2021. And look, new announcements continue to persist up until today, but there was really that spike period during that six month window. Chris Erwin:And I think what we saw is that a lot of the incoming platforms were getting inspiration from some of these new emergence and upstarts and even their peers just brought it on and be like, well, where can we be a fast follower? What can we replicate? Right. That's a whole same classic argument of Instagram stories copying what Snapchat was doing back in the day. And I think the question that we have that's outstanding is which of these product initiatives are going to be experiments and are probably going to fall by the wayside? And what's really going to have staying power? What's going to really move the needle for creators and really delight their fans? And what's going to stick? We don't know, but it's definitely worth tracking. So there's, I think around four or five product themes that we've seen. One when Clubhouse came out with live audio, and everyone's talking about that being the next consumer frontier, just saw Twitter launch Spaces, Facebook get into the audio game and LinkedIn even do the same. Chris Erwin:And then when you saw OnlyFans and Patreon enabling direct to consumer monetization and like a tip jar, you saw Facebook fan payments, subscriptions, offering the ability to charge for live events. And then Twitter getting into super follows, allowing exclusive tweets and content. Right. Then there was a whole explosion of newsletters and the whole Substack revolution. Twitter this year, earlier this year bought Revue, a self publishing platform, Facebook even gotten to the self publishing platform again as well. And then e-commerce and live stream commerce. That was really exciting. You saw Popshop raise at a big valuation earlier this year, Whatnot did the same. So a lot of these platforms were like, oh, how can we get in the live shopping game as well? So Facebook and YouTube started innovating on some of their live shopping products. I think more is in the mix. TikTok has a Shopify partnership and then YouTube is even selling digital goods through a new partnership with Spring. That's a short list. There's likely many more after that. But I think the big question Andrew is, how is all of this going to evolve? Andrew Cohen:I'm really interested to see. I think what's fun about this is that no one knows for sure. There's so much competition and so much capital out there that we're all kind of building it and learning to fly the plane as we're building it. So I think like you said, there's already been some pullback, but I think that the structure and incentive of these funds and of these creator initiatives I think are going to continue to evolve in different ways. I think one thing that's really exciting to me is maybe the potential of these funds and platforms investing in creator owned business. So we've already seen VC Funds ...
Transcribe →Hello Sunshine Sells for $900M and High-Priced Studio M&A
Aug 18, 202100:15:02Tap to summarizeJust a few weeks ago, a Blackstone-backed media vehicle acquired Reese Witherspoon's Hello Sunshine for $900 million. Before that, Amazon acquired MGM for $8.5 billion. The list of studio M&A deals and rumors is a long one, with buyers ranging from streaming platforms and traditional media to CPG and blue chip private equity firms. In this episode, Chris and Andrew discuss the recent high-priced M&A, media valuations on a standalone VS streamer-integrated basis, private equity's perceived market timing, where the next big talent deals may happen, and new content buyers like FAST platforms, Apple, and Nike. (and apologies, we had a technical snafu so the recording quality is a bit subpar) Subscribe to our newsletter. We explore the intersection of media, technology, and commerce: sign-up linkLearn more about our market research and executive advisory: RockWater websiteEmail us: rounduppod@wearerockwater.com--EPISODE TRANSCRIPT:Chris Erwin:So Andrew, I've been reading a lot of headlines lately about all of the capital investment and M&A of different production and media companies. It actually reminds me of when I first got into the digital space back in 2012, 2013. But we'll talk about that parallel a little bit later on. There's a few deals, I think, worth highlighting, but are you reading the same headlines that I am? Andrew Cohen:Yeah, it's crazy. We've seen a bunch of acquisitions, investments, and then even a lot of rumored ones and the numbers are eye-popping. So it's... Chris Erwin:Let's go through a few of these deals. As always, there's a laundry list. But most recently, Hello Sunshine was acquired for $900 million by a Blackstone-backed media venture. And of note, that venture, I think, has Kevin Mayer and Tom Staggs, they're helping to spearhead it. We saw Amazon acquire MGM for around $8.5 billion, and it's actually, I think 28 times EBITDA, wild. A24, supposedly rumored to be exploring a sale for around $3 billion. Also SpringHill, spearheaded by famed athlete LeBron James, seeking a sale for around three-quarters of a million. And the list goes on. You got Imagine with Ron Howard and Brian Grazer, Legendary Entertainment, Lionsgate Spyglass, et cetera. Any other big deals I'm missing? Andrew Cohen:I'm sure there are. Especially if you span back over the past year or two, seeing things like Crunchyroll being acquired by Sony for almost $2 billion. STX sold for almost $1 billion last year, and there's a lot more. We're seeing these every week and it's definitely made me sit back and wonder why. Chris Erwin:Quick clarification. Was STX sold or they've just raised seven hundred million? Andrew Cohen:So it raised and then it merged. Chris Erwin:So then it begs the question, Andrew, why is there all this market activity? And particularly, I think just over the past two to three months, it feels like there's been a major uptick. And I think with all the rumors that we just walked through and more, that we can come back after the August vacation and Q3, Q4 is just a wild M&A sprint. So why is this happening? Andrew Cohen:Like a lot of other pods we've done, all roads lead back to the streaming wars. So content and IP, what we're seeing, is more valuable than ever before because of the exorbitant spends that we're seeing in the streaming wars as consumption is shifting from traditional TV and film onto the streaming platforms. And so the major players: Netflix, Disney+, HBO Max, and now Discovery, all of them are spending more and more in the billions every year on content and marketing to increase customer acquisition, to reduce churn, and to maximize lifetime value, and to ultimately win the future of entertainment when it's a streaming-first world. And in this world, content is more valuable than ever before. It's content-exclusive IP. It drives user acquisition. It minimizes churn. And what we've seen is it's new tentpole originals of things like Stranger Things that really boosts user acquisitions. Andrew Cohen:People come on to be part of the zeitgeist, watch these new shows. And then library content, so things like The Office, boost user retention. People stay there to watch these comfort food shows. And I think that that explains a lot of the acquisition and investment activity that we're seeing. So things like Hello Sunshine and A24, I see as more of a bet on future output of new tentpole originals for user acquisition. Both of those studios do have a great library of content, but I think it's more about taking a bet on best-in-class creators to continue to churn out the type of best-in-class content that's going to bring people to the platform. Andrew Cohen:Then things like the MGM acquisition by Amazon, I think that that was really a big bet on library. They have classic IP like James Bond. Chris Erwin:Don't forget Pink Panther. Andrew Cohen:Of course. The list goes on, I'm sure. Rocky. Roku, who recently did the same acquiring the Quibi library. So that's going to be the type of stuff that keeps people on the platform, reduces churn, and maximizes user retention. So really, a catchphrase I hear a lot from people in that world is that as the streaming wars are going on, it's these production companies that are the bullet makers, and that makes them more valuable than ever before in today's [inaudible 00:04:18] . Chris Erwin:So a few things to break down there. I think a point about investing in production companies/studios, where you're going to get a team that you believe is going to make a lot of high quality and differentiated content in the future that is going to help drive user acquisition through temporal content. And just even having a really great library, which drives retention, which is increasingly important as there's more and more competition, right? Someone churns off, the ability to get them back becomes even more expensive, as now there's HBO Max and there's Peacock and all the niche streamers, et cetera. And I think that is something that is reflected in Netflix's recent re-upping of their deal with Shondaland, right? So that was the first big talent landmark deal with the streamer. I think dating back to around 2016, 2017, that set off a big talent buying spree of Ryan Murphy with Netflix and a handful of others. But clearly it worked out for Netflix, right? The number one performing Netflix show is Bridgerton, which was done through the Shondaland partnership. And I think they're betting that that's going to happen again. Andrew Cohen:On a similar point, even the second-tier streamers like Paramount Plus. You just saw Viacom CBS just spent $900 million on a deal with the creators of South Park to turn out new seasons of the show and even new movies. So again, taking this bet on fresh content, beloved IP to drive acquisition and retention. Chris Erwin:The dynamics that we are talking about now is where we're seeing that there is a very viable business model for this content. I think it's worth noting that you look at a price tag that we're seeing for what's rumored for Spring Hill or 900 million for Hello Sunshine. And you're like, how does this make any sense? On a standalone basis, do these companies make enough revenue and EBITDA that drives that independent valuation. Chris Erwin:But the point is the independent valuation is not what matters. It's about the integrated value that is going to be created in the business model of a streamer. And I think back to my early days in the digital world where I started out in digital YouTube and MCN, so I was part of Big Frame, which is then sold to Awesomeness. But in that vintage of 2012, 2013, you saw incredible investment where I think it was Comcast and Time Warner Cable were investing in Maker Studios and Full Screen and Dreamworks Animation, but Awesomeness pretty early on in 2012, if I remember, 2013. And there was all this hope, which is like, okay, when you looked at the Comscore data of these MCNs, just the amount of digital traffic to them was incredible. Chris Erwin:And so the bet from these traditional cable or media businesses, is like, we don't have the business model now to extract revenues, but we're sure we'll figure it out. With traffic and audience, revenue will come. But the reality is, that never actually really happened, and there was also massive changes in the platform algorithms in YouTube or in Facebook, which caused viewership to just tank overnight. A lot of things that were outside of the control. But today these dynamics, the business model is much more solid and the environment is much more stable, because these companies are going, like a Netflix or a Peacock's, going direct to consumer. They're not relying on a third party platform. So it actually makes sense. So I just thought that's an interesting parallel, comparing my weirdo digital history. Andrew Cohen:Absolutely. I think the fact that you refer to 2013 as vintage, I think shows how fast this space is moving. And I think what you just said about the stable operating environment on the buy side for the platforms, I think is just as true on the sell side as well, comparing this premium OTT landscape to the wild wild west of early stage digital video. Because I think a lot of these bets on early stage YouTube traders, MCNs, where you catch lightning in a bottle, but then the algorithm shifts, trends shif...
Transcribe →The Audio Wars: Buyer-verse Expansion (Pt 2)
Aug 4, 202100:13:46Tap to summarizeToday'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.Subscribe to our newsletter. We explore the intersection of media, technology, and commerce: sign-up linkLearn more about our market research and executive advisory: RockWater websiteEmail us: rounduppod@wearerockwater.com--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 differ...
Transcribe →The Audio Wars: No End In Sight
Jul 23, 202100:13:09Tap to summarizeSince 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 just 13 minutes Chris and Andrew break down the trends around spoken word audio, and preview new buyer groups that will further drive market activity.Subscribe to our newsletter. We explore the intersection of media, technology, and commerce: sign-up linkLearn more about our market research and executive advisory: RockWater websiteEmail us: rounduppod@wearerockwater.com--EPISODE TRANSCRIPT:Chris Erwin:Andrew, I was looking at our Microcasts to date, and I realized that ... we're about eight or nine episodes in. We actually haven't done something on the audio wars yet, which we've covered pretty extensively on our blog. Andrew Cohen:Yeah. I think we've been very future-focused looking at smart speakers, looking at social audio that we've kind of overlooked the present, and just the billions of dollars that are currently flowing into the space from the big streamers in the audio wars. Chris Erwin:Yeah. I think this is a good time to step back for our audience and give a little bit of context here. So, what's happening in podcasting the audio wars? Well, on our blog, we have an audio M&A watch list, and we tracked over 30 M&A deals since 2018. A few highlights from that. Amazon has recently emerged as a big new buyer. They bought Wondery for $300 million back in December of 2020. And then just this past June, they bought Art19, a podcast hosting platform. Chris Erwin:Then everyone knows about Spotify, right? They've done nine total audio acquisitions to date starting with Gimlet in 2019. And then a few recent highlights includes Pods and then also Locker Room, a $50 million investment in social audio, which we've covered extensively. And then two other quick ones ... we've seen also traditional media get in the mix. The New York Times in 2020 bought Serial Productions. And then I think just this morning I was reading some newsletters ... saw that Automattic, the company behind WordPress, just bought Pocket Casts. But I think, Andrew, we've seen a lot of M&A, but we're also seeing capital flowing in some IP and talent deals as well. Tell us about that. Andrew Cohen:The same platforms that are spending nine figures acquiring podcasting companies are also spending nine figures acquiring podcasts, and IP, and talent. Just this month, we saw Amazon pay $80 million for SmartLess, a podcast by Jason Bateman and Will Arnett. Chris Erwin:I just have to call out, I love that show. I am a regular listener, so I'm very happy for that. Andrew Cohen:I know, I got to get on it. You keep saying good things. Also, last month, Spotify paid $60 million to lock up Barstool's hit podcast Call Her Daddy and make it a Spotify exclusive for the next three years. And there's some other big name talent deals over the past year, like Sirius XM paying $500 million to keep Howard Stern on their platform, or Spotify paying Joe Rogan a hundred million dollars to make his mega hit podcast exclusive to the Spotify platform for the next five years. But it's not just these big ticket, nine figure deals that we're seeing when we talk about capital flowing into the podcast space. Every day at RockWater, we're talking to venture investors and startups at the Seed Series A venture level that are raising capital, making investments in some really innovative up and coming podcast comedies that we've been tracking. Chris Erwin:Yeah. And just to hit on a few highlights of them. Blue Wire, a sports podcast network, has raised over 10 million most recently from WynnBET. And it's pretty cool. I think as part of that investment ... they actually built a studio space in Vegas at the Wynn Casino. I got to give a shout out to Kevin Jones. We interviewed him on our Come Up podcast. He's fantastic. Then also, Meet Cute, their romcom podcast network targeting female audiences. They've raised over $9 million, including some funding from Union Square. And speaking of Union Square, they also invested in Headgum. Got some friendlies over there. They've raised over $2 million for their ad marketplace and originals network as well. So, yeah. Andrew, the takeaway is lots of capital flowing into the space, but why is all of this happening? What is really driving the audio wars? I know you have some thoughts. Andrew Cohen:That, I do. Always have some thoughts. Much like the streaming wars of OTT video that everyone's familiar with between Netflix, and Disney Plus, Hulu, and all the others, the audio wars are now happening between top audio streaming platforms like Spotify, Amazon, Sirius XM, and others. And the underlying dynamics between the two wars are mostly the same. Like in the world of video, audio consumer habits are quickly shifting towards streaming on subscription and hybrid model platforms. Andrew Cohen:For example, over the past 10 years, online audio consumption that has exactly doubled. Just how in 2011, 34% of consumers listened to streaming audio monthly. Today, that number is at 68%. And podcast consumption has been a huge part of that. In 2011, 14% of consumers listened to podcasts monthly. Today, it's at 41%, which is 193% growth over the past 10 years. Chris, as we know and as we always say, the money follows the consumption. Just as we've seen these consumption numbers grow, we've also seen big revenue numbers follow. Chris Erwin:That's totally right, Andrew. We like to say that money follows eyeballs. But I think in this case, money follows the ears. So, yeah. Let's talk about some specific ad sales revenues. Since 2018, the U.S. podcast ad revenue market has grown 20% year over year. And in 2020, I think it reached around 850 million. Just the U.S. alone. And then over the next three years, it is projected to grow at a kegger of around 38%. Chris Erwin:Those are really big numbers. And I think we believe that monetization per listener is going to grow driven by a few key factors. One is the improvement in dynamic ad insertion technology. That's been a major revolution in audio over the past couple of years. And then there's going to be alternative IP revenue streams like subscription options. We just saw Apple Podcasts launch something in that vein very recently. Merch, live events. And I think most notably, that's going to be upstream IP adaptation into film and TV as the overall audience and excitement in the space grows. Chris Erwin:But, Andrew, something that's just I think worth noting is there might be some indirect revenues associated as well. Amazon building out the Originals for Audible. I think that also speaks to creating more sticky habits on the overall Amazon platform. How that translates into higher e-commerce revenues and lifetime values for their customers, we don't know. But it's probably a meaningful factor in terms of why they're leading into this space. Andrew Cohen:Oh, exactly. Customer stickiness, acquisition, retention. It's the name of the game in these early stage land grabs in both the shooting wars and the audio wars. It explains why ... Netflix, what they're doing with their $7 billion content span, much of which is on exclusive and original programming, we're seeing top audio platforms being comfortable, frankly, overspending on content today as a means of customer acquisition in order to capture that critical early stage market share in this exploding audio streaming market. Chris Erwin:I think it raises the question, right? We were riffing on this before is. With this incredible market opportunity, why are there not other platforms that want to enter the space and try and give it a go? Well, we actually saw that happen a few years ago with Luminary Media. And they're friends of the RockWater family. We think highly of them. We've done deals with them. But I think they face some challenges, right? They did raise over $100 million. They were very well capitalized, and they wanted to be the Netflix for podcasts. They really wanted to create a premium podcast slate. Chris Erwin:I think one challenge was that there still was a lot of premium audio that was available elsewhere at the time that was ad supported. And I think they did recruit some big talent personalities and Hollywood celebrities, but again, those personalities had programming audio and video that were available elsewhere. And I think that ... right before that we recorded, you and I were riffing on this. I think another challenge is you have HBO Max, and Apple TV Plus potentially entering to the space. Why would you not just maybe spend a couple bucks more for those platforms as they lean into audio content options for consumers, versus needing essentially a whole dedicated platform just for podcasts, right? Andrew Cohen:Well, yeah. When Luminary launched, there was a bit more of a white space for this premium audio experience. But right around the time of th...
Transcribe →Kids Screen Time: Crossing the Chasm and New Revenue Models
Jul 8, 202100:13:09Tap to summarizeMattel Films is partnering with MGM to put Polly Pocket on the silver screen. Hasbro and Epic Games are creating a line of Victory Royale toys for Fornite fans. And Kidfluencers are driving over $1 billion in toy sales. The kids market activity is being driven by (1) the explosion in kids screen time and (2) that kids digital viewership overtook linear for the first time in 2020. We highlight the key deals, consumption and regulatory trends, and the evolution of kids business models from subscriptions and FAST streaming apps to digital goods and social commerce.Subscribe to our newsletter. We explore the intersection of media, technology, and commerce: sign-up linkLearn more about our market research and executive advisory: RockWater websiteEmail us: rounduppod@wearerockwater.com--EPISODE TRANSCRIPT:Chris Erwin:So Andrew, have been noticing that media entertainment companies are rapidly investing in building out of kids-focused content verticals as of late. Andrew Cohen:Yeah. We wrote a report about it a few months ago. Because as we track deals in a space, it seems like every week, every month we kept seeing new big announcements around kids content. Chris Erwin:And I think in that report, which came out April 1st, it's on our blog if I remember correctly, that we tracked over 20 major investments, deals and partnerships around digital kids content over the past couple of years. That same deal activity, that trend has continued, if not accelerated. And we're seeing also a particular ramp up in content initiatives by toy manufacturers. So, some of those deals that we referenced in the report, we talked about the launch of new subscription apps for kids. So we saw launches by the New York Times, Amazon, Times, Spotify, Apple, and more. We also saw an increase in ad-based kids content models. So 2B Kids, Roku Kids, and even a cool partnership between NFL and Nickelodeon, creating a unique kids experience for a linear TV and digital stream of NFL game. Chris Erwin:Also, the growth of derivative commerce and partnerships. So like Nastya, a massive global kidfluencer, she did a deal with Will Smith-owned Westbrook Studios. We saw OK Play raise 11 million. And HOMER, another digital app, raise 50 million from Lego, Sesame Workshop and Gymboree. And then even since then the highlights have continued. Back in April, Hasbro and Epic Games came together to create a new line of product, a Victory Royale toys for Fortnite fans. Then in May, MGA Entertainment is moving its L.O.L. Surprise! unboxing brand under more screens and a new film that's going to land on Netflix in October. And then less than a couple of weeks ago, Mattel Films partnered with MGM to develop a new Polly Pocket feature film. So we're seeing all this activity, there's a lot more here than what I've just gone over, but Andrew, why is this happening? Andrew Cohen:So I think it's two main things. One is that visual content consumption among kids is growing at unprecedented rates. So publishers and platforms see an opportunity here to bolster longterm fan loyalty by capturing this first truly digital, first native generation. And two, new regulation is arising that complicates how this viewership is monetized. So starting with the first one, young kids are spending more time today on digital platforms than ever before. Today's generation children is the first to grow up spending more time on visual platforms than on traditional media. And in 2020 to 2021, as this entire generation has been forced to stay home and adopt e-learning, this paradigm shift has only intensified. And 2020 really represented an inflection point in this transition from linear to digital consumption. Andrew Cohen:So really these are not the screens that their parents grew up on, or that we grew up on. Growing up watching Nickelodeon, cartoon networks. In 2020, for the first time children younger than eight we're watching more videos online than on live TV, or even on streaming services. Online videos accounted for nearly 75% of all screen time for young kids. And in the U.S., kids ages four to 15 spent on average 85 minutes per day watching YouTube and 80 minutes a day watching TikTok. Chris Erwin:Just to be clear, Andrew, so that's 165 minutes total between both platforms, right? Andrew Cohen:Yeah, it's crazy. I mean, I don't know how much time I used to spend watching cable as a kid, but seeing those numbers for TikTok and YouTube is really eye-opening. It's the availability of mobile devices and of the internet, I think has been the most significant factor for why kids are spending increasingly more and more time consuming online content. In 2020, 97% of young children live in homes with at least one smartphone, which represents a 54% growth since 2013. So as a result, 170,000 kids go online for the first time every day. And as of 2018, 40% of new internet users globally were children. So when the COVID lockdown started in March, screen-time instantly shot up around 50%. And now over a year later, that percentage still hasn't budged. But Chris, as digital consumption is ramping up, so is the legislation that regulates how we monetize it. Chris Erwin:And it's funny, just I think late last week I was talking to an advisor on privacy regulation and COPPA requirements. And yeah, overall there's growing government regulation and parental concerns around kids' screen time, which makes a monetization of this audience particularly challenging. And with regulation it creates uncertainty. And as we know, investors and operators don't like conducting business where they don't know what the rules are and how it's going to evolve. But yeah, of note, there's also increasing scrutiny by Congress and the government overall about consumer data collection and protections. And as we saw over the past month, there was big new legislation that was just recently proposed. But particularly on children, there's the Children's Online Privacy Protection Act. It's also known as COPPA. A lot of people talk about this, but don't know exactly what it is, so let's quickly explain it. Chris Erwin:COPPA requires operators of commercial websites, online services and mobile apps to notify parents and obtain their consent before collecting any personal information on children under the age of 13. The aim of this is they give parents more control over what info is collected from their children online. And this is enforced by the FTC. So yeah, there some violations here over the past couple years that were pretty big. So in 2019, right? Google and YouTube were forced to pay record $170 million fine for violating this law. That same year, TikTok also paid a $5.7 million fine. Over the past couple of months, as Instagram has worked to launch their new kids platform, they've increasingly become under scrutiny, I think from the government and different watch groups as well. Chris Erwin:So speaking to the point of uncertainty and what's changing here, California passed legislation protecting kids up to the age of 16, right? So extending this by three years. And there's now new laws, even at the national level, to extend COPPA to kids up to 16 as well. That is material for all the different brands and marketers and publishers that target audiences in that age range. Overall, as the laws designed to protect kids who are consuming content online are developing and expanding, it's estimated that by the end of 2021 800 million kids will be protected by digital privacy laws, as opposed to only 130 million just in 2018. Chris Erwin:So, that's probably around a four X increase in just the past few years. So what's the main takeaway? Regulation is not going to stop viewership, but it does create uncertainty around monetization. So, companies need to create kid-safe environments that they control. So this is the emergence of new business models that are direct-to-consumer with subscriptions, dedicated apps and digital experiences, new ad based models, and then derivative commerce, right? Monetizing through alternative products like physical and digital goods. So Andrew, let's expand on that. Andrew Cohen:Yeah. So you just mentioned subscriptions, and we're seeing that kids content is really a secret weapon to bolster LTV, its lifetime value for subscription services, which is kind of the golden metric for them. And when you think about it that way, it's no wonder that everyone from Netflix, Disney+, Apple TV+, Paramount+, HBO Max, Spotify, New York Times, Amazon, Time Magazine, the works, everyone who you named up top and more, are investing so much in building out their kids vertical across subscription platforms. Andrew Cohen:The role of kids in the streaming wars is particularly interesting. It's an effective tool to onboard two generations of subscribers with parents and kids, thus boosting customer acquisition, and also allows them to develop sticky habits that reduce churn, boosting customer retention. So kids content not only drives customer acquisition for subscription services by promoting signups among parents, there's also an opportunity to kind of skate to where the puck is going by providing an early stage on-ramp to younger audiences who are now going to grow up with these platforms and develop meaningful user relationships. And as these younger audiences begin building habits on these platforms at an early age, they're only going to come more and more valuable to these platfor...
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