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 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.

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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...