The Future of the Audio Market

While we most frequently find ourselves in the weeds on asset-level analysis, on occasion it’s important to pick up our head and check in on the broader trends in our industry. Recently, we had the opportunity to discuss the audio (music/radio/podcast) market with two subject matter expects — an executive at the entertainment division of a certain large retailer and a meaningful public market shareholder of a certain Scandinavian streaming service. A summary of our conversation and takeaways is below:

How many scaled audio platforms (50M users or more) will there be in the US in 5 years?

• Exec: Spotify, Apple, Amazon. Amazon will displace Apple as #2. One of these three will or at least should acquire Tik Tok if there’s a government ban
• Investor: The three mentioned + YouTube

At what point will the advertising revenue earned by the “digital first” audio companies overtake ad revenue earned by the legacy radio companies?

• Exec: 5–7 years. Could be faster, depending on what happens to in-car listenership trends
• Investor: don’t think radio ad buyers will move quickly since such a big portion of radio advertising is local. The local car dealer isn’t going to switch from radio anytime soon. The shift will take 7–10 years

Over the next 5 years, who will gain more leverage in the tug of war between talent and platforms? If the average artist guarantee/license payment for exclusivity today is $100, is it higher or lower in 5 years?

• Exec: talent power is going up, but, ironically, that may mean artists can actually live with smaller dollars derived from the platforms as they build ancillary businesses outside of traditional streaming services
• Investor: most talent will be on revenue-share deals vs upfront guarantees. Those deals are unlikely to change materially. Top-tier talent will continue to be able to extract more margin

Do exclusive arrangements with talent drive value for platforms? Does paying up for talent and content make sense as a business strategy?

• Exec: don’t think exclusive talent deals drive subscribers or value to platforms. For instance, the podcast gold rush accrued more value to producers and ad re-sellers rather than to Spotify or Amazon
• Investor: disagree. We shouldn’t assess value creation on this narrow of a scope or timeline. For instance, while Joe Rogan may not have directly driven subscriber growth, the deal enabled Spotify to get integrated into more in-car platforms