The Future of Creator Funds and Tools

We’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:

1. Expand their audience acquisition efforts beyond “core” consumers and into underserved communities (e.g. BIPOC, LatinX, AAPI, Women, Gen-Z, etc)
2. 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.

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Learn more about our market research and executive advisory: RockWater website

Email us: rounduppod@wearerockwater.com

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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 production companies to become increasingly valuable. Therefore, we predict that private equity companies will soon begin acquiring more studios with a specific focus on the demos that have long been overlooked by Hollywood. And in order to position themselves for returns on those exits, we predict that venture and growth funding will start pouring into those spaces in the near term as well. So then the next question is Andrew, how will this trend play out in the audio wars?

Andrew Cohen:

Good question. So similarly podcast providers need to find new audiences and luckily for them, multicultural consumers love podcasts. In fact, 43% of podcast listeners are non-white. So given that less than 40% of US population is non-white that means that podcasts over indexes on diverse audiences. And the growth of these audiences are actually dramatically outpacing the growth of white listenership. So for example, Latino podcast audiences have grown by 6x over the past nine years. BIPOC and Asian listenership has grown by 5x over the past nine years. And by comparison, white listenership has only grown by 17% over the past six years.

Andrew Cohen:

So there's some saturation here. So therefore we believe that we'll soon see kind of the audio native version of BET, Telemundo, Shondaland emerged to capitalize on this next wave of the audio spending spree. But also the video native companies that have already built fandoms in this space, like the company I just listed, they will soon begin to double down by expanding into audio, which I think leads to kind of the big conclusion, which is that really it's going to be these specialized content creators are really going to be medium agnostic going forward. What do you think?

Chris Erwin:

Andrew, to that end, the worlds of audio and video are converging. So all the major streaming services have launched major podcast initiatives and are adopting podcasts into film and TV shows. For example, Spotify, Wondery and other owners of audio native IP have signed major output deals to adapt their podcast into film and TV. If you can create content that connects deeply with a particular community, you're going to be in high demand by the platforms vying to win new eyeballs or new ears. So therefore in 2022, we expect that specialized studios and production companies will seek to maximize their value by expanding their output to cover both mediums. So the most valuable IP creators in 2022 will be the one who can delight one audience across two mediums. I like this phrasing. Think you came up with this, Andrew, the most valuable bullet makers quote unquote, will be those who can leverage their singular expertise to supply the front lines with the ammunition to win the fandoms they so desperately need. And I think with that, I think that ends part one of this part two series. Next week we'll talk about passionate affinity groups.

Andrew Cohen:

To be continued. See you next time.

2021 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 link

Learn more about our market research and executive advisory: RockWater website

Email us: rounduppod@wearerockwater.com

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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 that was really a defining characteristic of 2021. And now we're kind of beginning to see some of the seams of these creator funds begin to fray at the top of 2022. So very curious how these platforms are going to continue to evolve their models to keep creators happy in 2022.

Chris Erwin:

Yeah. Everyone's talking about that recent Hank Green piece on the TikTok creator fund, but love to save that for a separate podcast. So yeah. Look, I think in a similar vein in livestream shopping, right? So this is a trend we started covering a couple years ago when we saw a hundred billion plus market size out of China. And we're asking ourselves, why haven't these capital flows and investor conversations been happening here in the U.S.? Well, that changed. So all the major incumbents, they enter the race within livestream shopping, we think of YouTube and Meta and TikTok, Twitter, Pinterest. And we even saw some big livestream shopping festivals during the Q4 holiday season from YouTube and Facebook.

Chris Erwin:

But in addition to the incumbents, we also saw the emergent livestream, commerce, native platforms, raising big money to compete with and establish market share against those incumbents. So Whatnot became the first unicorn to emerge in a livestream commerce space at a $1.5 billion valuation. We also saw NTWRK raise a massive Series C and then other investments to Popshop and a bunch of other upstarts that raise rounds as well. So I think we're going to increasingly see capital flows to these upstarts in the new year, but we'll get to more of the details there in our upcoming predictions.

Andrew Cohen:

Absolutely. So moving to audio, what happened in audio in 2020? To me, the biggest defining trend of audio in 2021 was the birth of social audio. If you would've said the word social audio to me, 16 months ago, 18 months ago, I would've had no idea what you're talking about. And just within the first six months of 2021 Clubhouse raised at a $4 billion valuation. Facebook, Twitter, LinkedIn, Slack, Spotify, Reddit, Discord, they all invested and launched major social audio initiatives. Twitter acquired Breaker, Spotify acquired Locker Room to support these endeavors and it still has yet to be seen where this trend is going to go.

Andrew Cohen:

Definitely Clubhouse is not what it was at this time last year, but we are seeing a lot of activity on Twitter Spaces. And it seems like the space is very much influx, but led by Facebook, Spotify, a lot of the big platforms are really taking this seriously and continuing to invest in it. So I don't think that we can say that the story of social audio is over quite yet, but it began in 2021 and excited to see where it goes in '22.

Chris Erwin:

Totally agree. In addition into social audio, there's also some major acquisitions across a traditional podcasting space. So we saw SiriusXM, Pandora acquire Triton digital for $230 million and we saw Libsyn acquire AdvertiseCast for $30 million. So the capital's still flowing in the traditional part of the audio space. On top of that, we saw some major talent and IP deals from the top audio platforms that are vying for early stage market share, all with the goal of winning what we describe as the 'audio wars'. So we saw Call Her Daddy the podcast migrated over from the Barstool network, go over to Spotify for a $60 million licensing fee. And then Smartless was licensed by Amazon for an $80 million fee. So yeah, the money is still moving towards these tentpole talent and tentpole IP in audio, which is also what we're seeing in traditional video and OTT video as well. And we'll get to that in a moment.

Andrew Cohen:

So then moving on to sports, definitely 2021 was an exciting year for sports. Two things to me that really stuck out in terms of how to capture what happened in the world of sports business in 2021, I would say one, the explosion of sports betting in the U.S., cannot talk about sports in 2021 without talk about betting. Sports betting revenues doubled in 2021, putting it now at $52 billion and it's only skyrocketing up from there. And as part of a downstream result of this, but also as a result of several other factors like streaming wars cord-cutting, the increasing value of live content, which we've written about before, but the live rights values for sports teams are also continuing to explode. So this past year, the NFL re-upped its live media rights packages bringing in $110 billion over an 11 year deal, which is an 80% increase from its last deal cycle.

Andrew Cohen:

The NFL also re-upped its live rights package, doubling it in total value. And so as a result, we're seeing a ton of private equity capital moving into this space as well, especially in European markets. We're seeing American investors begin to invest in the media entities and live media rights packages for European sports leagues. So most recently we're seeing a bunch of U.S. PE funds bidding on French soccer leagues, media rights packages, which are being valued at about $14 billion right now. So a big reason why the overall sports economy is continuing to skyrocket at the pace that it is, I would say it's because of gambling, but also because of the huge valuation growth that we're seeing in their live media right packages, which is really the biggest revenue driver for all the major leagues.

Chris Erwin:

The numbers coming out of the sports media space, Andrew, which you've really educated me on, have just been so eye-popping over the last year and a half. I just can't believe it and it continues. Something that we covered extensively last year was the rise of creator competitions. So this is often merging traditional and digital native talent together for a tentpole competitive event that is then wrapped in a lot of different content that helps to market it and amplify the fandom. And it really led to some pretty incredible figures. So we saw Logan Paul fight Floyd Mayweather that drove over $50 million in pay-per-view revenue.

Chris Erwin:

We saw House of Highlights drive a hundred million views across their platforms for the first of its two showdown event series. So shout out to Doug Bernstein and Drew Muller, some of our friends over there. And just in December of last year, Triller announced its plans to go public at a $5 billion valuation, which I think is quadruple what it was last valued at. And as a reminder, Triller is one of the platforms that has actually really gotten behind these creator competition series and a lot of them actually go down on their network.

Andrew Cohen:

Bullish on creator competitions, bearish on Triller, save that for another episode.

Chris Erwin:

We'll have to see how that IPO goes. It's been planned, but it has not yet happened. And I think that'll be a good bellwether of the market here.

Andrew Cohen:

So then moving on to OTT video and the streaming wars, so really continue to escalate in 2021. And especially with really a subset of the streaming wars, which we're calling the IP wars, where, because of these huge arms races for user acquisition between all of the highly capitalized streamers, we are seeing tons of investment capital, M&A activity around studios and production companies. And that really kicked up this year. So a couple examples, MGM studios was acquired by Amazon for $8.45 billion, which is 27.5X EBITDA. Roald Dahl, story company, so all of the IP by author Roald Dahl was acquired by Netflix for $686 million with a planned billion dollar production spend behind it to put into original content, video games, everything.

Andrew Cohen:

And Candle Media, new venture by Mayer, Staggs and Blackstone made a couple big acquisitions, including Moonbug for three billion and Hello Sunshine for $900 million. So as the streaming wars are picking up, we've said the production companies to studios, they are the bullet makers, they're the arms dealers and they're more valuable than ever before. And that really became true in 2021.

Chris Erwin:

Shout out to Roald Dahl's estates. He is my favorite author. Favorite book is Boy, his autobiography. It was just cool to see that happen. Hopefully Netflix is a good servant of the IP that he's created.

Andrew Cohen:

I'm ready for a Matilda sequel bring back Danny DeVito.

Chris Erwin:

Dude, Danny DeVito all day. And also from New Jersey. Rise of kids screen time. So I think another thing that we saw in OTT video is 2020, there's a big inflection point here where I think kids in 2020 for the first time started watching and consuming more content on digital than they were in linear, that is a big deal. And so as a result of this, we started doing a little bit more work in the kids space. We were hired by a kids audio company and also a kids retailer and toy manufacturer. So we really believe in the space in that there's a lot more headroom here. So a few quick stats, kids screen time increased 50% since March 2020, 70% of kids spent at least four hours per day on screens. That's 10% year over year increase. 85% of kids under 11 spend an average of 85 minutes per day, watching videos on YouTube.

Chris Erwin:

And as a result platforms like Amazon, Spotify and Roku, they're all launching kids focused platforms. Instagram tried to launch a kids’ social network, but ran into some snafus there that might emerge again this year. We also saw YouTube, Netflix, ViacomCBS, Warner, Apple, Disney, all increasing their spends on kids' content. So it led to some things like what you talked about, Andrew, the $3 billion acquisition of Moonbug. And then we also saw Like Nastya a massive kids' YouTube personality that is also on a bunch of other platforms signing a major deal with Will Smith's Westbrook studios to produce a portfolio of animated content together. So yes, again, this is the kids and family screen time and retailer space and area that we get really excited about.

Andrew Cohen:

Absolutely. And so last but not least in food, media and commerce. We've always said that much like the kids and family vertical, food, media, really over-indexes on commerce conversions. And we saw that kick off in 2021 where we've previously seen a ton of activity in the CPG space with things like Complex and their Hot Ones hot sauce. During COVID we saw that continue, Barstool launched their frozen pizza line all across Walmart's nationwide. We also saw it expand into the experiential realm, both digital and IRL. So Ghost Kitchens really came on the scene this year, headed up by MrBeast Burger, which sold a million burgers in its first three months and has expanded rapidly since then. Also seeing companies like VDC, Virtual Dining Concepts, and our friends at Popchew build really exciting companies around turnkey style Ghost Kitchen platforms made for traders, brands, publishers to activate their audience in this kind of virtual restaurant and business model.

Andrew Cohen:

And now that things are moving back into brick and mortar, I wouldn't say post COVID, but now that we're not all locked down in our home, we're also seeing the success that some of these virtual restaurant models have had move back into the real world. Again, Barstool has launched a chain of some bars, sports bars, pizza restaurants. And I think with the success that we saw of tying out food markets globally before COVID, I think we're going to see that come back in 2022 in a big way and have these omnichannel food experiences between Ghost Kitchens, in-person restaurants, as well as more CPG activation. So it's an industry that's continuing to kick up steam in 2021 and [inaudible 00:19:54] that really excites us.

Chris Erwin:

Andrew, so I think we're definitely past our time limit. So just a reminder to our listeners guys, we wrote about all these topics in 2021. So if you go to our website, wearerockwater.com go to the content section and you'll get industry articles, industry watch list, podcast about everything that we just talked through. There's a lot there. And then upcoming Andrew, I think we just started to drop our predictions. I think our first one that's out is How Future IP Investments Will Super-Serve Under-Served Audiences Like the 40% of Non-Whites. So I think our next microcast is going to have to cover that topic as well as some other predictions that we have. I'm just looking at our recording. I think we might be a bit past our 15 minutes, Andrew, but maybe that's the new normal for 2022. We're going to be a little bit long-winded this time.

Andrew Cohen:

New normal. All right. See you next time.

Chris Erwin:

All right. Later.

Livestream 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 link

Learn more about our market research and executive advisory: RockWater website

Email us: rounduppod@wearerockwater.com

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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 selling when they have a new brand sponsorship or merch line to launch, US creators are failing to kind of cultivate the user habits, the recurring long term usership that will drive the US livestream shopping market to the scale of China. And on the other hand, most of the US participants in livestream shopping who do have a diverse and robust product inventory, they're mostly, small boutiques or even national retailers like Fred Segal, who's on talkshoplive, Walmart who just did something with Twitter, but they don't necessarily have the audience influence or the reach or the engaging on camera charisma that's necessary to fulfill the potential of livestream shopping. So really the US livestream shopping market has to bridge this gap in order to drive those outside revenues that come through active and recurring engagement at scale.

Andrew Cohen:

And creators can use the live medium to engage and entertain fans in a personal and interactive format while also sharing the products that they love most. They're kind of performing the role of like the cool best friend with the deep product passion and expertise. And that level of authenticity and trust is going to be what powers the livestream shopping experience in the US, just like it has in China. However, until there is enough product accessibility to enable creators to host on a consistent basis, creators are not going to adopt the medium and neither will their fans. And I think it's going to kind of stay in this in between zone until we cross that gap.

Chris Erwin:

And I think that's just an interesting note is you gave some of the examples of Fred Segal on talkshoplive, or Walmart or JapanLA on Popshop. That consideration is a lot of these retailers, they were originally brick and mortar. And then during the eCommerce migration and digital transformation, they went online and they created web and mobile based storefronts. But it's completely different to think about putting your product in a livestream shopping environment where users are used to having a personality, right, in a livestream situation.

Chris Erwin:

And I think a lot of these brands got a lot of work to do, to think about how do they attach the right personality, the right influencer, whether it's someone that they incubate in house or that they find on social media accounts that already have an affinity for their brand. There's a lot to do there, but when they do it right, it's really powerful. So, okay, Andrew, so with your last point, a big question arises is how do we bridge the product gap in the US? How do we drive retail adoption and these product creator marketplaces that you're describing? What do you think?

Andrew Cohen:

So far we've seen, especially the major social incumbents, the ones who have launched recently, Twitter, Facebook, YouTube, they've attempted to solve it three different ways. I don't think either of them have quite hit the mark. One is using brands and retailers as the primary sellers. So rather than hosting it on a creator's feed, just letting a, like, for example, be Vuori hosted one on Facebook and they could use their own talent to sell, but that's one attempt. The second is using creators with their own product lines. Again, it's tough to do on an occurring basis, but YouTube, when they do work with creators, it's creators that have their own merch to sell. And then number three is sponsored streams. So these will pair a creator with a retail sponsor with inventory that they want to promote and sell directly. So these are all attempts. However, this doesn't really sufficiently bridge that divide and we believe that there needs to be more done. And we think that more will be done. We highlighted two. Chris, what do you think?

Chris Erwin:

So I think diving into one of them it's that more brands and retailers will turn to livestream eCommerce as a new sales channel, which will in turn increase the volume of sellable product inventory that is available to creators. So just to give some background numbers here in 2020, US brick and mortar retail sales declined by 10 and a half percent, right, primarily driven by COVID. But meanwhile, eCommerce revenues grew by 44%, right? We saw a massive pull forward migration into eCommerce purchases. Because livestream eCommerce is an extension of social selling, with the added elements of time and interactivity to drive urgency and increased conversions, our team actually anticipates that many of the same retail categories that perform well in eCommerce and influencer marketing will likely be the first to meaningfully invest in live streaming.

Chris Erwin:

So in particular, these retail categories include beauty, health and wellness, food and beverage, fashion, home goods, parents and kids, and technology, which are actually among the most popular livestream shopping categories in China last year in 2020. Andrew, the influx of product inventory into the livestream shopping space will be a meaningful step in the evolution of the US livestream shopping market. But that alone will not fully close the product gap, nor will it be enough to address the looming authenticity gap. Even when there is enough product volume and diversity to power frequent and consistent habits, one major challenge will still remain, how will best fit creators and products actually find each other? I think you has some interesting ideas here.

Andrew Cohen:

I think what really is going to need to happen to close that gap is that tech enabled marketplaces are going to emerge that connect creators with best fit products and vice versa. So again, let's look to China for some inspiration. So not only are there 100,000 plus brands and retailers that are pumping product into this ecosystem, but almost more importantly, Chinese livestream commerce platforms make it really easy for KOLs to access these products. So when a KOL logs on to Taobao Live, Pinduoduo, Tmall or [inaudible 00:13:30] to plan an upcoming livestream, they can easily search through all of the product inventory that has been uploaded onto the platform by brands and retailers and select the products to feature based on what kind of feels authentic to them and their audience and what they can speak to and sell.

Andrew Cohen:

So actually a rudimentary version of this does exist on Amazon Live today, but really nowhere else that we've seen in the US. On Instagram, even as more and more brands and retailers are uploading their inventories to the platform shopping portal, the products are still siloed from the personalities who might be most effective at selling them. So brands and retailers still need to do all of the heavy lifting to create the content or to find the right content creators to actually drive traffic to their Instagram storefront. Meanwhile, the perfect creator who's out there who's most well positioned to move the products that are on that brand's Instagram shopping portal is over on their page engaging a dedicated community every day on the platform, but likely failing to monetize their influence because they don't have any products to sell.

Andrew Cohen:

So that's really the product gap, which flows downstream of this authenticity gap, which flows downstream of just a lack of recurring user ship for livestream stopping in the US, which is really one of the biggest differences between the 300 billion that's happening in China and the five billion that's happening in the US. However, we do believe that this is going to change in the coming years. We believe that influencer and brand marketplaces kind of like what was originally the vision for YouTube's FameBit, that they're going to emerge to connect best fit products and sellers. And that really ultimately the right technology will play the role of matchmaker. And perhaps these solutions will be built out by a dominant social platform, or by a dominant commerce platform, maybe by one of the incumbents like whatnot or network. Excited to find out though.

Chris Erwin:

And I think on a closing note that our team is actually doing some interesting advisory work for some of those companies, which is fun. All right, Andrew, I think we're out of time. So as always, till next time.

Andrew Cohen:

See you then.

Over 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 link

Learn more about our market research and executive advisory: RockWater website

Email 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 fit. So, you can closely align the content team with the product development teams from day one, right, where the content team is building out content that is getting consumer feedback and intelligence, and also creating content that specifically highlights products that you feel are higher margin and are better for consumers and that flywheel for how that all works together. You can set that vision from day one of when you're building and execute against that exactly versus trying to put these two different teams together that have been operating independently for the past five or 10 years and getting them to align towards the same goal.

Chris Erwin:

I think some of the challenges though is that when you're building, the time to market can take a while, right? You're starting from scratch versus having a full-fledged operation from day one. Even though you're not paying an acquisition premium, the time value of that missed revenue can be very substantial. Also, I think there's challenges where if you're a commerce team, like being able to hire and enable content team members and to really understand that DNA and vice versa, that's really challenging, right? We've seen a lot of leaders and a lot of companies struggle with this when trying to reach across into new areas of business expertise east that is new to them, and there's a really big learning curve.

Chris Erwin:

Specifically, I think for a content team that's trying to build out a supply chain that is very robust, that can put product in the hands of consumers in a variety of different geographies in a timely basis, that's also really smooth and capital efficient like I was saying in the beginning, that is not easy to do. I think we're seeing in the current supply chain troubles that we're having that really nailing that is really key if you're a modern commerce company. Anything that you feel I missed there, Andrew?

Andrew Cohen:

No, Chris. I think that was well said. So, now, the last model in this five build partner scenario is partner. Last but definitely not least. Feels like it's the most common one that we see probably for a reason. You mentioned a few up top, so Walmart partnering with Netflix and Barstool, Shopify partnering with MailChimp, TikTok and Spotify. So, how would you break down the pros and cons here?

Chris Erwin:

Yeah. I think this is pretty straightforward, right? Looking at the partnerships, the process, just stick to what you know and what you do best, right? So, if you're a media company, you develop and you create content. If you're a commerce company, you develop product, and you have a supply chain to put in the hands of consumers. So, I think that can be very powerful where that's going to allow you to get to market sooner, and delight customers because everyone on that joint partnership team is in a lane where they have the experience and the pedigree and the focus that they're very comfortable with, right? I also think another significant pro is you're learning before future investment. So, again, you want to stay capital light in the beginning. You want to learn before you're putting more capital to work. Partnerships are a great way to do this to enhance your capabilities very quickly.

Chris Erwin:

I think some of the challenges though is that like if the long-term goal is driving enterprise value and outsize revenue and margin performance, you're not necessarily going to get that from a partnership in the beginning unless you're an amazing negotiator, right? So, on a typical licensing deal, a media company might only get like three to 8% of revenues that you're generated, yet you're doing all the work of building out that audience. I think that's okay for maybe the first couple years, but then thereafter, you want to think about revisiting that deal or maybe building or acquiring the functions that you need.

Chris Erwin:

I think a second con, Andrew, is that it's dangerous to become overly reliant on third party partners, where if you are a commerce company, for example, you may not be getting access to all of the audience data that you're looking for. As a media company, you may not be seeing all of the credit card, the transaction data of, and everyone who is actually making the end purchase. That's really valuable to understand your end consumer and how to better delight them going forward. I think another risk that's also part of this is you might see your partner start to invest in some of these capabilities in-house, and your partner today could be your competitor tomorrow, particularly as the content commerce landscape continues to consolidate.

Andrew Cohen:

Yeah. I think that's probably why we see partnerships as the most common route. So, then looking at, all right, which model will win out, it's probably not as simple as just picking one, but a dynamic that I've been thinking about is actually easier. This might be a broad generalization but for content companies to be successful at commerce than vice versa because it's really hard to make content that people actually care about. Once you've done that, selling them the products is actually the easy part although, and we'll get to this in a second, it's the actual business logistics of commerce that are really the hard and expensive parts.

Andrew Cohen:

So, if you look at Nelk, he's a YouTuber with seven millions subscribers. He generated $70 million in merch sale revenue last year. So, that is purely a product of him being able to market and to generate an audience. You're going to be hard pressed to find a commerce company who can just, in one year, merch sales get up to 70 million, but that's kind of the power of building an audience. When you look at the other way around, it's tough for commerce brands to just like flip a switch and build that muscle and start building audience. We have actually seen a lot of in-house media brands from commerce companies that have folded over the past couple years like MEL Magazine by Dollar Shave Club, but here is the tough part. It's commerce companies are usually the ones with the capital to actually expand an owned an operated verticals that content companies don't.

Andrew Cohen:

So, when these mergers happen, it's usually the commerce companies that are buying the content companies. Like we said, it was Hasbro buying eOne. It was Amazon buying MGM and Wondery and Audible and Twitch. Penn National Gaming buying Barstool. So, a lot of times, we do see these acquisitions happen because it's the commerce buying out content. I think a lot of times, it is because it's just really hard for those companies to start creating content that entertains and delights audiences. I think right now, it's such a saturated consumer ecosystem with so many endless options that to actually get attention, get fandom, and make someone seek out your brand, your content against all others, like you got to do it really well. If it's not in your brand's DNA, it's really tough to just build that out.

Chris Erwin:

Andrew, so to respond to a couple of your points there, I think, one, one of the toughest things to do in the modern consumer economy is to build and maintain audience. I think that some of these modern media brands and creators and influencers that have done that at scale is really incredible. I hear your point that for the content companies probably doing the hardest part of the consumer equation, that that's really valuable.

Chris Erwin:

I think something that has surprised us and is a real reality check is I think people assumed it's like, oh, yeah, creating product, that's a commodified approach or business. You just create product, and you could slap a logo on it and then just get in the hands of the consumer. I think a lot of that was assumed to be as pretty straightforward. Turns out, that's not the case, and we've covered this in, I think in some of our past podcasts where being able to deliver product in a timely way where consumers are and doing it in a way that's also really capital efficient is not easy to do. That's why we believe companies like Amazon and Walmart have a really significant advantage in this new content and commerce economy.

Chris Erwin:

The second thing, Andrew, that you said I think is really interesting is, yes, traditionally, the commerce companies have had more capital to invest in buying media companies versus the other way around, but I do wonder again with everything we've talked about with the IP wars and more demand for content from all the streamers and through licensing deals and co-productions, are these media companies start going to be having better balance sheets that's going to allow them to invest and acquire more commerce companies to support their overall stack? Might be something that we see flip over the next 18 months.

Andrew Cohen:

Definitely agree that the actual nuts and bolts of commerce is way harder than you might think, just getting into it. I think you look at that partnership with Walmart and Barstool, I think it's a perfect example of why partnership makes so much sense. It's really like only a brand like Barstool can have their first ever frozen pizza that is selling through the roof in the first week and only with a medium machine like that. Can you accomplish that? Only with an commerce juggernaut like Walmart could you actually fulfill the execution of that demand nationwide like they've been able to do so, yeah. It's definitely two very diversion expertises but that complement each other through a really unified customer journey and funnel.

Andrew Cohen:

So, overall, I mean, like I said, I don't think that necessarily one is going to win out. We'll probably keep seeing that's being taken on build-outs and acquisitions, but definitely, partnerships are most reliable. They will persist. Don't see them going away anytime soon, but what do you think in terms of where this all goes, and does one model win out?

Chris Erwin:

Well, I think, Andrew, I think we're at the end of our time here, so I'm going to have to say we'll probably need a follow-up podcast to kind of check in on this and until next time.

Andrew Cohen:

See you then.

The 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 link

Learn more about our market research and executive advisory: RockWater website

Email 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 they said after this round, they're going to expand into sneaker resale, trading cards and vintage. So it's definitely interesting to see that they're taking this similar model. And I'm curious how this is going to affect the other more niche emerging upstarts in this space because there's companies that focus on books. There's ones that focus on beauty and fashion like PopShop and ShopShops. And are they going to be kind of owning their niche and then expanding out into Whatnot and NTWRK’s territory? Is there going to be consolidation and acquisition? I think it's going to be really interesting to see how this kind of selection of product category and creator focus trickles down to user acquisition strategy because that's really going to be what fuels scale.

Chris Erwin:

I think a mantra that we've seen in the media space is that it's going to be grow or die, right? I think some of the biggest media companies started out with a certain niche and then they best understand their customers. What else do their audiences want? And then service them in different waves with different content. Look at Bill Simmons with The Ringer and The Boston Sports Guy. He started out as just a sports personality and then moved into pop culture and film and food and more, right? Same thing with Barstool Sports. Same thing with Complex started out as hip-hop and street wear and then had a major moves into food media and food commerce. And so I think for these platforms, they're going to need to expand into different verticals. And those who don't are either going to die on the vine or they're going to be gobbled up in a consolidation play.

Andrew Cohen:

Yep. Much like media. It's all about how can you expand, broaden your tent while still remaining true to that kind of core brand identity.

Chris Erwin:

Andrew, what else are you seeing?

Andrew Cohen:

Another similarity between NTWRK and Whatnot is that both companies during this round have brought on some pretty noteworthy strategic investors. So for NTWRK, one of their lead investors is Kering, a major global owner of luxury brands like Gucci, YSL, Balenciaga, and many others, Main Street Advisors whose LPs include Jimmy Iovine, Drake, LeBron James, and other big celebrities, Live Nation and Foot Locker. For Whatnot, they brought on a16z, who is really big in the creator economy space, CapitalG, which is Google's venture fund. YouTube is really getting into livestream shopping as well, a Google subsidiary, and then plus influencers and celebrities like Logan Paul, and NBA players Andre Iguodala and Zion Williamson. So, I think that this is really interesting from both ends kind of the synergistic opportunities here.

Andrew Cohen:

I think companies like Kering, looking at how NTWRK can possibly be an incubation play for a social commerce sales channel for a lot of their brands. Similar to other investors like Critic, LeBron, and Live Nation - NTWRK has already worked with them on some limited edition tour merch for Drake and Live Nation, a16z, Foot Locker on the cap table, as they mentioned that they want to get into the sneaker and sneaker resale market. So for all of these, as they're trying to modernize their core businesses and move towards digital transformation NTWRK is a really interesting bet for them that couldn't really work. On the other end with Whatnot, as I said, a16z and Google are both getting into creator economy and live selling space. So this is really synergistic for them, but also seeing the big celebrities getting involved again, that was one of the big differentiators between Whatnot and NTWRK is that NTWRK had more premium personalities, whereas Whatnot was more like user sellers.

Andrew Cohen:

Now with people like Logan Paul getting into the mix, maybe that changes and much like Big KOL is like buy on Taobao, this becomes the platform where big traders go to engage with and sell their audience in a live format.

Chris Erwin:

Yeah. Couple of notes here, Andrew, I think it's really smart of NTWRK where they are matching their cap table and investors to their business model. Right? Whereas we just discussed earlier, their business model is development of premium, original livestream, commerce programming, going deeper with their core fans. And so then having retailers and brand owners as their investors like Foot Locker and like Kering, which owns a whole portfolio of luxury brands that have proven to be. I was just riffing on this with our in-house fashion expert, Mike Booth this morning, it includes Balenciaga. And a lot of these luxury fashion brands have been very early movers and experimenting in social commerce to reach those younger audiences as I think they've seen that their customers have aged up over the years and they really want to start catering to millennials and Gen Z. So Balenciaga, which just announced, I think a big Fortnite partnership to create both digital and physical goods over the past month that wasn't their first move into the metaverse.

Chris Erwin:

They actually used the Unreal engine that powers Fortnite to launch, I think their own metaverse environment. I think about a year, year and a half ago. I really liked them as leading this investment round for NTWRK. Yeah, and for Whatnot, I think look with Logan Paul and Jake Paul, and speaking of like moment driven zeitgeist content and commerce, those two brothers have done incredible things in creator competitions and driven incredible scale revenues, which we've talked about in other roundups. So I like seeing them on the cap table for Whatnot as well.

Andrew Cohen:

One last similarity, and then we can touch quickly on the Twitter rumors, between NTWRK and Whatnot is that both announced that with this round, they're going to be getting more into NFTs and NTWRK's already done some work in NFTs, they plan to expand. Whatnot wants to a launch an NFT vertical. This really just caught my eye. I didn't get many details from it, but we've seen before that there's a huge overlap between live content and NFTs. Kind of the power of the moment of that, "I was there," has real social currency to it and now NFTs, there's kind of a way to monetize and cement that value around that social currency of “I was there when that moment happened.” And so I think it's going to be really interesting to see that combined with actual physical products and what can be the confluence of live selling of physical and virtual products and where NFTs will fit into this experience. What do you think, Chris?

Chris Erwin:

I want to be sensitive to the time for our listeners, Andrew. So let's transition to this final beats about Twitter rumors. Like we were talking about just before we started recording, there's really no details out yet on this. We saw people talking about it in the Twittersphere and in some of our executive circles that Twitter is going to get into livestream shopping, unclear what that exactly looks like, but it signals how big a market opportunity that this is viewed by where Twitter, one of the largest tech and social platforms that's out there, is realizing it doesn't want to miss out on what can be a major revenue opportunity. Now I think it raises some questions of, does it make sense for Twitter and what is their angle? Right? I think Twitter is very much known for having these really unique interest graphs around different topics and different personalities.

Chris Erwin:

The thing is, if you want to understand user behavior on Twitter with livestream commerce, is it going to better function as entertainment, which maybe we see on some of these other platforms or is it maybe a place where from these trusted interest graft and personalities that people follow, getting recommendations about products, getting some trusted input and reviews and advice about how to use the products and what is high quality and what is not? I think it raises the point of what is the angle that Twitter's going to take, that's going to be different from what we're seeing other platforms do, based on its core user experience?

Andrew Cohen:

I'm interested to see where they're going with this. We haven't gotten many details at all. Shopping definitely doesn't really seem native to the Twitter user experience, but live does, it's definitely a very always on platform. So curious to see how they can kind of start to incent, and incubate, maybe a bit more of a shopping mindset from all their personalities that are kind of always on in that live medium of Twitter and combine those elements. They were early on live streaming with Periscope, seems to be late on commerce. So let's see if they can put it all together because it's definitely a competitive space at the top with Amazon, Twitch, YouTube, Instagram, Facebook, all getting into it.

Chris Erwin:

All right, Andrew, I think we are beyond time. So till next time.

Andrew Cohen:

Sounds good. See you then.

Social 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 link

Learn more about our market research and executive advisory: RockWater website

Email 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 owned by creators like Josh Richardson and Mr. Beast launched two investing creator businesses. We saw Triller buy Verzuz. So could there be any more investments like that where platforms can tap into the true enterprise value creation and enable and empower custom integrations that can really grow creator businesses in unique ways, kind of more of a white glove approach than what we've seen so far.

Chris Erwin:

Platforms like Snap have launched incubators or accelerators for companies that are building tools that really power the snap ecosystem. I think the question is operationally, is this going to require the platforms to have like different fund structures, different dedicated teams to do this right? I would probably say yes and see what happens. I think another point Andrew is that, are we going to see different creator incentive structures for different types of content, right? Promoting long form versus short form, video versus audio versus text, right? Macro versus micro creators. And I think this stems from just talking to a few executives at companies like Facebook and YouTube, like there's a real concern about the explosion of TikTok viewership for short form content. So that's why YouTube launched it's 100 million dollar program for shorts, right? Realizing that they don't want to fall too behind the eight ball there. And they really want to go to where the eyeballs are headed.

Chris Erwin:

But yeah, I would say don't be surprised when TikTok, as they're really building out their short form audience, they're starting to move into longer form content, right? They just had an announcement a few months ago, having videos go from 30 seconds to three minutes. What's next five minutes, 10 minutes, like longer form? And is TikTok going to start thinking about a creator program that incentivize that longer form engagement for them? I don't know.

Andrew Cohen:

And it probably won't be a one size fits all solution. What works for Substack in text is going to be different than what works for Roblox and their creator programs and the meta verse, could be different from what TikTok is doing in short form and YouTube in long form. So I think it's going to be really interesting to see how it all comes together in kind of custom ways based on the needs of each platform and it's creator community.

Chris Erwin:

Final point here, Andrew, before we wrap up is yeah, I think a lot of these platforms really start needing to think about what are their KPIs for measuring ROI, right? Is it user acquisition, engagement, retention, is it time on platform? What is it? Look, I think back to the early days when I got into digital media at Big Frame and Awesomeness, and it was initially, like we were building for comScore numbers. So just be able to raise our next investment round and then realize that we have to have a sustainable P&L and business model. And we got to start driving towards revenue and profit. So I think that everyone, all these platforms are looking around and saying, all right, like you said, Andrew creators bring audience and they bring revenue and advertisers.

Chris Erwin:

So now everyone's launched these creator programs and people were like, well, we don't want to get left out. We want to have like a big press release. We want to show we're committed to this. But I think there's a chance that if you don't do this right, and you don't know what you're working towards, there's going to be some big fallout. And you're going to have a pullback of these programs that aren't getting the ROI that they need. Leadership's going to start like turning the screws on some of their lieutenants. This is already is starting to happen, right? Like Clubhouse over the past couple of weeks, some press about them not delivering on talent deals, not bringing the revenue, the sponsorships, the marketing support that a lot of these Clubhouse creators wanted.

Chris Erwin:

And then even Snapchat came out and said that I think they're taking Spotlight. And instead of having that be a million dollars a day, they're rethinking how they spread out that revenue and that program like throughout the month. I think there was concerns about seeing a lack of content innovation. A lot of just like me too formats that followed the most recent trend and they want to see something different. So that can also cause a lot of ill will with the creator community. So I'm curious to see what happens there.

Andrew Cohen:

Throwing a couple of million or billion at a problem doesn't necessarily give you the solution that you're looking for. So I think all of these funds are going to be refined over time.

Chris Erwin:

So Andrew, I think we are at the end of our time here. Think as we always say, till next time.

Andrew Cohen:

Hopefully that wasn't too rusty.

Just 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 link

Learn more about our market research and executive advisory: RockWater website

Email 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 shifts. I think right now, when you look at companies like an A24 or a Hello Sunshine ,who have been able to consistently produce the [inaudible 00:08:11] best-in-class movies, TV that people connect with. I think that that is a safer bet that someone like a Netflix or an Apple can bring them onto their platform and say, "Keep making that, but make it for us." And that there's consistency and reliability there that they're going to continue to turn out the type of premium fair that brings people onto the platform.

Chris Erwin:

There's also another trend that's happening here in the buyer-verse that's worth calling out. And that is the fact that really large private equity, blue-chip companies are getting involved in the content bidding wars. So specifically, right, we saw Apollo over the past few months, acquire Yahoo and AOL from Verizon for a few billion. And then Hello Sunshine, again, was acquired by a Blackstone-backed private equity vehicle. From my history in digital and entertainment, particularly over the past five to seven years, you wouldn't see these big PE firms making these size bets in media, typically. But I think the tides have turned. And the reason is, I think these are going to be, short-term holds. The private equity owners are sophisticated. They don't want a standalone basis that these companies are not going to drive meaningful revenue and cashflow.

Chris Erwin:

But like you said, the streamer war dynamics means that there's going to be an aggressive buying race over the next two to three years. It's not going away over the next six months. It's going to increase. And if these firms can buy up a bunch of media assets, consolidate them, get them to a certain scale, and even potentially, who knows? Is the next Shondaland deal with Netflix? Will we start seeing equivalents of that with Apollo and Blackstone packaged into their new media portfolios? Potentially. And then they're going to flip them for a good profit, I think, in the next 36 months. So I wasn't seeing this coming, but it seems to make sense.

Andrew Cohen:

How do you think that the increasing stack presence plays into all this?

Chris Erwin:

Obviously Buzzfeed is going public in a spec and is using spec proceeds and other investment to roll up complex, as well. As these digitally native companies, again, are realizing increased scale through consolidation, then getting more investment through spec, maybe they're upping their quality of programming. And they're looking at really premium franchises, like say Hot Ones under Complex or Buzzfeed Tasty, and say, "How can we go even bigger and make this attractive to a Netflix or a Peacock or a Discovery and align with their Food Network programming?" Yeah. Maybe that also feeds the wars in the future. I don't know. That's my two cents.

Andrew Cohen:

Totally makes sense. So as we look at what you just said, that PE, they're holding for this big buying spree to come as values are inflating for content and IP, I think makes you think of who these buyers are going to be. One thing that comes to mind is just the OTT platforms themselves. So, and we're already seeing platforms spending tons of money on output deals. You mentioned Shondaland, Viacom, CBS. Would it make sense for them to follow the Disney model? Like what Disney did acquiring Pixar or Marvel, and acquiring studios outright to own the process from end to end, from development to distribution. And then I think beyond that, there's a few other potential buyers in the market. Like consumer product brands. We saw Apple is one of the companies that are better being rumored to buy A24. Nike is one of the companies being rumored to buy SpringHill. So I think as we're seeing media and commerce merge and content become this universal truth, I could definitely see a world where these studios serve real value to companies even outside of the streaming wars, as we know it.

Chris Erwin:

Well, I think of note, Andrew, that there's just also not a lot of premium studio assets left, right? MGM was taken off the table, Legendary was taken off the table. I think Lionsgate is rumored. I think a question that I'm left with is like, what are these other assets that could be exciting for, say, new buyers for these CPG companies. Like a Nike, for example. So here's a crazy thought. Thinking about the next big source of digitally-native IP that caters to these new, young fandoms that are going to become older and want to have loyalty with platforms over the years, might some of these streamers start dipping their toes in acquiring large metaverse creators or worlds? Is that something we might see? I think that's top of mind because we're doing some work that's relevant in that space, but just a random thought that came to me.

Andrew Cohen:

Absolutely. I think eyeballs follow content and IP that they connect with. And right now, especially for younger audiences, a lot of that is being originated in the metaverse. So definitely wouldn't be surprised to see that adapted by the main streaming platforms, I think even just, again, expanding the [inaudible 00:12:50] power defining the streaming wars, there's also what we call the AVOD wars or the fast wars outside of subscription platforms like Netflix and HBO. You have the Roku's, the Tubi's of the world that amassing huge audiences at a really big footprint. But right now it's still a really commodified space. And we've been seeing some moves into original content programming by them to differentiate them and their offerings in the marketplace, like the Quibi library acquisition that we mentioned earlier. But I could definitely see them moving more and more upstream to more premium tentpole originals. And to do that, I think acquiring a studio or production company would make a lot of sense.

Chris Erwin:

Yeah. I think the core business model for those AVOD and fast platforms is selling ad inventory across their third party content. But we know that the negotiation rights for selling that inventory, that is a constant battle with their partners, and who knows how the terms are going to change. And so where they have more control, is there more owned content hubs that they're creating, which gives them not only more ad inventory, but also a differentiated user experience relative to their other fast peers, right?

Andrew Cohen:

With a bigger user base, bigger control of the market and audience size, you have more leverage with those ad partners. I think the most viable way to gain market share, and like I said, it's kind of a commodified space, is by having differentiated premium content offering that can make Roku the go-to AVOD platform. And then once you own that audience, you could now have a lot more leverage in the ad market.

Chris Erwin:

We all know a lot of marketers are really frustrated by the fact that they are not able to participate in the SVOD environment. So we know marketers have been clamoring, Netflix say, like, "Let us in." Also create an ad based model. Now we're seeing that HBO max and peacock have ad-based support. But I think a lot of these marketers still want more premium content environments to advertise to consumers in. And I think the fast platforms are going to offer that for them as that demand goes up. I think that's yet another reason why they're going to start investing in more premium content, to get those ad dollars. But Andrew, I think that we are backing up against our time limit here. So unless there's any final points, I think we've got to say, "Till next time."

Andrew Cohen:

Next time. See you then.

Today's episode is part 2 of our Audio Wars coverage. 

Since 2018 we've tracked over 30 M&A deals on our industry Audio M&A Watch List, like Amazon / Wondery and SiriusXM / Stitcher. There's also been numerous talent and IP licensing deals like Amazon / Smartless and Spotify / Call Her Daddy, as well as upstart fundraisings for companies like MeetCute, BlueWire, and Headgum. 

Why? 

Because we're in the Audio Wars, where music streamers are aggressively spending to capture growing listener consumption, and podcasts are proving to be one of the most powerful assets for user acquisition and retention...just like the video streamer wars! In this 14 minute part 2 episode, Chris and Andrew quickly recap the rends around spoken word audio, and then discuss four new buyer groups that will further drive market activity; smart speaker manufacturers, social media platforms, traditional Hollywood and OTT streamers, and sports media and betting operators.

Subscribe to our newsletter. We explore the intersection of media, technology, and commerce: sign-up link

Learn more about our market research and executive advisory: RockWater website

Email 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 different stakeholders within the audio universe that I think social media companies are going to start acquiring, investing in, and kind of adding to enhance their overall social audio experience.

Chris Erwin:

Social audio is interesting Andrew. I was actually, again, in the conversation with this partner rep at the Alexa fund yesterday, they were mentioning that there's some really cool new social audio startups in LA that were not even on my radar. So this definitely feels like it's a fast growing burgeoning ecosystem. And I think we're going to see a lot more developments here in the future.

Andrew Cohen:

Totally. Very exciting space. So then number three, Hollywood and international studios. So we've already kind of seen a lot of film studios starting to get into audio, definitely expect this to happen more. But what do you think about that?

Chris Erwin:

I think in 2020 audio became a much more valuable weapon in the streaming wars. And there's a few different angles here as we kind of analyze this world. One was the ability to really amplify marketing. The top streamers use podcast to drive users to their platforms by developing companion content, which what we like to think of as generating cultural relevance around their tent-pole programming. A really good example of this is what HBO did with their tent-pole Chernobyl series. So they produced a Chernobyl podcast in partnership with Pineapple Street Media, a venerable producer in the audio space, where the series creator of Chernobyl joined the host after each episode to discuss the true stories that shaped the scenes, themes, and characters on the show. And I was actually just doing a little bit of online exploration about the show yesterday. And I went on YouTube where they are actually publishing the series.

Chris Erwin:

The first episode of the season had over 2.5 million views over 1600 comments and over 19,000 likes. Pretty amazing numbers. And I think it speaks to creating once and then you publish this content everywhere and it really hit a global audience. As I was going through the comments, there was feedback from users all over the world. So it's really expanding the global conversation around the hit show. But in addition to marketing and amplification for content and development and acquisition, we've seen actually like the audio, video, and IP pipeline flow both ways. So we've seen top streamers start to extend their IP into audio to launch new franchises and series. A good example is Marvel's recent announcement to launch a new audio series of Sirius XM. So this is similar Andrew, to when Marvel expanded it's franchise into multiple character breakout series on Netflix, right? Like Jessica Jones, and Luke Cage, and Daredevil.

Chris Erwin:

It's now doing a multi-part original scripted audio series called Marvel's Wastelanders, which actually just wrapped its finale episode. What I like about this is that again, it's not just extending the franchise. It's also creating new ways for fans to engage with Marvel and it's facilitating new community dialogue and deeper franchise affinity. So this is very similar to what HBO did with Chernobyl. This partnership now has the Marvel Method Show. It's a weekly podcast on Marvel fandom hosted by Method Man, a rapper known for being an avid comic book reader and Marvel Declassified, it's a nonfiction deep dive into Marvel comics. As part of this to a IP pipeline, what we find even more fascinating is that streamers are looking to audio to incubate and discover new IP and formats and personalities, and to not have to bid on the open market for IP. Right?

Chris Erwin:

So Homecoming, which came out of Gimlet Media back in 2018, that went onto a exclusive show for Amazon Prime. It had Hollywood heavyweights like Sam Esmail and Julia Roberts behind it. And then, Wondery is one of the largest premium content producers in the audio space. Their Dirty John went to Netflix, done two seasons. Their Dr. Death is now on Peacock. So I think that's pretty exciting because Amazon just bought Wondery and probably that pipeline is going to be exclusive to Amazon Prime platform and Audible.

Chris Erwin:

So yeah, that's yet another Andrew, very exciting buyer category here. And we think a lot more activity is going to ramp. So Andrew, I think a closing point about streamer activity that is ramping in audio is, you look at Netflix announcing a new head of podcasting over the past month, rumors that Apple is launching a subscription podcast service to bundle with Apple TV plus. But we really haven't seen any audio M&A except for Amazon buying Wondery. And I think we're going to see that change in a big way, going forward, particularly as the streamer wars really ramp up even more. But let's talk about this final fourth category of buyers in sports.

Andrew Cohen:

Yeah. So over the past year or two, we've seen the booming business trajectories of both audio and sports media, two things that we love talking about, they intersected. And we saw the rise of sports audio, is everything from new player centric podcasts, and podcast network launches like from Kevin Durant, Blake Griffin, Pat McAfee, and a ton of others. Blue-chip strategic partnerships and joint ventures like what we saw with WynnBets and Blue Wire. We're seeing IP and talent deals like the blockbuster deal between DraftKings and Dan Le Batard's Meadowlark Media. We're seeing MMA like, they're acquisitions of Barstool and The Ringer. DrafKings acquiring VSiN, capital raises again, Blue Wire is a big series A this year and a slew of new sports centric companion podcast launching to drive attention to big marquee events. We're seeing right now, Blue Wire just launched a podcast with NBC to promote the Olympics.

Andrew Cohen:

So I think with the rise of sports betting and with the rise of sports streaming and how live sports rights are now intersecting with the streaming wars, all of this money is now converging. And definitely think that because of this, I expect to see investments in the audio space from different stakeholders throughout the sports world, from leagues, teams, broadcasters, and betting operators to escalate over the next year or two. So again, stakeholders throughout this ecosystem whose core revenues come from kind of stoking the flames of fandom and live engagement for them, podcast is going to become an even more valuable component in their overall content strategy. And so rather than remain relying on third party podcast networks, which is what we're mostly seeing right now, definitely anticipate that many are going to choose to invest in bringing those capabilities in house via M&A and investment, and definitely excited to see what that looks like.

Chris Erwin:

Exciting times, Andrew. Well, look, I think we're getting to the end of this. So before we make this into a three-part series, let's wrap this up so.

Andrew Cohen:

I think so.

Chris Erwin:

Till next time, Andrew.

Andrew Cohen:

Later.

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.

Subscribe to our newsletter. We explore the intersection of media, technology, and commerce: sign-up link

Learn more about our market research and executive advisory: RockWater website

Email 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 this launch, we saw platforms that were previously kind of defined as music platforms use podcasts to expand into audio platform. Overall, and this is kind of what's been defining a lot of the M&A we've seen in the audio wars is that audio platforms are now using podcasts to expand their role in users' lives from being a destination just for music to a destination for audio overall.

Andrew Cohen:

But this is a really subtle yet powerful distinction that makes their product stickier. It increases user acquisition, retention, engagement, and monetization/ because just like Netflix and YouTube want to capture total share of eyeballs, Spotify and Sirius want to capture a total share of ears. So, taking a step back, we've seen that spoken words share of total audio listening has increased by 30% over the past six years and 8% in this year alone. They were kind of being cannibalized by just being music platforms.

Andrew Cohen:

Pandora found that 50% of its users were listening to podcasts on other platforms. Spotify had a similar problem where users would listen to their music on Spotify, and then their podcasts on Apple, or Stitcher, or wherever else. And so these platforms are seeing their total share of ear diluted by only capturing a fraction of a user's time with audio. It'd be like going to Netflix to watch movies and then Hulu to watch TV. And so that's why they've leaned so heavily into the podcast space.

Andrew Cohen:

And it really because of that I think totally disrupted Luminary's value prop, whereas there was a time where maybe it would make sense to spend $8 a month to have access to great top-notch premium podcasts. But if you could spend $10 a month for Spotify, and have all of the music in the world plus great top tier premium podcasting, well, then that's a hard battle for Luminary to fight. Especially when the incumbents like Spotify, Apple, Amazon are as well capitalized as they are to go after the Joe Rogan's of the world, and really carve out premium positioning and podcasting.

Chris Erwin:

Well, just from the consumer point of view, I was ... just before this, I was toggling back and forth between listening to music on Spotify, and then going on to Apple Podcasts to listen to some of my favorite podcast series. And it was a disjointed experience. I think what we have seen today in a lot of our research and analysis at RockWater for our clients is users are just getting bombarded with tons of different media options, tons of different apps. All these different companies that want to grab their attention. And users just want a very streamlined experience. They want to spend time with the brands and the platforms that they trust, they have loyalty with, and to go deeper with them.

Chris Erwin:

And that's exactly what Spotify is doing. Now, if you're a listener of the Joe Rogan podcast, you might come onto the platform and then stay to listen to music or vice versa. Right? And so I think specifically Spotify has reported that their podcasts listening users spend almost twice as much time on the platform as non-podcast listeners, and then spend even more time listening to music than users who just listen to music alone. I think of note in this formative stage of the audio streaming market, podcasts ... as you said, Andrew, are a really key tool to get users to establish daily habits on a particular platform. That is a key objective for the streaming wars, for the audio wars, for what's happening in commerce overall, and so much more.

Andrew Cohen:

Absolutely. I think just from personal experience, the Spotify product, and it's personalization, and it's data is so strong. That if he can keep you in its ecosystem, it just pulls you deeper and deeper. Last week, I listened to a Kanye West album. And then right after, it serviced up this podcast for me about that album. Well, now I'm going to listen to the podcast to kind of get the context and the history of the album, which then sent me down a whole nother rabbit hole of listening to every other Kanye album. I just was spending more and more time on the platform, and that's the power of getting the podcast for them, I think.

Chris Erwin:

One, I didn't know you were such a Kanye fan. And it doesn't end with music and podcasts, right? Spotify ... in March, they announced the launch of virtual concerts during COVID, and there's even rumors that they're going to be launching tickets for live concerts through their platform as well. Again, being a one-stop shop for all audio fans. But Andrew, we're at the end of our time here and I think this is a two-parter.

Chris Erwin:

I think next up, we're going to talk about the different buyers that are emerging as part of the audio wars, because I think we see some major gaps in the market of hey, there's been a lot of M&A and deal-making activity. But there are new buyers like smart speaker manufacturers, like international and Hollywood studios, like social audio, and others that we'll get into that are probably going to enter into the fold over the next couple of years and drive up activity even more.

Andrew Cohen:

Absolutely. I think the audio wars might be responsible for a lot of the capital flow into the audio market to date, but we definitely think that new buyers are going to be emerging, and that this is just the beginning of several more waves of audio investments to come.

Chris Erwin:

All right, Andrew. That's it. 'Till next time.

Andrew Cohen:

Looking forward to it.

Mattel 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 link

Learn more about our market research and executive advisory: RockWater website

Email us: rounduppod@wearerockwater.com

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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 platforms over time. So that's the subscription model. But as you mentioned, Chris, with COPPA, it's making ad-based models a bit tricky. So you want to talk about that?

Chris Erwin:

So even though with all the new regulation and watch group scrutiny, the ad-based business models around kids content is trickier. Companies are still going to navigate it because it's still a huge, big market and it's growing quickly. So, let's talk about some stats here. 61% of parents say they are more attentive when watching TV with their kids than when they're watching alone. How does that translate into potentially buying more products?

Chris Erwin:

Well, parents are 250% more likely to buy products that they see advertised while watching with their kids. And then, parents spend 59% more than non-parents across categories. So, when there's co-consumption between parent and child of content, parents are leaning in, they're engaged more, they're more likely to buy products, they're more likely to spend than their non-parent counterparts in across all those categories. That's very powerful. It's thus no wonder that the kids digital advertising market is projected to grow by over 20% between 2018 and 2021, culminating in 1.7 billion by the end of this year, which is projected to make up around 37% of the total kids advertising spend. So I think there's a third new revenue line here to also consider, Andrew, which is derivative commerce. Tell us about that.

Andrew Cohen:

Yeah. So, kids IP franchises are the most viable path to the diversified revenue flywheel that all content brands are striving for regardless, kids and not kids. And this is really best epitomized by Disney model flywheel that we've seen. I think it's really interesting to note that 13 of the 16 highest grossing media franchises are from kids' IP. And the vast majority of revenue generated by these franchises comes from merchandise. So really the kids' audience, I think, is the most prime to spend on consumer products around the content and the characters that they love. Traditionally, we've seen this with Blockbuster, franchises on the big screen from Disney, but now we're starting to see it with kind of small screen visual influencers as well, led by Ryan's World and pocket.watch.

Chris Erwin:

And this is an example, Andrew, that everyone loves to talk about, but let's dive into the specific data here. So this is probably the leading example of the kids digital content flywheel. So pocket.watch's digital content portfolio has 7.4 billion video views each month, powers a massive consumer products division of over a hundred licensees across multiple categories.

Chris Erwin:

So Ryan's World in particular, over 29 million YouTube subs, generating over a million hours of video views each day. Their total retail empire has surpassed over $500 million in revenue. And they're selling consumer products everywhere from Walmart to Amazon, to FAO and more. In 2020 alone, Ryan's World CP generated more than 250 million in sales. Now I think from our research, Ryan and his family takes home around 30 million in revenue across their whole business. And for the first time last year, I think they saw around 60 to 70% of that 30 million come from their consumer products division. That's the first time it has outpaced their YouTube ad revenues, a very big new trend for that family and also for kidfluencers overall. And then also another big note, Ryan's World launched their own virtual world on Roblox last year, where fans can purchase gems that can be exchanged for virtual goods and more. And then we're going to see a lot more of these virtual activations by kidfluencers going forward. And Andrew, I think there's some other detail you have there.

Andrew Cohen:

Definitely. I think when you look at where kids are spending time and money, you have to talk about gaming, and specifically the metaverse. The top metaverse platforms each command one to one and a half billion hours of playtime per month. So it's no wonder why not only Ryan's World, but also toy companies like Lego, Hasbro, Mattel are all activating these virtual spaces. And not only is that where they're spending their time, like I said, it's where they're spending their money. Sometimes on physical products, but oftentimes on virtual products and in-app purchases. So 82% of free children's apps, those made for kids five to 12, offer in-app purchases. In 2020, in-app purchases generated 31 billion in revenue. A prime example of this is Kim Kardashian, whose kids friendly, free-to-play mobile game generated $200 million per year, mostly through these in-app purchases. So it's definitely... I think probably the next great frontier of kids content and commerce.

Chris Erwin:

So Andrew, I think we are really at the end of our time. So I think the takeaway here is that content is driving these massive new revenue streams across overall kids entertainment and kids experiences. There's a lot more activity to track here. We'll have to get to it in a future roundup. So I'll just have to say Andrew, till next time.

Andrew Cohen:

Next time. See you then.