RockWater, Chris Erwin
Chris Erwin and Andrew Cohen break down Media x Commerce news in under 15 minutes. From digital video and social audio to livestreaming, NFTs, sports betting, and more.
The US-China $295 Billion Livestream Gap
Dec 9 2021
The US-China $295 Billion Livestream Gap
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 linkLearn more about our market research and executive advisory: RockWater websiteEmail us: email@example.com--EPISODE TRANSCRIPT: Chris Erwin:So Andrew, over the past few weeks, our team has been tracking some interesting activity in the livestream shopping space. So we've seen some holiday livestream shopping specials from social incumbents, like YouTube, like Facebook, and even Twitter. You and the rest of the team have really been digging into some of these case studies to learn more. Andrew Cohen:Yeah. No, we've been having a good time going through watching all of these big, new launches from all the major social incumbents for livestream shopping. And they're all have varying degrees of qualities, all are doing some things right, something's not as right. All in all it's been a big kind of improvement for the US livestream shopping ecosystem. But all of them still remind me of actually a 2021 prediction article that maybe we got right, maybe we didn't get right because the problem that we called out in that article really still seems to be persisting. That's the common theme that I'm seeing across all these streams. That problem is what we're calling the product gap. Chris Erwin:The product and the authenticity gap is part of that. Andrew Cohen:Exactly. Chris Erwin:So let's dive into that. Listeners, if you're familiar with our writings and some of our forecast dating back around 12 to 18 months ago, you've probably heard us talk about this before, but we're going to go through this observation that we cited dating back nearly a year ago. Talk about how it's evolved and then how we think things are going to change in solving this product gap going into 2022. So let's dive in. Chris Erwin:There's currently an authenticity gap in the US livestream shopping market, and it's preventing creators and thus consumers from really adopting the medium. And although the current sales volume in US livestream shopping is low. I think we're looking at some numbers of around 5 billion. The investor interest is quite high at, I think around 220 billion of investments that we've been tracking. So we surveyed around 10 prominent digital talent managers over the past year who represent hundreds of clients that influence hundreds of millions of fans. And the goal is to learn about their initial experiences with livestream selling in the US. And Andrew, I think to our surprise, there's only one manager we spoke to who ever had a client actually participate in livestream selling. And even then it was only one client in one campaign. Chris Erwin:We were surprised to hear that livestream selling is barely on the radar of most major US creators. Despite the fact that all the major social and commerce platforms have been developing products and features to make it easy for them to host livestream shopping experiences. So we asked them why and Andrew, one of the answers that we heard a lot was, and it really stuck out to us is many US creators view livestream selling as an overly commercial venture that will alienate their core fans through perceived in authenticity. And to quote, one manager told us specifically, "My clients don't want to be a walking, talking billboard. You can only ask your fans to do so many things. Pushing too many things, especially when you're doing a ton of brand deals is not a good long term look." Andrew Cohen:Seems like right now, amongst traders livestream selling is kind of being framed as a choice. Choosing either direct to consumer revenues or fan delight, but really at its best, we believe that it's an opportunity to do both. And I was surprised by the sentiment because digital creators are already massively influencing purchasing decisions. The US influencer marketing industry has grown about 50% year over a year since 2016. I think it's currently valued around 14 billion, 44% of gen Z consumers say that their purchasing decisions are based on recommendations from a social influencer. So, and made us ponder, where is this disconnect? How do we bridge this gap between the indirect influence of social marketing and this kind of direct salesmanship of livestream to commerce? And how come one is accepted as organic and natural and is part of our kind of everyday commerce experience and the other one is more distasteful? And I believe and we believe that it's due to a lack of access to sellable product inventory. Basically in other words, it's the authenticity gap, which is a direct byproduct of the product gap in the US livestream shopping ecosystem. Chris Erwin:Before diving into explaining the authenticity gap. Also just want a note, Andrew, so estimating the influencer marketing ecosystem around 14 billion, and I think just another number to add on to that, which you had actually wrote about the creator economy just over the past few weeks that that's estimated at over 104 billion. And that creator economy intersects in a very strong way with livestream shopping. So I think it just reinforces just how big the opportunity is here. But on your last note, I think as you're talking about the authenticity gap, I think we want to better understand why does that exist? Can you give us a little bit more color? Andrew Cohen:Really we think that the authenticity gap, this idea that creators feel that they're being inauthentic by pursuing livestream shopping is really because of this product gap, which is that creators don't have enough products to create genuine livestream selling content on a frequent basis. So it's always, let's look to China for an example. So on average, the top grossing streamers in China go live more than 300 times a year. They average about eight hours per stream, featuring all sorts of different items in each stream. And as a result, 25% of livestream shopping consumers in China are daily active users. And 71% consume it at least once per week. So this recurring active engagement is one of the major differences that explains why China's total livestream revenues are so much bigger than those in the US. I think China is running 300 billion today because Chinese viewers, they tune in on a regular basis because their favorite KOLs stands for key opinion leaders, basically their word for creators or influencers, but they always have cool new products to offer that they can authentically endorse. Andrew Cohen:So Chinese creators are able to stream every night without having to worry about being inauthentic because they have enough access to product inventory to enable them to service and delight their fans by consistently offering discounted access to the products that they genuinely love and personally endorse, which just makes for a much more engaging experience. And this is because brands and retailers in China are fully invested in this livestream shopping economy and it's become a vital part of its infrastructure. So over 100,000 brands and retailers participate in the Chinese livestream shopping market. On Singles Day, for example, Alibaba's version of Prime Day, it generated 75 billion last year in total livestream sales and over a thousand different brands participated. Chris Erwin:Yeah, the numbers from China are eye popping and particularly when you compare it to the current situation in the US. So let's talk about that. So by contrast in the US livestream shopping market, many creators, including those with millions of fans, they often don't have products to sell besides their own merch or products from a brand sponsor. Right. Now that may be enough to host a few successful live streams, but in order for a creator to go live on a recurring basis, like you were just talking about in China, they need a recurring stream of products that they can authentic and enthusiastically endorse. So then the question arises, why are US creators so limited in the products they can sell? Again, going back to our talent manager and talent rep survey, we've heard from their reps that even if they were interested in pursuing more direct commerce initiatives between product sourcing, development, and deal rights management, that procuring a wide array of products that fit their brand in audience is a logistical nightmare, right? A ton of work. Chris Erwin:So despite the creator's ability to influence purchasing and the high profile celebrity led product launches that circulate across all of our LinkedIn feeds and on social media, the reality is that most US creators rarely sell products directly to their fans. Their D2C commerce footprint is usually limited to just a few skews of brand and merch. So as a result, many established US creators are reluctant to pursue live stream selling because they believe that continuously pushing the same few products is actually going to alienate their fans and really dilute the sense of authenticity and trust that their influence is built upon. Andrew Cohen:But then the flip side of this is by only participating in livestream 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.
Dec 9 2021
Cameo Buys Represent and Content x Commerce B-B-P
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 linkLearn more about our market research and executive advisory: RockWater websiteEmail us: firstname.lastname@example.org--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.
Nov 11 2021
NTWRK + Whatnot Raise More $$, and Twitter Commerce
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 linkLearn more about our market research and executive advisory: RockWater websiteEmail us: email@example.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.
Oct 21 2021
The Future of Creator Funds and Tools
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 linkLearn more about our market research and executive advisory: RockWater websiteEmail us: firstname.lastname@example.org--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.
Oct 6 2021
Hello Sunshine Sells for $900M and High-Priced Studio M&A
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 linkLearn more about our market research and executive advisory: RockWater websiteEmail us: email@example.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.
Aug 18 2021
The Audio Wars: Buyer-verse Expansion (Pt 2)
Today's episode is part 2 of our Audio Wars coverage. Since 2018 we've tracked over 30 M&A deals on our industry Audio M&A Watch List, like Amazon / Wondery and SiriusXM / Stitcher. There's also been numerous talent and IP licensing deals like Amazon / Smartless and Spotify / Call Her Daddy, as well as upstart fundraisings for companies like MeetCute, BlueWire, and Headgum. Why? Because we're in the Audio Wars, where music streamers are aggressively spending to capture growing listener consumption, and podcasts are proving to be one of the most powerful assets for user acquisition and retention...just like the video streamer wars! In this 14 minute part 2 episode, Chris and Andrew quickly recap the rends around spoken word audio, and then discuss four new buyer groups that will further drive market activity; smart speaker manufacturers, social media platforms, traditional Hollywood and OTT streamers, and sports media and betting operators.Subscribe to our newsletter. We explore the intersection of media, technology, and commerce: sign-up linkLearn more about our market research and executive advisory: RockWater websiteEmail us: firstname.lastname@example.org--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.
Aug 4 2021
The Audio Wars: No End In Sight
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 linkLearn more about our market research and executive advisory: RockWater websiteEmail us: email@example.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.
Jul 23 2021
Kids Screen Time: Crossing the Chasm and New Revenue Models
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 linkLearn more about our market research and executive advisory: RockWater websiteEmail us: firstname.lastname@example.org--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.
Jul 8 2021
Paul / Mayweather and the Growth of Sports Creator Competitions
This month Logan Paul fought Floyd Mayweather in an exhibition event, drawing 1 million PPV buys and generating $50 million in revenue. It's yet another datapoint in the growth of made-for-social creator competition series, which represents the exciting intersection of social media stars and sport. We discuss the breakdown of PPV vs ad-supported models, how House of Highlights' Showdown series drove over 100 million online views, the need for real competitive stakes, Triller's $500 million capital raise, and re-defining sport as we know it. Subscribe to our newsletter. We explore the intersection of media, technology, and commerce: sign-up linkLearn more about our market research and executive advisory: RockWater websiteEmail us: email@example.com--EPISODE TRANSCRIPT:Chris Erwin:So Andrew, we're seeing a lot of activity around the made for social creator competition, sporting events.Andrew Cohen:Yeah. No, it's really cool. It's definitely a perfect storm of all the things that get us excited between the creator economy and sports media and live streaming. It's definitely something I'm excited to chat about.Chris Erwin:And this is something we actually covered in our RockWater blog. In November 2019, there was a second Jake Paul KSI fight. Now just looking out over the past year and a half, the space has really grown and it's really evolved.Andrew Cohen:Come a long way for sure.Chris Erwin:Yeah. A few things to break down here. Before we go into some of the recent market activity there's a great quote here from Doug Bernstein, the GM of House of Highlights. So he notes, "Creator competition is a new category unto itself, almost akin to e-sports." I think that's well put. So there's a couple of different types of models we're seeing here. I think we broke it down simply into those that we look at as pay-per-view versus those that are ad supported.Chris Erwin:So let's talk about a big recent pay-per-view fight. That was the June 6th Logan Paul versus Floyd Mayweather. Generated over a million pay-per-view buys on Showtime, generated around 50 million in revenue. Of notes, there's only about 25 boxing matches in history that have seen that many pay-per-view purchases. And the fact that it was an exhibition, like no judges, no winner, it's even more impressive. We'll talk more about that. Also, on June 12th, there was the YouTube versus TikTok fight on LiveXLive. And then in April, there was the Triller Fight Club series of Jake Paul versus the former MMA fighter Ben Askren. There's many more on this list, but let's talk about a few of the ad supported creator competition events we've seen.Chris Erwin:So a prominent one is House of Highlights. I think just last week they did their third installment of the Showdown Series, a dodge ball knockout event. The first two, which I think were in earlier this year, or even in 2020, were basketball and golf. And these were done live on YouTube and supposedly the first two events garnered over a hundred million online platform views, just striking number. Another event of note last year is Mr. Beast Creator Games that actually became YouTube most watched live original of all time. So I think the first one was in April of 2020, had 662,000 concurrent viewers for a virtual rock paper scissors contest, and I think they did another one in October. So there's more here. Bleacher Report did The Match, which is a golf showdown and a handful of others. But I think the bigger question is Andrew, why are we seeing so much market activity around, is this even a trend or probably something that's more permeant?Andrew Cohen:It's starting as a trend, but I think it's here to stay and it's going to turn into something more legitimate, sustainable. But really overall, when you look at it holistically, it seems like the worlds of sports and entertainment are merging. On one side we have traditional sports that are using shoulder programming to fuel storytelling and to engage new audiences. And then on the other hand, like we're seeing, everything you just mentioned, social creators using sporting events as kind of bottom funnel activations to eventize and monetize the culmination of internet trauma that they're able to create.Andrew Cohen:So Chris, what do you think it is about these social creators that make them so perfect to generate all this excitement for live events?Chris Erwin:So, Andrew, I think that there's a few key dynamics to note. I think these digitally native creators are the most polarizing and engaging personalities of today. And what we've known through a lot of our research and work is that we're in the world of personality led content. And that type of content reaches more younger audiences globally, particularly millennial and Gen Z, than any other type of content. There's also the ability for these digitally native creators to interact with their fans. It's a real two-way street that's very unique. And I think really importantly, there's this always on dynamic, where the creators are logging to their social channels 24/7, that becomes an always on promotion cycle to fuel excitement around these sporting events. I think this is a really key takeaway here that younger audiences are more passionately loyal to their favorite creator personalities then they are to their hometown team or even to traditional celebrities. So specifically these Gen Z sports fans are more loyal to athletes than teams, favoring athletes over teams by a margin of two to one compared to baby boomers. That's a big stat.Andrew Cohen:Yeah, it's crazy. And I think that explains a lot of the moves that we're seeing on the other end of the spectrum by sports leagues who are really making an effort to use storytelling and kind of drama and personalities surrounding the event to drive tune in and fuel engagement. So I think a great example that we're seeing recently is what Formula 1 is doing with their Netflix show, which has become my favorite soap opera to watch. And as a result, Formula 1 viewership in the US has gone up 36% year over year, just this year. And I think that's because people feel connected with the personalities and with the storylines and that makes them kind of want to tune in and see how it all plays out on race day.Chris Erwin:I feel like everyone I talked to asked me, have you seen the Formula 1 show on Netflix? It's definitely feels like it's become part of the zeitgeist.Andrew Cohen:It's crazy. Yeah. The hype is real and it translates to that viewership. So we're seeing other leagues go for this as well. The NBA is definitely the most popular sport among Gen Z in large part because it's such a personality focused sport. No one's wearing helmets, it's really the stars are front and center. And the NFL, even though it has the highest ratings, it's kind of losing this next generation of fans because the players don't have that same level of visibility. It's why they're doing a ton on social media, they're owned and operated brand the Checkdown which is kind of like their version of House of Highlights to take the helmet off the players and to make these personalities more front and center because that's how you get young fans kind of engaging with that live product.Andrew Cohen:And we're seeing other leagues do this as well. The PGA just recently announced their new Player Impact Program, which is a $40 million pool that's going to be distributed to the 10 golfers that generate the most fan and sponsorship engagement. So again, incentivizing their athletes and be front and center and to be personalities because that's how you bring fans in. And really everyone is kind of replicating this, but the originator is WWE. They have been built on kind of using even before social media kind of creating the soap opera that surrounds the mash to drive that pay-per-view tune in for tent pole events. So now we're kind of just seeing this happen on a bigger scale and it kind of merging with the new soap operas of the digital age, which is social creators.Chris Erwin:To boil that down, Andrew, tell me if I'm hearing this right, that sports leagues need to borrow the tactics of social influencers to generate that top of funnel awareness and engagement. And then on the flip side, the social brands, publishers and creators need to adopt the competitive event formats of pro sports to really build out that bottom funnel monetization for all the hype and all the attention that they're really able to generate across these new useful audiences? Is that kind of encapsulate it?Andrew Cohen:Correct. That's what I'm seeing.Chris Erwin:So then, okay. As we work to wrap up this micro cast, I think the next big question is how is this going to evolve going forward? Is this a trend or is this something of more permanence as we were raising before? And what are some of the things that you're seeing, Andrew?Andrew Cohen:I definitely think it's here to stay, but there need to be some changes that are made to kind of make it more sustainable versus just a bunch of one-off events. And I think one big thing that sticks out to me is the need for true competitive stakes and for these formats to evolve so that there really is a sense of stake on the line at the events themselves. So we're seeing it's kind of easier for leagues to create that authentic pop funnel storytelling because the dramatic stakes and the personalities are already inherent to sports. So it was really just about finding the most effective ways to capture and distribute it to maximize impact. So whether it's a premium series on Netflix or HBO, or just kind of behind the scenes clips on tiktok, the personalities are there, just how you put it in front of people.Andrew Cohen:On the other side, though, creator competitions need to figure out a way to better replicate that inherent drama of real sporting events to actually maintain viewer trust in the long run, to continue to generate pay-per-view buy-in and maximize in mash engagement. Because if it's perceived as just like a cash grab by two creators, I think interest is going to wane.Chris Erwin:Point really manifests when you look at some of the numbers, right? So let's dive into some of the stats. This most recent Logan Paul, Floyd Mayweather fight had a million pay-per-view buys, 50 million in revenue. Now you could say that, all right, compared to the first Jake Paul KSI fight, that was about two and a half years ago from 11 million in revenue this was a big win. But let's compare it to another fight, Mike Tyson versus Roy Jones Jr on Triller, that had 1.6 million pay-per-view buys over 80 million in revenue. Another one on Triller, Jake Paul versus Ben Askren the former MMA fighter 1.5 million pay-per-view buys over 75 million in revenue. So I think what you're getting at is this is really due in large part to the lack of competitive stakes in the match itself, right?Andrew Cohen:There was no winner, it was just an exhibition match. Both Paul and Mayweather had already kind of made all their money because of the way it was structured before they even stepped in the ring and there was really nothing left to fight for at that point.Chris Erwin:Just looking at the numbers again, Floyd Mayweather was guaranteed $10 million and 50% of pay-per-view sales. Logan Paul was guaranteed $250,000 and 10% of pay-per-view sales. But you know, just in a little bit of quick research before this, I was looking up the purse, the winner prizes for traditional boxing fights, where there's the competition matters. Supposedly for Mayweather Pacquiao few years back, that purse was reported at being worth up to nearly $500 million. If you've got that much money on the line, you're going to make that event a spectacle and you're in a fight to the last amount of energy and blood and grit that you have.Andrew Cohen:Mayweather kind of even admitted after the fight that it was just a cash grab. He said, quote, "They say, it's not all about the money. Well, your kids can't eat legacy. The patches on my trunks earned me $30 million alone. When it comes to legalize bank robbing, I'm the best." So he kind of just gave up the game right there that it wasn't really about the outcome, that the only outcome that mattered was kind of sealed in his bank account before he even stepped into the room.Chris Erwin:So do you think that competitions like this are going to persist or that they're going to change?Andrew Cohen:I think they have to change. I think, like we said, kind of the underlying dynamics that are driving the creator competition trend are strong. So I think that format is here to stay, but that there's really a need for the drama unfolding during the tent pole event itself, it has to be as engaging and as compelling as all the promotional content leading up to it if they expect to maintain that fan trust needed for people to actually continue paying money, fight after fight. And I think if each time you had the Floyd Mayweather saying like I don't really care, thanks for your money, I don't see that happening. But like we were saying up top, the value prop is really, it's about leaning into watch personalities, that we have this deep relationship with compete in high stakes events. So it doesn't have to just be boxing, I think we're actually going to see this expand. Maybe even the very definition of sports itself expand because really at the end of the day, that's what we're here to see. And as long as the stakes are there at the end of the day, I think we're going to see this trend continue to thrive.Chris Erwin:That's totally right. And I think this notion of redefining sports that that's already happening. We're having a call with the CEO of NV Gaming based out of Dallas and hearing about the new talent additions they've brought onto their roster. So they signed these two twin sister chess prodigies. So they're bringing out chess as an event because there's audiences behind it, there's different ways to set up that competition to build shoulder and pre and post programming around it. Even House of Highlights, kicking off with dodge ball, their new third installment last week. We're starting seeing Jenga events by Barstool Sports. And I think you and I were even riffing before this podcast, everyone talks about the British Bake Off, I think that's on Netflix. So what if you to kind of rethink that and make that into a creator competition series of this spirit, do you have a chef from Bon Appetit that's going against like a chef from First We Feast, what are the different ways to wrap the content experience around that? I think we're going to see a lot more fun instances of competition emerge in different verticals that we didn't expect.Andrew Cohen:The creators are going to be incentivized to go for this short term cash grab. But I do think that we're going to see these formats of evolve, but it's going to be up for the brands and the platforms to do so. To develop formats and kind of a long running event franchises that will ultimately transform this creator competition trend into a long-term enterprise value play. I think we're already starting to see that if you just look Triller just announced that they're raising $500 million at a $5 billion valuation. Overtime, just raise an $80 million series C after announcing a new league. And even House of Highlights we can see that with the Showtime series, they're kind of pivoting their brand strategy to a creator competition focus to kind of decrease some of their reliance that they have on league and platform partners. So I think that people are seeing this as less of just like a one-off event here and there and more as a way to kind of create long-term business.Chris Erwin:All right, Andrew. Well, we're at the end of our time and I hear sirens going off in the background. So I think it's time to cut.Andrew Cohen:I think that's our cue.Chris Erwin:All right, until next time.
Jun 21 2021
Etsy Buys Depop for $1.6 Billion and the Rise of Resale
Etsy just bought Depop, an ecommerce marketplace known for vintage clothes and streetwear that's highly popular with Gen Z. We discuss the deal logic, how the $40 billion resale market is outpacing overall apparel, the recent IPOs of Poshmark and Thredup, Gen Z buyer values, downward seller fee pressures from incumbents like Facebook Marketplace and eBay, and how resale platforms bolster their competitive position via product UX and distribution partnerships.Subscribe to our newsletter. We explore the intersection of media, technology, and commerce: sign-up linkLearn more about our market research and executive advisory: RockWater websiteEmail us: firstname.lastname@example.org--EPISODE TRANSCRIPT:Chris Erwin:So Andrew, lots of activity in the overall resale goods market, particularly just saw that Etsy over the past couple of weeks bought Depop for around a little over 1.6 billion. Did you see this? Andrew Cohen:I did. I did. Yeah. The market is definitely having a moment right now. Chris Erwin:Pretty wild stuff. So a few details on the deal. So Depop is a secondhand e-commerce marketplace that's known for vintage clothes and streetwear. It's very popular with Gen Z, while the Etsy audience skews a bit older, typically targeting Millennials. Chris Erwin:A few notes on the combination and deal logic. Both are very aligned in terms of DIY spirits across both companies. The Depop apparel items are known for being a bit more cool and cutting edge, that whole streetwear vibe. So Etsy gains access to Depop's high-value Gen Z audience, and then for Depop they get improved search and discovery, which is something that Etsy has been working on for years. Also, the ability to scale internationally, which Etsy has done, and then also a boost in fulfillment and logistics support as well for the overall Depop market end users. Chris Erwin:Also of note is that the revenue multiple for the deal was 23X, and that is reflective of 2020 revenue of around 70 million. A pretty high multiple there, but I think it's time to step back, Andrew, and talk about all the activity that we are seeing in the resale market overall, and I think you have a few interesting datapoints here. Andrew Cohen:The Depop deal is just the tip of the iceberg, and the resell market as a whole is definitely having a moment right now. In 2019, the growth of the second-hand fashion market outpaced that of the overall retail market by 25X. This year, resale apparel sales are excited to hit 40 billion worldwide, and although that's only 2% of the total apparel market, it's also projected to grow up to 20% year over year for the next five years. So we definitely expect it to represent a much bigger share of the fashion market going forward, and because of that, definitely excited to see a lot more of these deals, a lot more companies popping up to meet this market demand going forward. Andrew Cohen:Couple of big recent deals that also speak to the power of this moment. Poshmark, which went public in January after raising 280 million, its valuation peaked at 7 billion, thredUP went public in March after raising 170 million, and all this momentum is really fueled by some unique buying habits that we're seeing, mostly from Gen Z. So for Poshmark, they had 6.2 million active buyers. For thredUP, 77% of their supply comes from repeat seller, which jumps out at me as really being indicative of a deeply engaged, passionate user base, and as we see in media or really any other consumer business, that's how you win. It's really going deep with an everyday, recurring, passionate user base and it definitely seems like it's Gen Z is the demo that's fueling that fire. What do you think? Chris Erwin:I think, look, we've done a lot of research into the Gen Z audience and consumer base, and have also done surveys of them as well, both in the US and in China. There's a few interesting characteristics of them that we've observed. So particularly as it relates to resale, that Gen Z shoppers are turning to greener and more economical purchases, and that's what resell offers. In addition, that they prefer to buy online versus in store. So looking at digital marketplaces, this has also explained the growth of StockX and Goat, which we talked about in our last microcast, and so this trend was also further accelerated by COVID. Chris Erwin:When you break down the demographics of the buyers and sellers on Depop, there's some interesting insights or things that we want to figure out. So what were some of the numbers that you've found Andrew? Andrew Cohen:Yeah, this jumped out at me, 90% of the Depop buyers are under 26. That definitely checks out like we were saying, it definitely seems to jive with Gen Z purchasing behavior. But what really stood out to me was that the average seller is 39 years old, so 13 years older than most of the buyers. That definitely jumped out at me because my first instinct was that secondhand apparel works really well in social commerce environments because there's this feedback loop between buyer and seller, where the buyer is the seller and the seller is the buyer. It's what has fueled social content creation itself. But looking at these numbers, that's not really the case. There's definitely a different class of buyers then there are sellers here. I don't know, how do you reconcile that and bridge that gap? Chris Erwin:I'm more closely aligned with the age of the average seller, around 39, so I'm definitely a Millennial. I do know that for Gen Z, 90s vintage product, music, apparel is very popular, and I think a lot of that exists in the closets or in the homes and apartments of Millennials that are around 39 years old. I think if you're in the age range of 15 to 26, which is the target Depop buyer base, then I think maybe that dynamic is playing a factor. That's just one thing that came to mind. Does that make any sense, Andrew? Andrew Cohen:No, I can see it. I've got some anecdotal experience there myself. I actually helped start a music festival called 90s Fest. It was basically just purely built on this same level of nostalgia for 90s culture. At each event we would have this bizarre, which was basically just a market of local thrift shops and everything, and that was happily one of the most popular affirmations that we had, and just seeing firsthand how much people love digging through a vintage Coolio shirt or whatever. You could definitely see that connection that generations have for vestiges of the past. Chris Erwin:So on a vintage Coolio shirt, what was the image on the shirt? I just think of his hair, how he used to do it, which is pretty wild. Andrew Cohen:The hair is the main silhouette. He was a performer. He brought the house down. Chris Erwin:Yeah, that's a pretty cool thing you did back in the day and another version of yourself. Andrew Cohen:So on one hand, this market is clearly blowing up right now. Everything we just said shows major tailwinds. But at the same time, what gave me pause is we're also seeing a lot of headwinds. Poshmark, their value is down 54% year to date RealReal is down 10% year to date. Rent the Runway closed down all of its stores in 2020. I don't know, Chris, how do you reconcile the good with the bad that we're seeing in this market right now? Chris Erwin:I very much agree. As I was reflecting on this, I think there's this theme of he duality. It's the headwind plus the tailwind. Chris Erwin:Just the of note for Rent the Runway, lots of challenges after they raised that 125 million in 2019, because they really catered to special events like weddings and for work wear. During the pandemic when that just wasn't happening, their usership and revenue just fell through the floor. But their subscribers are now up 100% year over year and they're at 60% of pre-pandemic levels so there is some good here. Chris Erwin:But here's how I break it down. There's definitely a lot of increasing competition, which is putting downward pressure on seller fees. So think of the major competitors like eBay, which I think has around 185 million buyers and 19 million sellers, and then Facebook marketplace. The marketplace alone has around an 800 million average users. Then, what's not even being discussed enough but we brought up last week, is these emerging resale marketplaces like Whatnot, like Goldin Auctions and in all these niche verticals there's going to be more. Chris Erwin:We've had conversations privately with a lot of clients and founder peers that are launching resell products. The typical revenue take is around 15 to 20%, but that's likely going to be coming down from some of these platforms because eBay only takes 10% cut, Facebook charges sellers is 5%. So I think Poshmark and thredUP and the RealReal and others are going to see some downward pressure on their margins. Chris Erwin:That then raises the question of what do these companies need to do? I think there's a few ideas that we have. One is thinking about just overall user growth and thinking differently about distribution. I liked what thredUP has done. They've done distribution partnerships with Walmart, Gap and Macy's and many other big box retailers, where if you go to the Walmart website, you can actually buy resale product from thredUP. Chris Erwin:Then I also think about going really deep in your vertical and giving a custom user experience. Poshmark has done this really well. They've really emphasized social features, so when you go into their marketplace, you can follow different sellers the same way that you follow different personalities on an Instagram or on a TikTok, for example. Then because they really understand what happens around the transaction, and within resale goods there's a lot of returns and exchanges, so Poshmark makes it very easy to custom print a return label and return product, and wherever there's any mix-up their customer service gets involved right away to right the situation for both buyer and seller. I think companies need to be thinking like this, but what else stands out to you, Andrew? Andrew Cohen:Yeah, I totally agree. I think the resell marketplace is particularly interesting when it comes to user experience, because in this case that applies to both buyers and sellers. So in addition to all of the improvements that you just mentioned to make the buying experience more seamless, the same could be said for the selling experience. Andrew Cohen:For example, the guy looking to make some money and free up closet space by selling off his collection of vintage Coolio shirts isn't a professional retailer, so how can platforms best empower him with a custom product experience? I think of what we're seeing in the livestream selling space like Popshop Live offering a creator playbook and real time analytics dashboards to make it easy for independent sellers to succeed on their platform, and I'm sure we'll see more innovations like this in the future as the resell marketplace continues to evolve. Chris Erwin:All right, Andrew. Well, I think we are running up on time. So I think, look, my closing note is we're seeing a lot of the revenue multiples for these IPOs or the M&A in the space. We're in the low 20s, that was in the beginning of this year. They've really come down to now be in the low teens. Are they going to go up in the future as some of these things are sorted out? Maybe, but we'll have to track. But at the least I do expect, I think there's going to be a lot more product launches here. There's going to be a lot more marketplace activity, and I think this market's just going to grow consistently overall. All right. Any final notes you want to add? Andrew Cohen:No, I agree. It's only just beginning, so I'm sure we'll have a Part 2 soon. Chris Erwin:All right. Till next time, Andrew. Andrew Cohen:Later.
Jun 14 2021
Whatnot Raises $50M and the Future of Livestream Commerce
Whatnot, a livestream commerce marketplace for authenticated resale (like trading cards), just raised a $50 million Series B. We explain the origins of China's $170+ billion livestream selling market, the rapid growth of the $15 billion sports memorabilia / collectibles market, and whether the future US winners will be the large tech incumbents or upstarts like NTWRK, Newness, and Whatnot, who focus on niche vertical communities.Subscribe to our newsletter. We explore the intersection of media, technology, and commerce: sign-up linkLearn more about our market research and executive advisory: RockWater websiteEmail us: email@example.com---EPISODE TRANSCRIPT:Chris Erwin:So Andrew, did you see the recent $50 million capital raise for Whatnot?Andrew Cohen:Yeah, no. It feels like post-COVID 2020 to 2021. We've been hearing a ton about the explosion of livestream shopping and a ton about the explosion of the collectibles market. So makes sense that these worlds will be colliding sooner or later.Chris Erwin:Hundred percent. Whatnot is a livestream commerce platform, and they are particularly looking to grow in sports cars and memorabilia. Little bit more detail on the company, they just raised $20 million in March of this year, building off of another $4 million raise in December. And so the recent round was led by the Y Combinator Continuity fund and then Andreessen led the prior round in March. So a little bit of backstory here is that Whatnot was originally just going to be a GOAT or StockX tight marketplace with static images for authenticated resale but they then saw growth in livestream sales, so significant that the CEO said, "We're now 95% focused on a livestream commerce company." And they also saw the explosion, particularly in trading cards as past January. We'll get to that.Chris Erwin:So just thinking about how they're going to use their funds, we know from the Series A announcement that they wanted to expand into over a hundred different verticals based on what the CEO said, "Outside of their core Pokemon and sports trading cards and going into natural extensions like comic books, vintage hardware, video games, and more." Likely to Series B is focused on continued category expansion and hiring and rapid user growth. Now, like the context here, like you said, that we've seen a lot of seed and Series A raises in the first half of this year for livestream commerce. And just have to note like literally just this morning, it was announced that Depop, which is a Gen Z fashion resale marketplace just sold the Etsy for 1.6 billion. So when you're talking about like used and resold goods, definitely very relevant data point. But I think it's time to take a step back and talk about what overall is livestream commerce and what activity are we seeing?Andrew Cohen:Very good question. So livestream shopping if you're unfamiliar, very much like what it sounds like, it's essentially QVC meets Twitch. Bloomberg described it, I like this as, "Part variety show, part infomercial, part group chat." And the reason we've been hearing about it so much this year is because it is absolutely blowing up in China. So in 2020 alone, there were over 500 million livestream shoppers in China spending over 170 billion on livestream shopping platforms, which is up nearly 500% since 2018. And over the next three years, we're excited to see another 500 billion transactions happening on livestream shopping platforms in China. So these livestream shopping events are led by what's called KOLs or key opinion leaders, which is essentially the Chinese version of an influencer. Unlike even our biggest influencers here, they really hold outsize power, influence, and reach. Think Kylie Jenner meets Taylor Swift meets LeBron James.Andrew Cohen:So for example, Viya who is probably the top livestream commerce influencer in China on Alibaba Singles' Day, which is basically their version of Prime Day, had a livestream shopping event that reached 37 million live viewers in a single stream, which is larger than the audience for the finale of Game of Thrones or for Sunday Night Football. And that stream generated over $425 million in sales in just a few hours. So it's crazy. We saw these numbers and we were thinking to ourselves, we had the double check and it was unbelievable. We're thinking, "How come people aren't doing this in the US?" It makes perfect sense, but it appears we weren't the only one thinking that way because right, Chris, we've seen tons and tons since then of new American players in this space, try to get involved to replicate what they're seeing in the Chinese market.Chris Erwin:Yeah. I remember that moment, like a year and a half ago and I was like, "Hey guys, you're sharing these growth numbers with me." I was like, "Why are not more people talking about it?" But those conversations have started to happen. Like you said, at a much more rapid clip. So we're seeing a lot more of the incumbent technology platforms launching livestream commerce. So think of Facebook and Instagram and TikTok, YouTube, Amazon, Twitch, they're all developing livestream shopping products. And there's been a lot of capital raises by these upstarts consider challenger brands like NTWRK, Popshop Live, NEWNESS, Maestro, TalkShop, and many others.Chris Erwin:We've actually tracked, I think over 30 different product launches and capital raises in the US over the past, I think, 18 months alone. And we have the livestream commerce tracker on our website. But then I think there's another angle here particular to Whatnot, which is about the rapid growth in sports memorabilia and collectibles market. And I think, particular to Whatnot, they noticed in January that when they opened up the site to sports card sellers, it immediately took over as a site's best-selling category and now accounts for millions of dollars of sales each month. And I think there's some broader market stats that you have on the memorabilia and collectibles market intro.Andrew Cohen:And what we're seeing from Whatnot is pretty consistent with what we're seeing from all of the major upstart livestream shopping platforms that have raised or launched this year or less. It's the idea of starting with a really niche-focused vertical for content and products and then expanding in the viable agencies from there. So we saw networks start with streetwear and then expand in the pop culture collectibles. Saw TalkShop start with books, and then expand into beauty and food. We're saying NEWNESS launch with beauty, and now it makes perfect sense as you're going to find a vertical to rally around to launch around. Definitely makes sense for Whatnot to pick the collectibles market, because like you said, it is exploding right now. It definitely blew up during quarantine.Andrew Cohen:I think some driving factors are at the sense of nostalgia, the idea of investing in fandoms and in passion categories, which we're seeing drive the success in NBA Top Shot. Right now in 2021, the market size for sports memorabilia alone is $15 billion. For example, we've seen Goldin Auctions as sports auction house, just raise money from churning after making a hundred million dollars in revenue in 2020, which is a 270% increase from where they're at in 2019. The collectibles market expands beyond just sports. For example, in 2020 eBay's Pokemon card revenues increased by over 570%. So definitely makes sense for Whatnot to kind of stake its claim to this vertical around collectibles sports memorabilia, because it's definitely a hot one right now.Chris Erwin:And I have to give a shout-out to Ben Grubbs of Next 10 Ventures. I think he did a newsletter a few months ago that had some of these eBay stats and Pokemon card stats. So thanks to him for sharing that. But Andrew, incredible numbers. So look, I want to talk about a question that we get asked often, which is who are going to be the livestream commerce winners in the US? As we work to answer this question, we break it down into, well, we believe there's three types. There's the content and commerce native incumbents, and then there's also these hybrid upstart platforms. So we think of the content incumbents, like a Facebook or Instagram, TikToK that we think are going to really win big. Why? They have incredible audience reach, customers already go to them to discover and learn about products. They're extremely well-capitalized.Chris Erwin:And like we said earlier, they're already making big moves here. I think just over the past week, Facebook and Instagram, which already launched a shop products over the past few years, they now announce a new drop product that also has livestream integration. One of many, many moves, and we expect more to come in the future. Then you have the commerce native platforms think of Amazon, Walmart, and Nordstrom that they're all launching their own products. So Amazon has their new Amazon Live product. Walmart did a partnership with TikTok for a livestream commerce drop and Nordstrom launched their livestream selling network. I think we're going to start seeing more and more of the big retailers that are going to have livestream commerce capabilities as fast followers over the next one to two years. So the next category though, is these hybrids, right?Chris Erwin:That kind of joined the forces of content and commerce together from the beginning. And so these upstarts, the way that they can win, considering that they're much less capitalized was that they can start with and then take over certain verticals and niches. There's four ways to do that. One, customized experiences around core fans and community. Really catering to how people search, discover, talk about purchase and even return products. So think of unique moderation features that NEWNESS launched around beauty and even custom printed return labels.Chris Erwin:Second, interactivity and gamification, really making it fun. Think about team purchase, where you get discounts the more of your peers and friends buy a product and incentives for daily checking in the platform. These are things that we see do very well in China. Third, access to unique product and discounts that you really can't get anywhere else. And then four, just like what just happened with Whatnot, raise capital quickly and be part of the land grab, get that Series B money to acquire users at scale. But I think Andrew, you've been doing a little bit of research in the Chinese market. We have some surveys and doing some crater buyer journey analysis. Why don't you talk about that?Andrew Cohen:Definitely. Like we were saying, saw how huge the market was in China, and we just had to talk to the consumers themselves to see what it is about it that works so well. And you can break it down into its components of life from shopping. There's the livestream side, and there's the shopping side. On livestream, we're seeing really people love the gamification features to interactivity, live commenting, and live interaction with the host and the community is by far the most popular interactive feature that we saw from our survey, 50% said, it's their favorite. But also we've seen a ton around just like really unique, custom-built gamification features in China. Things like being able to have your own avatar or be like certain amount of engagement can unlock new discounts and team buying on Pinduoduo. Like you said, really innovative stuff that I'm excited to see unlocked here.Andrew Cohen:Then on the shopping side, we were actually kind of surprised to see ourselves, that it's almost more about the shopping element than it is the livestream element. So by far, the leading reason we've saw when we asked Chinese livestream shopping consumers, why they would tune into a livestream? Was number one, discounts, 38% said, discounts and number two, product exclusivity with 30%. So you have to be offering them either a product or a price that they can't get anywhere else, but in that moment, on that stream. This was reinforced when we asked, what the most popular blasting shopping platform is in China? Everyone said, Taobao. And the reason why? Again, it was access to discounts and access to an exclusive product selection. So as much fun as all of these really engaging interactive content features are, a lot of is going to come down to the ability to really provide an exclusive and special product offering and pricing experience. That could be somewhere where the commerce first platforms, like you said, like Amazon have a real leg up.Chris Erwin:So Andrew, as we're getting to the end of our time here. I think it raises one big final question, which is what is our predictions for livestream commerce based on Whatnot's massive Series B raised? And I think from my point of view, I think in the first half of 2021, in the end of 2020, we saw a lot of new entrance enter the space with seed and Series A races. I think going into the summer and the second half of this year, livestream commerce is validated. Investors and entrepreneurs are excited and they're going to be raising a lot of Series B capital, which is typically focused on user acquisition and rapid growth to really carve out their niche and fend off competition and grow at scale. Anything that you predict?Andrew Cohen:I think on the flip side, we're going to be seeing a lot more activity from the incumbent social and commerce flyers, continuing to build out their lives from shopping products. But I also think we're going to see a lot more investment capital flow into integrated solutions providers as we call them. As opposed to a destination platform like a Whatnot or a Popshop or NTWRK where people are going to a specific platform for this livestream shopping experience, I think because there's already so much traffic and activity happening on platforms like a Facebook or a YouTube. We're going to see investments in companies like a comment sold or a buy with or a live like that build out turnkey technology solutions that integrate into these existing live video streams to make it more interactive, gamified, shoppable, and tap into the existing audience behaviors rather than trying to shift them. But like that station platforms trying to do.Chris Erwin:I like it. So picks and shovels in a way?Andrew Cohen:Exactly.Chris Erwin:Okay. All right, Andrew, I think we're at time, till next time.Andrew Cohen:Later.
Jun 7 2021
Bitcoin Pizza and Food Commerce Momentum
Anthony Pompliano, an investor and podcaster, launched Bitcoin Pizza, a new "decentralized" pizza brand. It's yet another example of a creator or media brand launching a direct-to-consumer food & beverage brand. In this episode we explain why food media overindexes on commerce success, how these capital-lite business initiatives are being powered by ghost kitchens and delivery apps, and what we've learned talking about food initiatives with traditional and digital publishers.Subscribe to our newsletter. We explore the intersection of media, technology, and commerce: sign-up linkLearn more about our market research and executive advisory: RockWater websiteEmail us: firstname.lastname@example.org---EPISODE TRANSCRIPT:Chris Erwin:So Andrew, one of the things that we have not yet covered on this microcast, but that we do a lot of writing and work on at RockWater, is the explosion of the food, media and commerce space.Andrew Cohen:Yes. Very excited to dive into this one.Chris Erwin:And there was a recent deal that was announced that I think is a great jumping off point. So over the past couple of weeks, Anthony Pompliano, an investor and podcaster, and who has a large online following, he launched Bitcoin Pizza, which has been described as a new decentralized direct to consumer pizza brand. So he launched it in 10 cities and the launch was enabled by Popchew, which is a company that helps launch food brands for different partners. And of note, we know the Popchew team, we think very highly of them. And we think this is a really cool market data point for some of their upcoming growth. But I think Andrew, what this sparks, is that this is one of many similar food meeting commerce deals that we've seen over the past, call it year and a half, right?Andrew Cohen:Yeah. We are always advocating for our media clients that they diversify revenues by expanding into D2C commerce. And as we're tracking the market, we kept noticing that some of the biggest commerce successes we were seeing were happening in the F&B space when it came to media brand launches. And if you just look this week, the TikTok influencers of the Sway House just launched their own limited edition cereal with Magic Spoon. Dwayne, The Rock Johnson's personal tequila brand is on track to sell 300,000 cases in its first year. MeatEater launched a branded whiskey that sold out in its first week. And we're also seeing this, not just with CPG products, but also with what we're calling F&B branded experiences. So everyone knows about the MrBeast ghost kitchen activation, which launched 300 locations across the country and had a projected revenue potential of 300 million.Chris Erwin:Hold on, wait, did you say 300 million?Andrew Cohen:I said 300 million. Yeah, it's crazy.Chris Erwin:Okay. Wow.Andrew Cohen:Also, other virtual restaurant chain activations food, Barstool Sports, launching a one bite pizza delivery app, which processed over a hundred thousand transactions in its first month, the LA Dodgers partnered with Postmates and a specialized ghost kitchen startup called the Home Team kitchen to deliver their stadium food to fans across LA during their games and demand for this service doubled their initial projections. And even in brick and mortar, we've seen the success of branded F&B experiences, albeit pre-COVID, but Time Out was incredibly successful with Time Out Food Markets, which in 2019 generated 17 million in net revenue and processed a total transaction volume of 56 million. So Bitcoin Pizza comes as no surprise on the tail of all these other success stories that we've seen. We've been tracking a part of them, definitely plan on putting together a more robust watch list. So, stay tuned for that in the coming weeks.Chris Erwin:All right, Andrew. So that's a lot to bite off there and I know there's a lot more on the list, but yeah, let's talk about like why food and beverage over index's on commerce for these digital media brands and creators? So look, I think back to when I first joined the digital video revolution and I was early at some of these YouTube, MCNs like Big Frame and Awesomeness, we were all aligning around different verticals, whether it was creating content around beauty or teens or gaming. And then we saw companies like Tastemade, which had built content verticals around food and just seeing how quickly that they grew their audience and viewership was incredible. And then noticing that a lot of the different verticalized content brands that started creating lifestyle and food and beverage adjacent content, that the viewership around those sub-brands was growing like crazy.Chris Erwin:And so I think we've seen the same, if you look at new platforms like Instagram and TikTok and others, content around food and beverage, just increasingly dominates the charts. And so some of the driving factors that I think that we've observed is that, one, food is universal. Everyone eats, it's a cultural unifier. It brings people together. And there's much that happens around the food and beverage experience, right? Brings people together. There's lots of different products. There's the cookware, there's the eating ware, there's different ingredients. There's the preparation, there's the going out to restaurants, there's the experience at home. So, there's a lot. We started seeing this and then I think there was a couple of questions that we started raising both to ourselves and that we were bringing to clients. And I know you have a point of view here Andrew?Andrew Cohen:It's definitely become more of a lifestyle accessory. It used to be the only people with Food and Bev commerce empires were professional chefs like Emeril Lagasse. Now you have someone like Dave Portnoy can be the biggest influencer in the pizza space, even though I doubt he's ever cooked a pizza before, but it's really more about influence now. But what we're seeing is, a lot of the media companies and creators who are holding this influence and who are driving discovery and sales of these products are leaving a ton of money on the table. All of these activations that we're seeing for the most part are licensing deals where the IP owner, the brand owner, the creative talent themselves are getting only about 3 to 7% of the total revenues from these products that are so successful, because of their promotion, their likeness, their personality.Andrew Cohen:And so we started wondering why? We started to think licensing and partnerships is a great way to kind of dip your toe in the water before diving in head first, just to kind of test the potency of your brand and move product at a specific space. But once we've seen success stories, we were expecting to see a lot more O&O owned and operated launches in this space, where the brands and creators will be able to retain a lot more of that upside, but we just weren't seeing it.Chris Erwin:I think that's right Andrew, the two things that we saw just to properly recap is, we were asking ourselves, why are not more media brands, our clients, and other prospects out there, why are they not launching more food and beverage businesses? And then two, like you said, why are they not going from the licensing model, taking a minority share of revenues to thinking about doing JVs with operating partners, or going owned and operated, right? More capital up front for more higher upside. So we had a partner that we started working with, which is one of the world's foremost food and beverage innovators and formulators.Chris Erwin:And so we started going out to our media clients and saying, "Okay, like, Hey, we have a partner, let's bring some ideas to market. This is what we're thinking." But we started hearing some really serious hesitations. They're like, "Okay, Chris and team, we're excited about this idea. We want to diversify revenues. We see where the market's headed, but here's the challenge. It's like, we're not in the manufacturing business. We don't know how to create a different formula and then how to find an operating partner at scale. But then we're concerned about inventory management. We're concerned about scale distribution. We also believe that to really drive the proper brand awareness for this launch and to make it work that we need brick and mortar placement, we need shelf placement. And we need to think about how do you do in-store marketing?"Chris Erwin:And so, as we started to hear these concerns and increasingly that, this is a very different muscle that their team would have to flex versus what they've typically done, which is create content and then build audiences around that content. So there was concern about how much capital that have to be put up front and then how to hire and scale an organization, recruit the right executives, right? A lot of new learnings to beat that were here.Chris Erwin:This was very good feedback. And as we started thinking about solutions, we then started reading about the emergence of ghost kitchens in the market, which felt almost like the perfect hybrid, where you have ghost kitchens and delivery, where you're piggybacking off the delivery apps, where it's like, "Okay, you're starting to solve all these problems. They're capital light and efficient, but you still have more upside from a revenue and profit point of view. It's like, all right, it's just like the perfect middle porridge."Chris Erwin:To break that down with ghost kitchens, you already have remnant kitchen inventory, or these kitchens that can do all of the food manufacturing. If you're starting with a small alpha launch, maybe you're using only five locations. And then as you go to nationwide or international, you're working with hundreds or thousands of different partners, right? So easy to scale, low capital. You're not on the hook for managing inventory. And then for the distribution point, you're piggybacking off of Uber Eats, DoorDash, Grubhub, or Postmates, that's already doing the last mile delivery. You don't have to figure that out yourself or build out that infrastructure, which is really expensive. This got us excited, right?Andrew Cohen:Oh, for sure. I mean, it makes perfect sense. And there's so many ways you can do it. You can look at it as a revenue play. I mean, just look at Mr Beast, $300 million revenue potential. I would certainly say that's a revenue play, you could also look at it as marketing, I'm sure for the Dodgers example, that it's not exactly moving the bottom line for the Dodger's organization, but it's a great way to kind of eventize the at-home experience during the broadcast to get people get around the couch, order a Dodger dog, lean in to that broadcast experience. So it can really function as marketing as well. I'm excited to see how other brands and creators can activate ghost kitchens, kind of both ways.Chris Erwin:I really like the point about you can eventize around the experience and you can thoughtfully extend your brand, all the different places where your consumers or your fans are. Right, that's really key. So look, we think that there's a duality approach here where you can drive meaningful top line revenue and bottom line profit, but just the improved marketing, which then bolsters your overall media business is really powerful. Now, look, there are challenges. This is not perfect. And a lot of people have to figure out things like, how do you kind of grow your menu over time? How do you maintain quality control? Where if you have a lot of different ghost kitchens and different partners that are creating the same product, how can you have product consistency throughout? But in terms of just getting something off the ground launch and running and learning from it, great way to go.Chris Erwin:A big question that we think about, and we'll close this out. We've seen the emergence of companies like Teespring and others, where if you want to launch a T-shirt line or a mug or any different types of branded product, where you can take your brand logo and likeness and slap it onto a physical, tangible good, there's a lot of solutions that are out there. But who's going to launch the new turnkey solution to do this for food. It seems that Popchew who we talked about enabling the Pompliano business is definitely one of them. And I think that we're going to see more going forward. We see it as a huge opportunity, but any other big questions that you think of Andrew?Andrew Cohen:No, I think that's a good one. I'm going to respect the 30 minutes or less promise and say until next time.Chris Erwin:All right. Later Andrew.Andrew Cohen:Later.
Jun 1 2021
AT&T Exits WarnerMedia and Lessons Learned
AT&T just sold WarnerMedia to Discovery for $43 billion, after acquiring it for $85 billion just a few years ago. We discuss why AT&T needs to refocus on its wireless business and stop buying media assets, Jason Kilar's exit and why traditional Hollywood leadership is coming out on top, and the right strategies for disruptive streamer roll-outs while managing core legacy media models.Subscribe to our newsletter. We explore the intersection of media, technology, and commerce: sign-up linkLearn more about our market research and executive advisory: RockWater websiteEmail us: email@example.com---EPISODE TRANSCRIPT:Chris Erwin:All right. So Andrew, this week, a big deal in the media mix. AT&T agrees to sell WarnerMedia to Discovery for 43 billion. Now this one hits particularly close to home because we've written about Jason Kilar in the past, signaling a new hiring strategy for new Hollywood. And that doesn't seem to be the case, which we'll dive into shortly. Andrew Cohen:Not in the prediction business. Chris Erwin:No. So, selling WarnerMedia for 43 billion. Of note, AT&T had just bought it a few years ago for 85 billion, right? So a near 50% reduction in value. And Jason, who's going to be the new former CEO of WarnerMedia, is negotiating his exit package, and supposedly was not even aware of the deal. The deal was done direct between John Stankey of AT&T and David Zaslav of Discovery, pretty wild stuff. Andrew Cohen:Yeah. New former CEO. That's really nice way to put it. Chris Erwin:Yes, yes. True. All right, so let's dive into why this is happening, and there's some bigger implications here. So overall, AT&T has made it very clear that they're refocusing on their core wireless business, right? So they're focusing all their capital and all their team on buying spectrum and investing in base stations and antenna system support distribution, and their 5G rollout. Andrew Cohen:Yeah. I think it was 23 billion at just for buying spectrum alone. Chris Erwin:Yes. Which then adds to its already increased debt load, but yeah, that's a big number. So, we've talked about that this is a symptom of a larger trend that, when combining into big media businesses doesn't necessarily make sense. And specifically for AT&T, yeah, these assets like DirecTV, which it just had bought, I think, back in 2005 for 67 billion, it just sold to TPG for 16 billion back in February. So clearly, AT&T is getting out of the media business and it makes sense, right? They need to focus on their exclusive wireless services business, which has fixed distribution, and WarnerMedia did not enhance their wireless offering whatsoever. And clearly the combination with AT&T didn't meaningfully improve the distribution of HBO Max, right? It only got around 10 million subs over the past year. So the synergies didn't really exist at all. Andrew Cohen:No, and this isn't the first time we've seen this. I mean, Verizon recently made a similar kind of final exit, selling off Yahoo and AOL to Apollo for five billion this past month. I think they recently bought that for around nine billion. We've seen it with other Verizon misfires in the media space from go90, and even with Complex. There just isn't really that kind of unified synergistic vision, whereas compared to a Barstool and Penn National Gaming or Ringer and Spotify where that media is top-of-funnel for kind of a compatible core business model has been really successful. Just the telco and media synergy doesn't really make sense at any level. If you look at kind of the lower level of the spectrum, like a Complex and Verizon, and now at the higher end of the spectrum with an HBO Max and an AT&T, they're kind of just incompatible business models. Andrew Cohen:And I think what really stands out at this more premium end of the spectrum, like you said, it's kind of all of these costs that are now being juggled. So for a cable or telecommunications giant like AT&T are massive, we already mentioned 23 billion that they had to spend on spectrum, or their existing $170 billion debt load. Now on the side, as kind of a side hustle, to then be trying to win the streaming wars just seems unsustainable, especially when you look at the amount of capital needed to compete in the stream wars in a meaningful way. I mean, Netflix is paying 17 billion on content this year, 2 billion on marketing. Disney spends 24 billion on content. Reminds me of a quote from the great Ron Swanson from Parks and Recreation, where he says, “Don't half-ass two things, whole-ass one thing.” And the stream wars is definitely something that takes a whole-ass to compete in. Andrew Cohen:And now, Warner and Discovery are well positioned. Them as a combined entity now have the second largest content spend in the mix with 20 billion, behind Disney's 24 billion. So, interesting to see how that'll set them up going forward. And then also what are the implications for NBCU and Comcast, where I think that there's a kind of a similar incompatibility between these two models. We're seeing Peacock is kind of having a tough time compete. They have 14 million subscribers, which is even less than what Discovery Plus has. So are we going to have to see an exit there, maybe another merger with Viacom and CBS, and is this kind of the end of the telco-media pipe dream chapter of immediate history, as we know it? Chris Erwin:To talk about subs, I think Discovery has achieved 15 million subs in just a few months since launch, which is really noteworthy, considering how much in terms of smaller capital spend and overall IP library, relative to a Peacock and relative to the WarnerMedia-backed HBO Max, which has 10 million new subs with over 12 months of launch. Andrew Cohen:And also, when you consider the fact that Discovery Plus' library is largely non-exclusive, non-first window. Largely content that has already aired on their cable networks and then have a second window on OTT, which then speaks to this kind of greater point and theme that we're seeing here, which is this kind of clash between old Hollywood and new Hollywood. And it seems like in this case, old Hollywood has prevailed, really. Kilar came in with the exact opposite of approach, of having Warner Brothers movies debut on HBO Max, which we know kind of disrupted and ruffled the feathers of the legacy film studio Hollywood system, whereas Zaslav and Discovery Plus took almost the exact opposite approach, making Discovery Plus kind of compatible and complimentary, non-competitive to their existing cable partners. Chris Erwin:I think that's right. Look, Kilar is known as the Hollywood disruptor, right? So he was an early executive and CEO and one of the co-founders of Hulu, which kind of defined the new streaming landscape and business model. We wrote an article about how Kilar signals the new hiring strategy and the right characteristics for the new Hollywood executive. And he was a unifier. He was getting all the different film studios and TV networks onboard to this single streaming service, not easy to do when you're wrangling those big egos and those different alliances. And he made it happen. And then he was also someone who took an extreme focus to content and fan sensibility, and had incredible product chops. So he really thought about, what is the product experience? What is the distribution experience? How is a consumer receiving and experiencing content in a new direct-to-consumer digital stream? Chris Erwin:And it seemed like, is that going to be the new differentiator in the streaming wars? But I think what's very clear about him being pushed out and these traditional, old school Hollywood executives like David Zaslav and John Malone on the rise is, maybe the product is a bit of a commodified offering and it really comes down to, what is your IP portfolio? Do you have content that's going to get consumers to climb the paywall, and are you going to be able to develop a real breadth of a catalog that's going to get consumers to stay there once they climb that wall? And I think that's really contingent on this, how do you navigate the political realms of Hollywood, your strategic content partners, and getting them excited to work with you. Where you respect them, you don't go scorched earth, you don't blow up that first theatrical window, but you probably ease into this direct-to-consumer business over time. And it seems like the old Hollywood guard is winning out. Andrew Cohen:It raises a larger point. And this is something that we kind of think through in our business every day, of how you respect kind of your core legacy business, while also being future focused and trying to kind of navigate a very rapidly evolving landscape. And it's easy for Netflix, who doesn't have this legacy infrastructure to balance, to just go pure play OTT. But for a company like WarnerMedia, where its traditional cable film studio infrastructure can be a big asset, but it's also incumbent on them to kind of figure out that right balance between past, present and future. I think Disney has done a really good job with it, unifying kind of all of their assets in kind of one combined entity. But I don't know, Chris, what do you think that this says for, going forward, how companies that are navigating disruption, innovation, do they lean a bit more towards a slow and steady approach when weaning themselves off of traditional models? Chris Erwin:Andrew, so that speaks to a few different points to think through. So one, the classic adage is, a startup, it's always a race against the clock to get distribution and scale before they run out of money. Versus an incumbent, which is how fast can an incumbent innovate before they are disrupted by the upstart, right? But I think there's also something else to consider here. I think a startup like Netflix, entering the business, they had nothing to lose. They didn't have an existing film studio or a TV network. They could just make these big bets, and if there was a growth opportunity, then they were going to double down and triple down into it. And in addition, that was what their team was recruited, hired and trained to do. Chris Erwin:You look at the old Hollywood guard, it's kind of like trying to move the Titanic. You do it a few degrees at a time. It reminds me of Obama saying, I think it was Obama or another president, which was like, “How do you run the country?” And it's a win, if you can just alter the course, two or three clicks to the right, that's the win over an eight-year span. So I think about a lot of these media businesses, which are cash cows, they have executives and tens of thousands, if not hundreds of thousands of employees, like Disney, that are used to operating and thinking a certain way. And to throw that by the wayside and say, “Hey, we're going to eschew our core model, eschew all of our core strategic partners, and we're going to start operating very differently.” To make that work, you would have to totally revamp your entire hiring ranks and you'd have to totally revamp the executive team. Chris Erwin:And I think considering that we just arrived at the point that it's not product as a differentiator, but it is the content as a product that's a differentiator. And having those content executives stay around to fuel the competitive beast, that's what needs to happen. And at WarnerMedia, a lot of those executives were very frustrated with the leadership changes and the new mandates, and they all departed. So that's my quick take on how you balance the old guard and thinking about an upstart, versus an entrenched incumbent in the new streamer wars model. Andrew Cohen:That makes sense. I think it's kind of about knowing your advantages and playing to those strengths. I think it's sexy to say that, “Oh, cable is dead,” and look at mass cable legacy infrastructure as a burden, but cable's not dead yet. Its cord-cutting is rising at a rapid rate, so it's important to be future-focused and know how to navigate this transition, but at the same time, if you play your cards right, having those traditional assets that Warner has, can be a huge advantage, in some ways, over a Netflix, it's definitely... Linear TV is still the best way to reach scale audiences. There's a reason why every NFL game is on CBS and Fox, even though they just rolled out their first digital-exclusive game this year. But again, you look at Disney, who, they have all these traditional assets as well, parks, TV- Chris Erwin:Cruise lines. Andrew Cohen:Exactly. And they're making it work for them. They're making it all kind of one flywheel and wrapping OTT within that. So I think for Warner and Discovery to look at not like, “Oh, we have this burden that's holding us down,” but, “Okay. How do you use those assets as an advantage?” I think that's going to be interesting to see. Chris Erwin:So what are the implications now, because there's talks of Amazon potentially acquiring MGM. And I think that that deal makes a lot more sense, but we'll have to save that for the next episode. Andrew Cohen:Wow. Call that a tease in the business. Chris Erwin:All right, Andrew, until next time. Andrew Cohen:Later.
May 21 2021
The Future of Livestreaming: Music and Sports
There have been a handful of recent livestream deals in music and sports. NBCU tapped Twitch to produce and deliver live content that will live on a new NBC Olympics Twitch channel for the 2021 Tokyo Olympics. And Warner Music invested in virtual concert platform Wave, and Deezer invested in live concert platform DREAMSTAGE. We break down the power of "live" via 4 success pillars, and how livestreaming will impact the future of these two verticals. Subscribe to our newsletter. We explore the intersection of media, technology, and commerce: sign-up linkLearn more about our market research and executive advisory: RockWater websiteEmail us: firstname.lastname@example.org---EPISODE TRANSCRIPT:Chris Erwin:Andrew, have you been tracking some of the Livestream deals over the past couple of weeks? I think I saw something about Twitch and NBCU and Warner buying a stake in Wave. You've been tracking this? Andrew Cohen:Yeah. No just over the past couple of weeks, but it seems like ever since the beginning of lockdown last March, we've been seeing more and more Livestream news happen every week. Chris Erwin:It's pretty wild. Yeah, we actually have a little shout-out to our website. If you go to one of our blog posts, we have a Livestream watch list. You can go see all the recent fundings out over the past year, 18 months or so. Andrew Cohen:Always be plugging. Chris Erwin:Always be plugging. Okay. There's a few that stood out. So one in particular was this partnership between NBCU and Twitch, and so NBCU has the exclusive live rights to the 2021 Summer Olympics in Japan. And so NBC is tapping Twitch to produce and deliver live content that will live on a new NBC Olympics Twitch channel for the summer games. It's going to include Olympics theme content. It's going to have daily unique Twitch-produced content, such as daily interactive clip shows, daily competition among three teams of Twitch creators, and primetime side casting and a live from Tokyo segment. I think there's a cool quote from one of the deal-makers here that says "The way that people consume traditional sporting events is changing. They no longer want to simply spectate. They want to be as close to the action and athletes as possible, and that's what Twitch is bringing to the mix." Chris Erwin:Just a couple of other quick deals. Warner bought a stake in a virtual concerts platform called Wave, and a Paris-based music streaming startup called Deezer took a minority stake in DREAMSTAGE, a live music streaming startup. So a lot of activity here, and I think, Andrew, something that you've thought a lot about and written about is, why is this happening? And you've captured four interesting pillars, so I think it could be fun for you to break that down for our listeners here. Andrew Cohen:So, really what we're saying is that across all these different verticals, live media is becoming more and more valuable. We think that live media is defined by four pillars, all of which evoke a deeper level of audience engagement and thus valuable. Andrew Cohen:Pillar number one, it's moment driven, which drives tune in. So the fleeting nature of live content and of live moments creates a sense of urgency for viewers. Each live event holds the potential for a completely unique moment, a new unique experience, so you tune in. There's real urgency around that versus something that's on-demand. Andrew Cohen:Pillar number two, we're calling the FOMO factor, which drives lean in. So it's that fear of missing out on a memorable moment that keeps users glued to the action because the next moment may always be that "can't miss" moment that everyone's going to be talking about, which is why in part consumers watch live video for 10 to 20 times longer than they do on-demand content. Andrew Cohen:Number three, authenticity, which drives form of connection. It makes users connect. Really, live content is, by nature more authentic as opposed to scripted dramas on HBO or the meticulously rehearse and edited videos on TikToK, or even the highly dramatized reality shows on TV. The memorable moments that make live entertainment special tend to be organic and unscripted, and this authenticity evokes a deeper and more intimate level of audience connection, which is just the ultimate currency. Live video, it engages viewers in this immediate and authentic way that other format just can't. We see that with podcasting as well, where it's known as just a really immediate and intimate medium, and because of that, advertising is more lucrative there because it fans really feel like they're connecting with the hosts. Andrew Cohen:And wrapping it up, pillar number four is that it's social, which causes users to share. So viewers feel like participants in live content rather than just passive observers. The communal experience of live consumption to a group of friends and strangers with a common passion engaged in a shared moment, it's inherently social. So from watch parties, to water cooler recaps, live events have always inspired communal engagement, and now social media has become the world's biggest watch party, the most active water cooler. And so, viewers, they share clips and they discuss content in real-time across social media, promoting the event by not only evoking the sense of FOMO in those who aren't launching it, but also by inspiring those who are watching to engage more deeply and contribute their own point of view to the conversation. Andrew Cohen:On a typical Sunday afternoon in the fall, the top 30 trending topics on Twitter are all related to the NFL games that are underway. This unique interactivity of the live medium, I think amplifies this already heightened form of audience connectivity and just results in a collective level of sustained engagement and real time peer-to-peer promotion that's nearly impossible to replicate on static on-demand mediums. Chris Erwin:Cool. I really like those four pillars. I always say, Andrew, I think you have a knack for putting things into a really clear framework for our listeners or readers, so kudos on that. Andrew Cohen:Well, thank you. Chris Erwin:We describe what's happening in deal activity in this space. You just explained why there's all this activity with these four pillars. So I think what's now most interesting is how is Livestreaming going to evolve different industries? And so we've seen a ton of different capital flows, as well as partnerships, around a lot of different industry segments, in sports, in social media, in shopping, in music, in fitness and so much more. That can easily take a whole nother three-hour podcast. I think what we want to focus on for today is specifically targeting music and sports. Andrew Cohen:Don't get us started on Livestream shopping or this microcast will quickly become a macrocast. Chris Erwin:Yeah, that's true. We're going to save that for probably not one single microcast, but a bunch of others. So let's dive into music and sports. This is cool. I'll talk about music. A peer had sent me a demo of their new, I think, alpha or beta product over the weekend. It's a virtual VR concert startup. I felt like the energy that it evoked from its technology was so cool, got me more excited about the space. In speaking of frameworks, I think for music, there's three things that stand out that I see. Scale and speed, personalization and access, and new revenues. So let's just quickly dive into those. Chris Erwin:Scale and efficiency. I think there's a lot less financial and physical burden on the artists who can perform in front of millions of fans in multiple countries all in a single event, and they can even stand up shows to meet new demand rather quickly and at lower costs. I think there's a great example that we were talking about before, that's with Travis Scott breaking down. Let's talk about his live touring schedule in 2018 to 2019. 55 live shows over four months of travel, reach 850,000 fans and grow 64 million in revenue. Now let's compare that to his 2020 Fortnite shows, four virtual shows, one weekend, no travel reach, 28 million fans. That's like a 35X multiple relative to his previous live tour and 20 million in revenue. So when you compare just the time and commitment versus the revenue, it's really, really compelling. Chris Erwin:I think there's also an angle that it goes like the same things for the fans. Fans who spend so much time and money on getting to a venue, whether it's driving there or flying across borders. Now with virtual concerts, more time and money can be spent on enjoying the moment with the artists and supporting the artists versus the getting there. And I think that supports a whole bunch of new revenues. Andrew Cohen:Yeah, and I think it's important to realize too that, much like all live streaming, it's not one or the other. I really think that there's a world where the two can be complementary. We saw earlier in the year Fortnite announced that they're opening up an island that's just for live concerts, and they want it to kind of become a new destination, a new stop that artists have on their tour. So they could do 55 live shows around the world like Travis Scott did, but then also do a few shows on Fortnite, and the two can be complementary. You can start off with Fortnite to reach a massive audience and reach new fans, promote an upcoming tour. And then maybe that will inspire fans to come out and buy tickets to see you in person when you come to their town, can really be synergistic that way. Chris Erwin:100%. So a couple of quick hits before we get over to you on sports and before we run out of time here. Second is personalization and access. So think about experiences that fans can't get at live concerts or festivals, right? Easy access where you can go see multiple brand activations. You can go see multiple different stages within a shorter amount of time instead of being like, "Oh, I got to walk 30 minutes to this other stage." You get VIP access. You can get backstage views. I've even starting to see developments around enabling climbing up the equipment on the stage or doing stage dives in a virtual environment. Something maybe you'd never do in real life, but that you want to experience virtually, go ahead. Chris Erwin:And different ways to express yourself. Imagine if you go to different types of shows, like you're a metal head or you're an emo head, and then you want to go see an Eagles concert. You can have different avatars, different dance moves, different ways to express yourself, different identities for each of these shows and events. I think that's really cool. Chris Erwin:And then a third one, on new revenues for advertisers, like we broke out with the Travis Scott Fortnite example, you're reaching a greater audience and that adds value to advertising inventory. You can actually start to create more digital activations that can wrap the event, like virtual storefronts, sponsoring live chat feeds. Another one, you can do a la carte ticketing. So maybe instead of buying a ticket to the entire show, you just want to go for the last 30 minutes and the finale. Buzzer's doing this in the sports space. Maybe that happens for live music. Chris Erwin:And then all the virtual and digital goods, seeing things like, you want artists selfies, you want artists hangout sessions after the show, you want to have maybe digital fashion for the event. So we're talking about RTFKT and their digital sneakers. Maybe that supports a whole new digital fashion movement within the live music and even NFTs of special concert moments. And lastly, Bandsintown, which was a band discovery platform, they now have a subscription package. It's like the class pass for music. So all these new revenue streams, there's a million more things to talk about. But I want to make sure that you have time for sports because there's some cool stuff there. Andrew Cohen:In sport, Livestreaming is going to be a game changer as well. I think it's really going to be crucial for supporting two growing priorities for sports and broadcasters. It's growing Gen-Z fandom and growing gambling revenues. So when it comes to Gen-Z fandom, it's important to note the average age of audiences for NFL, MLB, and NCAA basketball football is 53 years old. Chris Erwin:Wow. That's older than I would've thought. Andrew Cohen:Yeah, me too. Then you juxtapose that with eSports where 79% of fans are under the age of 39 and where 68% of Gen-Z males agree that gaming and eSports are an important part of their identity. You really have to look at eSports as kind of a model for maybe what the next generation of a broadcast experience looks like when it comes to Livestreaming, especially when you consider that 80% of eSports fans watch online via Livestreaming, whereas traditional sports viewership is the exact inverse. It's 80% on traditional linear platforms. So as everything shifts towards Livestreaming, really think that eSports is going to be an important playbook for traditional leagues to follow to reach the next generation of fans. Andrew Cohen:So the content experience on eSports can really be broken out to three main pillars. It's personalization, gamification, and social interactivity. On personalization, it's things like allowing the viewer to select their camera angle, change the interface, change the color of commentators, track certain players of interests. On gamification, you can reward viewers for interacting with the stream with extensions to let fans predict gameplay, like who's going to score the next goal, test knowledge with trivia, compete with other fans on leaderboards. On social interactivity, you can encourage fans to cheer using teams-specific bits and emotes inside a chat window and reward this engagement by a lot of participants to unlock new emotes and bits to cheer for their team and to express their fandom. Something that we're seeing big in the eSports world that can definitely be applied to traditional sports as well. Andrew Cohen:And then within all of this, it opens up all these new monetization strategies. We're seeing with eSports the sale of physical and digital items easily integrated throughout the stream, much like Livestream shopping. Given just the size of the eSports audience, with even just a 1 to 3% conversion rate, this revenue could soon become a bigger part of eSports revenue than advertising this right now. So already we know how much merchandise factors into the traditional sports revenue pie, and Livestreaming can really unlock this. Andrew Cohen:Quickly on betting, really Livestreaming can unlock a whole new wave of live in-game betting. Right now in Europe, 70 to 80% of sports betting revenue already comes from in-play gaming, and as regulation relaxes in the US, we think that this could become even more prevalent here. It's going to be totally enhanced by Livestreaming. This could include free to play gaming for younger audiences and kind of these curious top-of-funnel potential betters, but also live betting integrations backed by Sportsbook partnerships, totally integrated within the Livestream. We're already seeing this emerge in the US, the recent partnership with the PGA and NBCU and Sportsbet where you can bet on a hole-by-hole basis right within the Livestream itself, and even on a free play basis with the match, the Tiger Woods versus Phil Mickelson event on the Bleacher Report app, where there was a lot of kind of side-betting and gaming going on integrated into the experience. Andrew Cohen:So really, definitely think that Livestreaming is going to be a huge game changer for how people experience sports viewership. Chris Erwin:Awesome. Well, Andrew, I think we're backed up against our 15-minute wall. So we'll just have to schedule more microcast to get into more topics here. Andrew Cohen:Till next time. Chris Erwin:Till next time. Later.
May 18 2021
Sports Betting Media in Overdrive