SOFTWARE IS EATING THE WORLD “ — MARC ANDREESSEN

The future of audio entertainment

The future of the audio industry will be digital — this digital migration trend had started a while back and is now, somewhat complete. The audiences who are consuming streamed audio content are young, digitally native, willing to spend money on great listening experiences, and have shunned away traditional broadcast mediums. Meanwhile, players who have started early, taken huge risks, and mastered the art of digital distribution while using data to deliver the expected ‘perfect’ listening experience have won and are now focused on pushing the boundaries of audion content creation through technology, partnerships, and millennial ingenuity.

Photo by Wesley Tingey on Unsplash

Global megatrends: streaming — the place to be

While Physical forms of listening to music were the dominant format of audio distribution till 2016, digital streaming has grown exponentially since 2014 and is currently the dominant mode of audio content distribution globally.

Based on IFPI’s global music report in 2021, streaming accounted for ~62% of total global music revenues (~$13.3B) and there is no sign of this growth slowing down and potentially more room to grab share from others and even growing the pie by delivering new listening experiences.

Online streaming has grown rapidly in the last decade, becoming the dominant listening choice that consumer are willing to pay for
Online streaming has grown rapidly in the last decade, becoming the dominant listening choice that consumers are willing to pay for
The global music streaming revenues and ARPU figures are projected towards healthy growth in the coming years
The global music streaming revenues and ARPU figures are projected for healthy growth in the coming years
Photo by Eric Nopanen on Unsplash

Consumer side megatrends: digital, young, mobile, and expect the perfect listening experience

5 consumer megatrends are changing and shaping consumer habits with the digital audio landscape. These trends include:

  1. Online migration from traditional sources of audio
  2. Traditional, over-the-air, or broadcast radio is declining
  3. Gen-Z and Millenial consumers are driving the change
  4. Winners are audio content marketplaces that have the scale of content
  5. Consumers are mobile and want content delivered on their smartphones
There are 5 consumer megatrends that are changing and shaping consumer habits with the digital audio landscape
There are 5 consumer megatrends shaping consumers’ audio listening habits

1. Ongoing digital migration

Taking the North Americas as a base case study for changing consumer trends, we see that in the US and Canada, over the last 5–10 years, daily and weekly listening time to traditional broadcast radio, in various forms of music, talk, and/or news has steadily been on a decline at 2–3% per annum.

In the same time frame, weekly time spent listening to digitally streamed audio has grown at 6% per annum, which is 2–3 times the rate at which broadcast radio is declining.

Across the US and Canada, while radio consumption is declining, digital audio consumption is growing

As consumers are moving online, they are listening to and consuming more content than before. Additionally the younger the consumer, the more inclined they become to listen to content in social and group settings, such as what we witnessed with the rise of ClubHouse in 2021.

As consumers move online, the amount of time they listen to content is growing and changing

2. Decline of broadcast radio

While it was already established that traditional radio is losing to digital channels of audio consumption, by 2025, it is forecasted that consumption of digitally streamed radio will trump broadcast radio, further highlighting the impact of the internet and digital migration and the need to focus on new digital and audio first business models that cater to new consumption needs.

Digital radio is progressively replacing OTA radio and could overtake OTA’s share of listening time by 2025 at projected penetration rates

While AM/FM radio is still the dominant source for audio consumption in-car, its reach is seemingly beginning to decline. Simultaneously, online audio streaming and podcasts are quickly growing, replacing radio and other sources of audio content.

In the US, online audio and podcasts are growing as substitutes for AM/FM radio in-car
In the US, online audio and podcasts are growing as substitutes for AM/FM radio in-car
Loss of listenership share of OTA radio to digital has been the continuous trend within the US audio landscape in recent years
Loss of listenership share of OTA radio to digital has been a continuous trend within the US audio landscape in recent years

While traditionally, radio was the dominant force for music and audio content discovery, younger audiences are growingly using digital platforms and aggregators to discover new audio content including scaled aggregating platforms such as YouTube and/or others. It’s just more convenient and easier to work with compared to the linear radio business model.

Radio plays an important role in music discovery across all age groups, with younger generations geared towards digital avenues and friends
Radio plays an important role in music discovery across all age groups, with younger generations geared towards digital avenues and friends
Post music discovery, millennials tend to use digital listening solutions to listen to music rather than have to wait to hear from OTA radio
Post music discovery, millennials tend to use digital listening solutions to listen to music rather than have to wait to hear from OTA radio

3. Gen-Z and Young Millenials driving change

Gen-Z and young Millenials are the driving force behind the digital migration, decline in traditional radio consumption, and the demand for new online audio business models. Ironically, traditional broadcast radio has a strong hold over Gen-X and the baby boomers, despite their small experimentation with digital and online audio platforms.

There is also a clear pattern indicating that Gen-Z and Millenials are willing to pay for on-demand streaming services, and therefore a focus on these segments will deliver new and digital monetization opportunities for players in the landscape.

Spotify’s healthy growth is driven by a its segment of customers that purchase ad-free subscription services
Spotify’s healthy growth is driven by its segment of customers that purchase ad-free subscription services
Payments and subscriptions to on-demand and digital streaming audio services is prevalent among millennials in the US
Subscriptions to on-demand and digital streaming audio services are prevalent among millennials in the US
1) Broadcast radio still has a fairly relevant and average reach among various age groups. 2) Streaming is popular with Gen-Z and Younger Millenials. 3) Digital downloads and physical formats have little reach and are somewhat dying

4. Winners are marketplaces of scale

In the digital audio space, in both Canada and the US, a host of content marketplaces including Spotify, Apple, YouTube, and Amazon as global players and other smaller and local players including Pandora, iHeart Radio, StingRay, and CBC dominate consumers' go-to spots for their audio consumption needs

Spotify is the dominant digital audio brand in Canada, with Apple Music, YouTube, CBC, Amazon, and Stingray trailing behind. In the US, Spotify is the dominant online audio listening platform too

The reason for the success of these platforms has to do with a variety of factors including:

  1. Ease of access and distribution, especially mobile
  2. The scale of content through the creation of original and differentiated content and aggregation of 3rd party content to cater to all preferences
  3. Use of technology to create targeted and personalized experiences for each user
  4. Creation of interactive tools for the creation and distribution of crowd-sourced audio content — which is a step towards becoming a true platform
Consumer preferences are varied and segmented (e.g. genre vs. age vs. etc.) — hence it’s key to have scale in content to cater to all audiences and create personalized and customized experiences
Consumer preferences are varied and segmented (e.g. genre vs. age vs. etc.) — hence it’s key to have scale in content to cater to all audiences and create personalized and customized experiences
Gen-Z and Millennial consumers are adopting more flexible and personally customized music listening experiences on digital audio content platforms
Gen-Z and Millennial consumers are adopting more flexible and personally customized music listening experiences on digital audio content platforms

5. The future is mobile

Mobile is the main device where consumers spend the majority of their time listening to audio content despite macro and environmental factors such as COVID. Traditional radio devices are also losing their grip on mobile devices — in the US, among 13–34 years old consumers, more than half of all listening is done on mobile devices compared to only 20% on traditional AM/FM radio receivers.

Despite COVID when consumers commuted less, smartphones have managed to surpass computers as the main device for radio streaming. Furthermore, Mobile device share of listening to the radio is on track to surpass traditional AM/FM radio receivers in the US

This is all while despite large optimism to new emerging devices such as Smart Speakers, no hardware seems to be able to take this share and growth away from Smartphones.

Smart speaker market penetration continues to grow despite privacy concerns, with 1/3 of households equipped and Google the top choice in Canada — however, there is also evidence that repeat purchases account for the growth in the market
Smartphones have taken the place of computers as the main source for all types of digital audio streaming
Smartphones have taken the place of computers as the main source for all types of digital audio streaming
Photo by Jeremy Enns on Unsplash

Supply-side megatrends: digital experiences and content wars

On the supply or competitive side of the audio landscape, it is observable that:

  1. Optimized digital experience and distribution are table stakes, and
  2. Content scale and differentiation are the next competitive frontiers

Digital audio platforms are converging to be “all-in-one” super apps that have scale in the content archive and use AI and Machine Learning to deliver personalized experiences. At times, their experiences are becoming non-differentiated in respective categories of competition such as Spotify vs. YouTube vs. Pandora, or the case of digital radio players, BBC Sounds vs. Audacity vs. iHeart Radio.

In essence, an optimized digital experience, catered to the platform’s target customer base, is currently table stakes. This feeds into the trends observed from the demand side where consumers are migrating online and, considering their varied consumption preferences, expect tailored digital listening experiences.

With optimized digital experiences as table stakes, the competition is moving towards scale and differentiation in content, and that is what Spotify is currently focused on. This focus is shaping a large number of mergers and acquisitions by bigger media and audio content companies across their value chains including distribution, curation, and/or monetization

Optimized digital experience and distribution are table stakes and content scale and differentiation are the next frontiers
Optimized digital experience and distribution are table stakes and content scale and differentiation are the next frontiers

Digital interfaces are merging to same experiences

Whether you look at Spotify, BBC Sounds, Audacy, iHeart Radio, YouTube Music, Pandora, TuneIn Radio, etc., we can somewhat find a similar UI/UX. A homepage that covers all the recent updates of the user’s historical repetitive listening habits.

Some players such as Spotify and YouTube Music use their AI and ML algorithms to curate more enhanced and targeted experiences, while others that have their differentiated content such as BBC Sounds, start with that winning advantage over their curation algorithms. But overall, the platforms’ designs and experiences are converging into one typical format.

This can be seen in regional language or cultural music aggregation platforms such as RadioJavan which is in Persian or Melon in Korean.

Melon and Radio Javan — Spotify UI/UX clones in Korean and Persian

Podcasts are the battleground for differentiation — for now

Spotify’s focus on podcasts beginning in 2018 has paid off propelling it to a 1-stop-shop or a super-app for music entertainment and non-live talk audio content. Spotify has managed to take this dominance away from Apple, which had somewhat of a market monopoly not that long ago. The details of which you can find in a larger article that I wrote about Spotify’s dominance over the audio industry, below. This growth, which should not be a surprise, is fueled by the younger Millenials and Gen-Z.

Spotify has grown rapidly in the platform wars for podcast listening across the US and Canada, with Gen-Z and younger millennials providing the fuel

The next fuel for competition: experimentation with crowds

Podcasting was created when average citizens discovered that the creation and distribution of talk audio content are quite cheap and easy. In other words, barriers to entry were lowered. This is what happened when YouTube lowered barriers to video content creation and when blogging platforms helped the masses write content and distribute it. In the not-so-distant future, we should be witnessing audio content platforms very similar to ClubHouse further reduce barriers for mass content creation and distribute its rewards in a more ‘fair’ fashion.

Photo by Daniel Schludi on Unsplash

In summary

  • Revenues are in the streaming space, and traditional modes of distributing audio content are dying, if not already dead
  • Consumers with a large Life-Time-Value (i.e. Gen-Z and Millenials) are mobile and expect perfect digital listening experiences. In the age of data, using AI and ML algorithms to deliver curated and personalized experiences is somewhat non-negotiable
  • The competition is shaped by having a digital offering and interface as table-stakes, and then to differentiate yourself either by scale or uniqueness of the platforms’ content

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