The future of audio entertainment
Is digital, young, mobile, and ruled by scaled-up marketplaces
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.
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.
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:
- Online migration from traditional sources of audio
- Traditional, over-the-air, or broadcast radio is declining
- Gen-Z and Millenial consumers are driving the change
- Winners are audio content marketplaces that have the scale of content
- Consumers are mobile and want content delivered on their smartphones
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.
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.
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.
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.
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.
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.
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
The reason for the success of these platforms has to do with a variety of factors including:
- Ease of access and distribution, especially mobile
- The scale of content through the creation of original and differentiated content and aggregation of 3rd party content to cater to all preferences
- Use of technology to create targeted and personalized experiences for each user
- Creation of interactive tools for the creation and distribution of crowd-sourced audio content — which is a step towards becoming a true platform
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.
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.
Supply-side megatrends: digital experiences and content wars
On the supply or competitive side of the audio landscape, it is observable that:
- Optimized digital experience and distribution are table stakes, and
- 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
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.
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.
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.
- 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