Digital Audio Continues To Grow Despite Pandemic Headwinds
Not many people expected that digital audio would reach new heights amid the pandemic. After all, consumers most often listened to podcasts and online radio during their commuting hours. But commute or not, consumers are still listening. This was showcased best this week when the major digital audio players of iHeartMedia, SiriusXM (owner of Pandora), and Spotify released their Q1 earnings. In those earnings releases, we found that:
- Podcast advertising is fueling digital audio’s growth. Digital audio advertising, and specifically podcast advertising, is growing quite impressively. Spotify’s revenue grew 22% year over year, to €2.1 billion — largely led by podcast and programmatic ad revenues. SiriusXM’s ad revenue grew 24% in Q1, “driven by robust monetization of both on- and off-platform opportunities, as well as the growing podcast market.” And iHeartMedia’s podcast revenue also notably soared 142% from Q1 2020.
- Growth in digital audio should continue. The earnings calls all cited positive trends as it relates to growth in user bases, improvements in hardware like smart speakers and headphones, and the growing interest among consumers, brands, and social media platforms around live audio.
- The major audio players are stepping up to satisfy advertiser demands. Advertisers have been hesitant to invest heavily in digital audio due to lack of measurability, innovative ad formats, and programmatic options. But that’s due to change. iHeartMedia and Spotify have focused more on new ad formats and better measurement and targeting. Spotify has continued to build out its Ad Studio and Streaming Ad Insertion products, and iHeartMedia recently announced a private marketplace just for podcasts. We believe advertisers will grow increasingly comfortable investing in online audio because of these changes.
Scaling Content Will Be The Next Big Challenge
These three companies — iHeartMedia, SiriusXM, and Spotify — are all now focused on growing their respective creator bases. This shift signals that supply isn’t necessarily keeping up with advertiser demand — and that all three may be forced to make costly exclusive content acquisitions to keep consumers and advertisers happy. Digital audio players will face three big content challenges:
- Live audio. CEO Daniel Ek redirected when asked how Spotify would incorporate live audio into its broader audio ecosystem: “It really comes down to creating compelling content.” This indicates a strategy heavily dependent on exclusive and original content that keeps listeners engaged, rather than creating just another Clubhouse clone. Competitors iHeartMedia and SiriusXM have thus far shied away from building out live audio offerings, despite both citing live audio as a trend contributing to the growth of the digital audio space.
- Scaling partnerships. An easy way for these players to scale their supply of content is through partnerships. Sports partnerships look to be the new big thing: iHeartMedia touted its multiyear podcast partnership with the National Football League; SiriusXM similarly promoted its deal with Major League Baseball. And Spotify also recently announced a partnership with FanDuel for sports betting on its network The Ringer. All three audio giants indicated there would be more content deals to come.
- Premium content subscriptions. Digital audio players typically generate revenue from advertising and/or subscriptions. On the subscription side, there has been interest in creating premium content subscriptions where consumers pay more for better or exclusive content, as Apple and Spotify have recently done. But how many subscriptions will consumers actually buy? SiriusXM CEO Jennifer Witz highlighted existing capabilities within Stitcher that are available if they needed to jump into premium subscriptions but remained skeptical of consumer interest: “I’m not optimistic that consumers will want to have a lot of micro audio subscriptions. But if that’s the path we see evolving, we have the opportunity to pursue it.”
If you’re interested in more audio coverage, check out this blog with links to all our latest research. And if you have any questions on the fast-moving online audio space, feel free to schedule an inquiry with us.