Listen to the Sound of Income

While it has been quite some time since I have been in a movie theater, the remembrance of sitting in a seat waiting for the show to begin is something that sticks with me for the simple reason that (1) when going to a theater with general admission I would generally get there sufficiently early such that I would be able to get a seat that didn’t put me in a spot where the sightlines were less-than ideal (e.g., off to the side or in a row near to the screen that would require an uncomfortable neck torque for a not-inconsiderable amount of time) and (2) theaters, which make more money off of concessions (i.e., pre-pandemic, theater chains made about 50% on the price of a ticket and 80% on the concessions, so if you want to know why that bucket of popcorn takes a bucket of cash to buy, there it is), decided that given the captive audience, selling ads to play before the trailers was a lucrative move.

You might imagine that because you are paying to see something specific (i.e., the movie) you would not be subjected to watching something that the proprietor is making money on. To be sure, for years pre-movie there would be the cartoon of the hotdog, beverage and popcorn box strutting across the screen encouraging you to go get a snack, but it got to the point that you were encouraged to do everything from joining the Army to buying car insurance. And while those ads tended to be well produced, there are even those sold locally to plastic surgeons and car dealers that appear to have been shot and produced by someone’s Uncle Gus.

According to SiriusXM, “SiriusXM is unique because we stay true to the artists and their music by broadcasting 100% commercial-free music. So, unlike traditional radio, all of our original music channels have no commercials – ever!” However, elsewhere it acknowledges, “While all of our music channels are 100% commercial free, subscribers may hear commercials on some of the Sports, Talk and News channels.” That verb may, expressing possibility, is a bit of a dodge. What’s more, while the music channels are without commercials in the sense of things that are promoting the goods and services of a third party, there are more than a few interruptions on the music channels trying to get you to listen to the Billy Joel Channel or a special, limited-duration channel from some performer that you’d prefer Novocain-free dental work rather than listening to. What SiriusXM is doing is trying to keep you within its sphere so that it is going to make money from subscription renewals. Realize that they have built out an infrastructure (e.g., satellites, office buildings) that needs to be maintained, to say nothing of the contract with Howard Stern that is said to be worth as much as $100-million a year through 2025. You need a lot of subscribers to support that kind of outgo.

On February 22, Spotify conducted its “Stream On” event, which it describes as how it “is continuing to go all in on the limitless power of audio—the opportunity and the potential it represents for Spotify, creators, and fans everywhere around the world.

Included in the Stream On announcements were the Barack Obama/Bruce Springsteen podcast, “Renegades: Born in the USA” (isn’t that title a little bit embarrassing for the man who promoted The Middle?) and a partnership with Anthony and Joe Russo, the men whose Avengers movies were made all the longer by all of those ads that preceded them.

But wait for it: Here’s where it is all going to, as the company proclaimed:

“Over the last year, Spotify has made significant moves to modernize audio advertising. From the launch of Streaming Ad Insertion to the expansion of our self-serve ad platform, Ad Studio, to the acquisition of Megaphone, we’re committed to ensuring this industry reaches its full potential.

“Today, we announced an exciting leap forward for audio advertising, creating a path for creators to earn more for their work while delivering greater impact for advertisers.

“We believe that this space is primed for innovation as digital audio becomes an integral part of consumers’ daily routines worldwide. According to eMarketer, in the U.S., mobile time spent listening to audio content is now outpacing time spent on social media, video, and gaming.”

That’s right: prime time for advertising.

According to the Spotify investors’ letter published on February 3, 2021:

“We continue to lean into our goal of becoming the world’s number one audio platform through compelling new music and exclusive non-music content. As of Q4, we had 2.2 million podcasts on the platform (up from more than 1.9 million podcasts in Q3). Of note, 25% of our Total MAUs [monthly average users*] engaged with podcast content in Q4 (up from 22% of MAUs in Q3 2020). We continue to see strong growth in podcast consumption, with consumption hours in Q4 nearly doubling since Q4 2019. We have increasing conviction in the causal relationship between the growth in podcast consumption driving higher LTV [lifetime value] and retention among our user base.”

That’s a lot of available time to reach a lot of available ears.

After all, Spotify has to pay Joe Rogan an estimated $100-million, that takes a lot of ads.

As we come back from the lack of wide-spread live music, anticipate an increase in the number of monetization opportunities that you’re subjected to. Here’s a clue why this is going to happen. In reporting its Q4 financials, Live Nation’s indicated that its adjusted operating income showed a loss of $166.7 million for concerts, a loss of $73.7 million for ticketing, and losses of $1.8 million and $16.3 million for “other and eliminations” and corporate, respectively.

There was one bit of black ink: $14.2 million for Sponsorship & Advertising.

Count on it.

*In Q4 2020 Spotify had 155 million premium users and 199 million ad-supported listeners.

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