Good Investing Talks - How is Spotify positioned in the audio market, Jeremy Deal & Sleepwell?

Episode Date: August 25, 2021

The audio market might be the last untapped opportunity in social and the internet. Spotify is well-positioned to conquer it. Here we explore the audio market and Spotify's position in it.

Hello, audience. It's great to have you back on a YouTube channel. Today, we are having an episode on Spotify. We will funnel down to Spotify in this episode, starting to discussing the audio market. And I'm happy to welcome Jeremy. Great to have you here, Jeremy. Great to be here. You're currently in my yorker, so we see your thinker or what it is in the background. Yeah, a little family summer vacation. It's nice to be here. It's great.

It's always a work. Every holiday is a working holiday in this business. I hope you will enjoy it a lot as well. And we have sleep here, Sleepwell Capital. You know him from Twitter. In our episode, he's anonymous. So he'll be shown with this nice two animals that are sleeping. How are you sleep well?

Great. Thank you for having us, Tillman. I'm excited for today. It's great to have you on. I think you both are invested in Spotify, am I right? That's correct. Yes. Yes.

So we have done the disclosure with this. And I'm happy to start now with our conversation. Maybe let's start a bit with the whole audio option because I think to understand Spotify, we have to understand the audio market. And I have a list of things that are happening that are widening the total addressable market. of audio and music consumption. So let's brainstorm a bit about them. What are key drivers that increase the market or that has increased the market

over the last five to ten years in your eyes? Well, I can start by saying, just the introduction of streaming, finding a way like what Spotify did initially to resurrect the recorded music industry by finding a way to make streaming, streaming and unlimited streams, either ad-supported or premium subscription, so in a legal way. So that was probably the most significant step that's happened since the invention of the CD.

Yeah, absolutely. And on top of that, you have not only smartphones, but sort of a proliferation of devices, broadly speaking. where you can listen to music in basically any point in time and throw on top of that sort of the cherry on the top when it comes to the hardware, which are your AirPods and the ease of just putting headphones on anywhere at any time. And I think it's resulting in just an explosion of audio consumption that we've already seen and stands to grow for a very long time.

Yeah, and I would add to that, that mobile, the cost of data has come down significantly in the last 10 years. And so while maybe 10 years ago, the average household would be a lot more price sensitive to streaming audio what it would have cost. I mean, because of the prices come down so much, it's a lot easier just to stream something in your car and not worry about going over your limit, your monthly data plan. and what I would like to add and you also really see it in the background if you've studied it a bit I'm sometimes using my background to illustrate certain topics you see collection of headphones I have at home and it's all this I'm a bit of an audio nerd so it's not the natural headphone density you find in the household but like I've tried to collect all the headphones I found or all the headphones are found in my household and there are plenty of it usually get your headphones with every device when the interest

thing is you also get cable less. This is the cable of this pair of headphones. They connect with Bluetooth and like Bluetooth enabled so much in hearing audio content. It's so easy you can do it while you do the washing, the cleaning in your house. You can hear it with high quality. And also if you think about cars, what has changed there in your eyes? I think cars is an very interesting place to listen to music and audio in general because it's still mostly just traditional radio. So when it comes to the opportunity in terms of migrating from call it a legacy medium to an internet medium, car is basically one of, you know, one of those biggest places to go after. So I think I fully expect sort of that part of the market to be the last kind of domino

that's a fall and transition more fully into internet. Yeah, when you look at OEM, I mean, there's normally third parties that are supplying the hardware that goes into a radio system and a car or a audio system in a car. And a lot of these are built in, and the designs are decided many years or several years at least before the car is produced. So as an example, you might be buying a 2021, I don't know, let's call it Volkswagen, but the design of the audio may have been settled or decided in the bill of materials, you know, two or three years ago. So there's always this lag, at least there has been traditionally in a lot of audio systems. inside even the newest cars most cars today do allow you to connect to the phone but outside of besides that it's it can be difficult to stream and and like sleep said you just go right it's it's easy

to default right to the radio station because there is this process too to connect to the phone when you get in the car so not every system is designed for sim it's just very simple connection to your to your streaming account does any one of of your own sonos or other please to speakers? Yeah. Yes. In the home, yeah. At home, yeah.

Yeah. And I think they are five or ten years ago. They were the first of them delivered. And it's also a new format of playing music and hearing music. And I think what's also quite interesting, how did you buy your sonos or your headphones? There's, I bought mine D2C, so they were cheaper as in normal retail. It's also something that drives. consumption in the long term like the cost going down there and what i also find interesting if you

think about paying for streaming services there's still a huge population where our cash societies still persistent sleep you have the background from latin america it's uh it's going more and more banked and digital payments or yeah i think that's for emerging markets that's definitely an important factor to and kind of an obstacle when it comes to the adoption. And one reason why in many cases, you know, companies like Spotify partner with the local telecom companies that are already, you know, already have the user captive and, you know, already have some billing established with them. But, yeah, that's another additional tailwind in specific to emerging markets as more and more

and more people become either banked through the traditional means or through some of these fintech companies that are also growing a lot in these markets. Tillman here. I want to invite you to support my work. Below, you can find a link to the thank you page. Just click on it. There you find ways to support me and allow me to produce further create videos like this on my channel. Thank you. And you both studied, I think, TikTok and Peloton as well, while you're researching Spotify and music consumption patterns. What is happening there? I can, I mean, well, at least from a music or audio perspective, it's just another just

different forms, different avenues, different distribution channels for audio asset owners to be heard. it's another channel, it's another playlist. TikTok, you know, again, these two companies have only looked at from the perspective of audio, and it's obvious with Pelton, you want to get on a list, maybe listen to a podcast or music while you're working out, but it's just while you're working out. And then TikTok, you know, you can see that when creators

or when people put short-form videos, maybe they'll use 10 seconds or 15 seconds of a song in the background or they'll make a short dance video with a song and with a clip in the background. But where I'm less familiar with is how that actually works is to trigger royalty stream. I know at Spotify, the song has to be streamed for at least 30 seconds to trigger a stream. And so a lot of these clips that I've looked at on TikTok are less than 30 seconds. So maybe it's also an avenue. for an artist to get heard. And hopefully, you know, one of their songs goes viral

because somebody's watching a TikTok video. There's a recent famous story of a skateboarder guy that kind of, I don't know if he's homeless or almost homeless or maybe he looks homeless or something, but he rides around Venice Beach. And he was holding an old radio, and there was a song from the 70s. There's like a Fleetwood Mac song playing,

and it went viral all of a sudden. so a lot of, you know, kids that had never really heard Fleetwood Mac all of a sudden downloaded the song or went to listen to the song and it was the most listened to song that day or something like that. And I don't know if Fleetwood Mac then gained a bunch of new audience, but, you know, new super fans, but it's a way to get your song out there and get played. So I see it. It's just a different distribution channel. Do you have something to add sleep? Yeah, exactly. I think those are all, you know, very valid points. I think the only sort of point I want to make clear when it, when it comes to TikTok and Spotify, because they do

sometimes get, you know, kind of put together in the same bucket. And some people may even consider them competitors and we can get more into that a little bit later. But to me, they're both are extremely good at discovery, right? Like that's, that's, that's, that's really the, one of their biggest value drivers when it comes to, to, to, to, to music. And TikTok is, is well aware of that. And obviously Jeremy just gave a very good example of that and there's there's tons more. So that's a big focus for the industry right now in terms of, you know, the impact that social media has and the importance of, you know, targeting and putting putting money and thought behind your social media strategy. But I see them as complementary products. I don't think TikTok is an audio first product in any way and I don't think anyone would say such a

think so. Right. I mean, if you are a manufacturer of some kind of food, you know, packaged food, you're going to probably try to sell that package food in gas stations. And that gas station doesn't really compete with a Costco or a big wall, like a Walmart. But you probably want your products sold in Walmart grocery store and the gas station and the mid-sized grocery store and even online. So TikTok is just another channel. It's a very different product. It's not where people go specifically just to consume music,

but it's also a place where you'll hear music. You hear audio everywhere. So it's just another distribution outlet for audio asset owners. Another interesting point that I would see as a tailwind as the create economy and also the ability to create that is getting cheaper. headed with TikTok and they are also professional tools that are getting cheaper sleep you have certain insights in the music production how is it there yeah absolutely so i think the there's a couple kind of points to make to put what has happened in the past 20 years into perspective right if you

think about being what being an artist was like in the in the 1990s i mean you not only had to go to a recording studio, which was very expensive and higher musicians, sound engineers, producers, et cetera, but then you needed to find a way to manufacture these CDs and put them into stores, right? So obviously, all of this has changed meaningfully. And there's also the additional fact that, you know, the promotion and marketing part has changed a lot. Nowadays, anyone can basically record their own, their own, all the on their house by just setting up a home studio, which is not really that expensive. And then you just go and upload your songs to all the streaming platforms via an independent

distributor. And you can basically market your songs using social media and things like that. So the roles and the barriers to entry have completely collapsed, which means at the same time, there's more competition than ever. Right. I think the latest that we heard from Spotify is there's over 50,000 songs being uploaded daily or something insane like that. And yeah, something like that. So it's it's millions of artists that are that are on the platform nowadays. But it also means it's it's much harder to get heard. Right. So there's obviously different different kinds of artists. And some of them may not see themselves as as having a, you know, a full time job or a. career in music but in in general it's good in terms of of being a creator how how easy it's it's become to to to pursue your you know music as a passion or as a career but at the same time you you know it's become a lot more competitive so it there's a lot of additional effort and and

work that you have to put behind it jeremy you can underwrite this statement that's getting less and less friction less on the podcast sector as well because I think the reason why we do this interview here is discovered your podcast where you're talking about advertising and the chances that come up for Spotify. I will link it above. You also started a podcast. How easy was it or how hard was it? No, I didn't start a podcast, but I have been on a few just as an experiment and it's a way to maybe talk through different ideas during the pandemic. And, yeah, it's, there's, on the podcast side, it's, I mean, that's its whole, that's its own topic. I mean, there's the number of podcasts that are being created, back to what Sleep was saying.

I mean, the number, I think Spotify had 2.5 million or something as of last quarter, but I think, this number is going to grow exponentially. There's, I think, there's no cost to produce a podcast within, you know, no material cost. And so you're just going to have anybody that's interested in or has a voice or has something to say or could potentially attract an audience. It's going to be an, there is an explosion in content. It's kind of the golden age of audio creation. And so that that will result in some really interesting monetization, some ways to monetize that. I will show some charts in a few on this. Another point I want to add is also, that's also my bridge to the music industry.

That also, like you already mentioned Fleetwood Mac, that are songs kind of remastered. You have like Dolby Atmos, for instance, as a technology or Sony 360. I will link above a video where you can hear. the difference between the different sound settings because they offer a more joyful experience if listening to music. But with this point, I want to, do you have anything to add on the tailwind side? Is there any tailwind we haven't discussed? The tailwind for audio in general?

Yeah. Well, I mean, it's, it's, it's not only it's just, we're just now seeing the number or just this sheer amount of audio coming to market, the technology to monetize it is also very new. And the way that we're going about monetizing it is very different from the way other types of media have been monetized. And so there's like a double opportunity here that's happening really, really quickly, which is tons of audios coming out. And it makes, people, it makes, it makes companies like Spotify valuable because they're an aggregator. But then, that's just not, I mean, it's more about what they do with that information and how,

what is Spotify as a tool then to be used by these, by all this content that's coming up, that's coming to the market. How is it, how effective of it as a tool? So not only from a consumer perspective to find what you're looking for, but from the creator, perspective to make sure that you can actually at least get positive or negative feedback and potentially live off your live off what you're doing if you want to do it full time. So there's just so much happening and we're probably going to get into later. It's been it's somewhat of a forgotten industry as an industry in consumer tech that and at the end these are somewhat borrowed ideas from other podcasts that I can cite and different

research of different people I've listened to over the last, you know, a couple of years of owning Spotify. But it's just, it's been an industry in a sector audio in general that hasn't been a lot of venture capital. And I think people just felt like streaming, enabling streaming was sort of the end. And now it's just about trying to grow subscriptions and move away from radio and moving the ad dollars

over from radio to streaming. And that's definitely, that's not right. I mean, we're in the really, really early phases of just I can get an explosion and audio all around. Yeah, that's an extremely good point, Jeremy. I think when it comes to, especially my thesis on Spotify and just the music industry and audio in general, I think there's the fact that I have a strong belief

that this industry is going to be much bigger than most people imagine. And in many ways, it's, you know, It's very much related to what you mentioned in terms of monetization. And, you know, on average, people listen to something like four hours of audio per day, right? Half of that being on radio, which is still yet to migrate over to the, to the internet. And it's billions and billions of people that the market is, you know, that the market is, that's the market, the market opportunity, right? And then finally, I think the other point to make, which Daniel Leg has talked about this in different points,

time is the monetization gap between music, audio, and the other sort of media forms like, you know, video, video games, social media, it's orders of magnitude of the difference there to kind of work to close that gap. Probably not completely because it's still a more passive kind of media consumption type, but that I would argue the difference is way too high at the moment. That's right. And I put this in my half-year letter that the recorded music industry global value is something like $31 billion, and that's in revenue. And I know that doesn't include maybe all pieces of audio in general. But to think that even after the enablement of streaming, that it's so small, and I cited in there that it's the size of the global banana industry.

And podcasting is even where, but just go back to audio, to Sleep's Point, I read a statistic, and I don't know if any of this is how accurate any of these statistics are that are out there, but something like the average human being on Earth consumes 3.8, you know, adult consumes 3.8 hours a day of audio, and that could just be you're in the store and there's music playing and it's subconscious, where you're in an elevator and there's elevator music, or you're actually listening to audio of some kind, including TV or, whatnot, but 3.8 hours a day, and you have the recorded side only worth 31 billion, more or less. And that was the former, who put that stat out, was the former economist of Spotify, who has a

blog that goes through, he goes through a process of recalculating what the actual value is versus a lot of the values that are put out there. So, and then I also made the comparison of podcasting, ad revenue of somewhere between 800 million and a billion dollars for this year or maybe last year is the size of like the disposable plastic lighter industry. So if you think about just how much engagement audio has in the average and how much engagement there is with audio, it does, I think it's very obvious that there's a big gap to be filled here. The addressful of market should be much bigger and and will, I think, be much bigger.

What are your hypothesis or your numbers you estimate this, this market could be worth or big in 2030, for instance? I think it's a mistake. So I haven't gone down that. Sleepwell, you may have gone down that path. I haven't thought about it too much because I think that it's just too early to, I just know it's much, much, much, much bigger. I don't know how it's going to unfold. And I kind of thought about, you know, if you looked at Microsoft Windows back in the early 90s and tried to come up with the addressable market, or you tried to put your finger on what's the streaming addressful market.

You know, what was Netflix addressable market 10 years ago? And all the sell side would say, oh, it's only a few billion, or we'll never have, you know, everything will never transition off of paid TV, you know, cable TV. And it's when it does transition, when these big transitions happen, And they just happen so, so fast and with so much strength that tons of new business models are created on top. And that's where the addressful market just explodes. And that's why it's really, really hard to imagine. I also made the point in my after a letter that, you know, the e-commerce is still creating,

there's still new business models coming out of e-commerce all the time. And I made the point that, you know, Shopify has added something like 100, billion in value just in the last three years. And I don't think that was ever a part of anyone's forecast of the addressable market or the, or the kind of outskirts of the addressable market that would be created as a result of e-commerce, you know, even 10 years ago. So it's a, it's just big. Yeah, you know, it's one of those things where you can't really put a number to it. And there's definitely people that have tried and I've seen numbers thrown around. around the area of 200, 300 billion in 10 years or, yeah, 2030.

But to Jeremy's point, a lot of these markets are kind of being created in front of us right now. And there's no, there's no really any comparison you can make to it. I like to also make, you know, the Microsoft comparison is a good one, Jeremy. The other one I'd like to go back to is when Google IPO, a lot of people thought the opportunity they were going after. was the newspaper advertising business. And imagine how wrong you were if that's what you were focusing on. In fact, it was much, much bigger than that. And it was really, you know, a global opportunity that it was also much bigger than anything

that existed before because it was, you know, it's a completely new media format and much more higher kind of ad efficiency and things like that. So I think that's an interesting comparison to me. as well. Yeah, and just, and what I do see people try to do is calculate the addressable market of the subscription side of music. So how many subscribers could Spotify have someday? How many Apple subscribers will there be and how much will they pay and they multiply that together and discount that and say, well, that's the addressable market. Well, that's completely wrong. I mean, that's kind of almost an opposite thesis of what we're, I think, what we're talking about here as far as

understanding what's possible in music and how to think about the addressable market. The fee you pay every month, let's say in 20 years you're paying something like, you know, $25 a month for a premium Spotify subscription, and then they say they'd have a billion subscribers or something, that's not really, I mean, that's great that that's happening, but what the opportunity is in the addressable market that comes out of the tools and the models that are built on top of these rails that Spotify is created. Yeah, it will be a lot of, I think, incremental revenue that will sit on top of that base subscription. When you think about things like monetizing super fans and things of that nature, it's just going to grow the pipe much more.

In which part of the inning for switching to digital are we in the audio space? I mean, it's definitely early. I would probably say, I would probably say the third inning, maybe. Yeah, I would agree with that. I mean, people are aware of streaming, and I think most people, when I travel to emerging markets, I was just in an emerging market a couple of weeks ago, and I met this little kid I was sitting next to, and I don't know, he was probably five or six, and he was streaming Spotify. And it was Spotify for kids, and it was on this kind of bigger, like,

iPad that was sitting inside of a, like, almost looked like a bulletproof case, you know, so it could be thrown across the room. And it was in his language. And I just thought, wow, there's just, so the awareness is there. But I would be willing to bet when that kid gets into a random car with his grandma or his aunt or whatever. to go somewhere that there's radio in the car going on or you know or when he's at school or at the supermarket it's it's it's not unnecessarily always streaming happening so it's hard to say people are aware of it but just haven't fully converted yeah I mean if you look at the numbers there's roughly 440 million subscriptions when it comes to to music and there's three

and a half or so, billion smartphones, a number that's probably going to double in the next 10 years. And music is probably the most kind of universal media form because, I mean, it's pretty well known that everybody literally listens to music now. What does the end state look like? It's obviously hard to say, but directionally, you know, Daniel Lake has talked about the opportunity left being probably seven, maybe as high as 15 times of where we are now. And it's obviously going to be a combination of subscriptions with that supported and maybe new formats that we haven't really thought about yet. But it's clearly much, much bigger than where we are now. So the tailwinds are very strong. You already mentioned the radio market. How much better

can a digital experience be instead of hearing radio? Well, on demand is on demand. That's just instead of listening to what they want you to listen to, you're always listening to what you want to listen to. And that's fundamental. And that's probably the fundamental difference. It's the same with smart TVs and streaming TV content. You don't wait until the new episode starts at 6 p.m. You just kind of watch it when you want.

It's the same with audio. and that's just on the entertainment side. There's another side of this around search and discovery of data inside podcasts, audiobooks, things like that that'll be layered on top, but just on the music side, or I guess in general, it's just on demand. And that kind of experience is you just can't replace it. Yeah, it's vastly, it's vastly, vastly superior to whatever linear has been offering for the past, I don't know, 80 years or something,

but in many ways it's similar to what's happening with video, where I think audio is a little bit more, you know, it's a little bit different. And companies like Spotify can make a big difference and have an advantage is when it comes to personalization. And that's another feature that I think on demand is going to be a much better experience than linear because if you have if you're using a platform that knows you intimately well and knows exactly what you want to listen to at different points in time it's not only about you know selecting that specific episode or artists that you want to go to sometimes you're just going in and just put on what you what you think I want to listen to because I trust this platform to to know that and I think that's what they're striving for

really. Right. The personalization is really important, and I think we're also in the really early endings of understanding how important that is, as more and more content is put out there and produced, whether it's talk or music, the more important that discoverability is. And the winners are going to be the companies, we hope Spotify, is that, or one of them, that can build the correct personality profiles on you that continue to build and grow on top. So what we, in a perfect world we'd love to have happen is Spotify to have, you know, those capabilities similar to how you'd think about Google search, but search in audio. And so why is there really no competition for Google search?

It's because of their algorithms learn on top of each other. So every time someone uses it, it gets better. And so as people use it, it exponentially gets better. So it's not just somebody tweaking an algorithm in the background. And so the ideas in audio, the more people are using a platform like Spotify, the more the algorithms can learn and grow based on your personality and understand what you might be interested in hearing or researching based on like sleep is saying what time of the day it is for you what what you know they can tell if

i guess apparently if you're having a they have breakup music so they know if you're broken up or or you're at the gym or you're traveling and one of your and somebody you've listened to is playing a gig and and the town that they that they see that you're in so as that grows it's it's moving away from just simply streaming but into the very uniqueness of the search and discovery features that is very much, again, unique to the individual companies. So everybody will, you know, TikTok has a discovery feature and a way to grow. I'm sure we'll probably go into this little further on social and whatnot, but what they do with that information.

But they're all different, all these, you know, search and discovery is different to different companies because they are fundamentally really different. So I think these are points of differentiation, if you will. Not to overuse that word, but these are points of differentiation that create, they're creating more value at companies at Spotify in particular because of the personality profiles. I think they're building and focused on and that will become more and more interesting and relevant as time goes on. You already mentioned in newspapers. We will see radio stations and radio companies going the same.

way as the newspaper industry? I think we will. It's going to take time because, you know, certain habits are very hard to change. And, you know, Jeremy was talking about some of the things that come like pre-built on the car and things of that of that nature. And obviously it also skews to an older demographic that has basically spent their entire life listening to radio. So it's not going to happen overnight, but it's definitely going to be.

kind of a 10 to 20 year tailwind that's, it's just going to be grinding, grinding along every year and just chugging and taking market share from linear to on demand. Yeah, and if you look at what happened, there probably will be something that causes it to move forward really, really quickly. Who would have thought that the pandemic would have led to TV streaming, all this content moving from linear to streaming overnight? that was not slated originally to be moved over so quickly. You would have, you know, I don't know, HBO maybe had an app, but two years ago,

the executives probably never would have thought that it would all just instantly move over, but the pandemic eliminated sports, and so the cord cutting just became just accelerated, and that then accelerated the move of content, of mainstream content over, forced the hand to move content over. And so now we're in the process of the, you know, of the advertisers now following and trying to play catch up to where the consumers are or the eyeballs of the consumers are. So there could be something like that I would imagine in audio where it's just a slow, slow, slow move and then we wake up one day and there's one event or a series of events

and hopefully it's not a, you know, something like a pandemic. But it could just be the creation or evolution of technology and what I think, What I think it is going to be is something around the social, cracking the social media code and audio. And I think once that happens, which it does feel like we're closer and closer to that than we've ever been, once that social audio, or once that social audio code is cracked, then that could potentially move people much faster away from radio and onto streaming. Is there any other like this tracking of the code? already mentioned we mentioned the newer car generations that are running computers but it can

easily unlock streaming are there any other drivers in your mind that are interesting for the radio opportunity to become more digital for people just to incentivize people to just stop listening to the radio you mean yeah and switch to streaming i mean every i think the advertising part is is interesting, right? Because it's taking, it's probably not as fast as some people would have imagined, but it's obviously a much better ad targeting tool. It's much more efficient. You can measure exactly what your, you know, what your ROI is or much, much better than at least traditional radio and you're, you're targeting the exact people that you want to, that you want to target. So as more and more and more of those ad dollars move over to podcasting and and and streaming audio in

general you know that that probably that probably is an additional driver to from from linear to on demand that's a great point because the light once the oxygen is sucked out of that of I mean it's it's an advertising it's an ad business so um things will change and it'll the the companies will those radio companies will probably shrink as ad dollars go away. And it's going to bring better, it's going to be better creators to podcasting as well as the market gets bigger, naturally, right? And just from the consumer side, I mean, I don't know how many, in an hour of radio, how many minutes are, what percentage of that hour as you're listening to advertisements. But it's, it's just, it's unbearable. I would guess 40, 40, 50 percent of an hour.

I don't know, do you sleep? Do you know how many hours? hour, what percentage of an hour? I don't know if it's that high, but it's definitely, it's definitely like over a quarter. Yeah, yeah. And the ad loads are much lower in streaming generally because you are overall because it and because of the targeting. Right.

And so it's a better experience, just that alone, just on the free side, on the freemium side is superior from an experience, the consumer side so there's just there's just so many reasons i mean i cringe when i get it like in my real car here i get into it just there's radio playing it i just cringe it's just like uh i can't it's just how quickly can i can i connect my phone um so then again i've got a big bet on spotify so that's the subconscious you know what would be music to my ears if you subscribe to this channel can also leave a comment or like and there's this bell you can make it ring if i post a new episode so please click on it

after you have subscribed and for the ones who listen to the podcast there's always the chance to write a review so thank you very much and make it ring and make some music to my ears back to the video let's move on with the question that came from twitter over to the music industry at and realities, there was this question if radio stations have to pay for music playing or music streaming, I would like to say. And why not if they don't have to pay? Yeah, so I think the question was related to how much radio pays in terms of royalties to the rights holders versus streaming. I think it's important to kind of set the stage here a little bit. I don't want to get too technical here, but when it comes to music, it's obviously a very

complex subject, especially on the sort of the legal aspect of it. But, you know, broadly speaking, when you think about a song, we're basically talking about two separate copyrights, okay? You have the composition, which is literally thinking. about the musical sheet where you have the lyrics and the melodies and you know you can give it to to a to a professional musician and they'll just play that exact song that someone that someone wrote right that's that that's intellectual property right but that's one type of of intellectual property the other one is called the the master recording which is the actual recording that you

hear of a song so when when the artist goes into this the studio and and and records that song, you know, there's one version of that that goes out and is the one that's being, you know, played everywhere on the radio, on Spotify, et cetera. So those are the two separate IPs, right, that are associated with a song. In the United States, this, you know, there's a bunch of history and it's related to this, But for one reason or another, it happens that radio stations only pay the composition royalty, which is also known as publishing. They are arguing, you know, they've always argued that what they are doing is promoting the song. So they shouldn't have to pay the other side of the rights, which are the master.

and there's been a lot of battle back and forth on this, and it's been like that forever. In other parts of the world, the radio will pay, you know, for both sides of that IP. But in general, radio pays, you know, even those radios that do pay both of those rights, that, you know, the total payout is much lower. than a Spotify would, for example, because they also have, you know,

non-music-related content like talk shows and sports and news and things of that nature. So they've been able to negotiate those lower payouts in large part because not all that they're showing is music-related. And you also don't get to pick, which is, you know, when Spotify started kind of negotiating with the labels, they're licensing, one of the biggest, you know, I guess pushbacks from the, from the labels was that they were, you know, because they were providing such a superior product in terms of you being able to pick exactly what you wanted to listen for, that immense value meant that the rights holders should be getting a much higher payout than they

otherwise would if you would just, you know, go to a to a Pandora and put on a station, right? It's, it's known as as interactive streaming and I guess industry and the legal jargon. But it, you know, again, there is a lot of complexities to the legal aspects behind, behind all this, but this basically results in Spotify paying out roughly 65% of their revenues out to the rights holders. And again, this includes many intermediaries. And it's both the master recording side as well as the publishing. And you have a bunch of people that are involved in between the collecting agencies, you know, managers, the labels, the publishers, obviously the artists. But, but yeah, that's kind of how we got to where we are now and why those two are a little bit different.

Yeah, and I'll just add that there's always confusion around the artist. and how much they get of that 65% or maybe it's 70% or between 65 and 70. And look, if you're owned by a record label, if you are a famous musician who has sold your master, traded your master for a collaboration with a label, you're owned by the label. The label determines what percentage you get. and I believe it's somewhere around 10% of what they receive they give to the artist on average. So the artist, if the artist was completely independent and completely detached or unconnected to a label, so it's completely self-published, which probably isn't realistic for a famous up and color or somebody that's really big.

But let's just say there was no intermediary involved, you would be getting maybe a 6x, payout than what you're getting now. And that's meaningful. So it's not necessarily up to Spotify. Spotify is not determining how much the, you know, they don't determine how much, for example, you two gets per stream. That's whoever, I don't know if it's Atlantic records or whoever the, that's who determines it. It's not, it's not Daniel X saying, oh, okay, I think we can maybe afford to give them a little bit more, a little bit less this year. And so from the streamer's perspective, it's, I mean, they're, you know, 70% or whatnot is 65% is, I mean, I think that's a fair margin. And I don't see that changing dramatically, but how that plays

out within, who gets what within that 65% will probably change over time. But the value is less interesting from an artist's perspective to fight over that. Let's say you kept even all of that, right? Let's just go back to the self-publishing and let's say in a dream world you were with one of the big labels and you got to keep 100% of your streaming revenue. Well, is that really that interesting? No, not really. What we're really playing for here is an explosion in the addressful market of audio and connecting with your super fans and building your brand and monetizing and monetizing your brand in ways that was never possible before. So streaming in a way becomes your cack, becomes your customer

acquisition cost in a strange way. So it's just sort of, okay, great, we have a positive cack. And that's nice, we don't have to necessarily, we have something that people can hold on to, but it's just a mechanism to start to be able to build

and identify your super fans to then go monetize in totally new ways. And I think this is where radio falls short because once a musician realizes they can make 10x or 20x more than they've ever made before in the future with using tools and using the discovery tools and whether it's advertising, whether it's helping funnel sales of different things that the artist wants to,

whatever can be created. I mean, kind of the sky is the limit. It's not just, I think this goes way beyond, you know, concerts. the stream is is immaterial at that point just like yeah whatever we got we got a check in the mail i mean you think about art like these art these actors that still get paid a few pennies every time an episode airs of it something they did in the mid 90s and they all add up to you know something per month but that's really not necessarily how they're all looking to to expand that to go from making, you know, five cents per rerun to 30 cents per rerun. I mean, their, their earning power,

if you will, is, is in their brand and they're, and how recognizable they are and how famous they are. And then whatever they can decide to do with that. And I think it's similar with, with the future of musicians and podcasts or, you know, talk radio as well, is the stream is just, it's how we got started. So let's move over. You already built the bridge. to the music market. And their investors talk a lot about labels. So what functions do the label play for the music industry and how has it changed over time? Yeah.

So, you know, I briefly touched on this when I talked about kind of being an artist 20 years ago versus today, right? There's basically every traditional function that a label will do in the 1990. you can replicate on your on your on your own today in some form or another at very low cost now that doesn't mean at all that the labels have lost their place in the in the industry actually the way that I like to think about it is it's it's one of those kind of first order versus second order thinking right the first order way of thinking is oh wow it's it's the easiest time in history to put out music, right? But the consequence of that is that you have thousands and hundreds of thousands of artists

nowadays. So you need someone to help you out and stand out, especially if you want to break and kind of be a superstar, right? So that's when the label's really, really come in. And the, you know, when you think about the different things that the label, the labels do. Some people think that they just, you know, that they just give you an advance, so they're capital kind of capital providers. And that's where their role stops. But, but I would argue that's probably the least meaningful part of the value that they're adding, because, you know, money is, is a commodity, right? Like if that's all that they were doing, you would just turn around and go to a bank or, uh, or an investment company and, and ask them

for something similar, right? But obviously they are, well, first of all, they're the experts on kind of calculating these risks that they are taking when they're financing new artists. And it's a very risky, you know, it's a very risky endeavor, right? Like I forget exactly what the statistic is, but it's probably five to 10% of artists

that actually ever become profitable for the labels. All the other ones they lose money on, right? And those more than make up for the rest in a similar way to a venture capital model. But once an artist is signed, there's a lot more things that start taking place after the artist is brought onto the label. There's, you know, they come in with a project in mind and a collection of songs call it. But they have to, you know, from taking those songs and actually coming up with a finalized commercial product takes a lot of people that are get involved in that. Not only when it comes to, you know, going to the studio and producing the the songs and the albums, but there's there's a lot of, you know, concept that goes into each artist when it comes to their, their art, their brand, all the videos that are associated. to, yeah, to build, basically to build their brand.

And after these songs or records are put out into the world, the labels just stand, you know, they have the best position to push those songs and get them to the right listeners on a global basis, right? Because if you're an artist, you want to be heard by as many, people as you as as you can and it's it's really hard to do that if you don't have you know both enough money to to promote your your music but also kind of the logistical and and and the and network of people that is required to to to be to be listened to right so for example i could be i could be putting out a song tomorrow and let's you know let's say i live in miami and and i'm

sort of going after my fans in in miami but what if my song happens to be you know really really popular in in germany where where you are tillman right so if i'm signed to a label the label is is going to just call their local office and start pushing for radio time for playlist i'm going to get interviews with the with the local tv and the and the newspaper and a blog and things like that so There's, you know, it's a very logistical and there's a ton of work that goes, that goes behind a musical project of that, of that nature. And that's only on the, if you think about it, that's only the, like the sound recording, right? On top of that, you have things like merchandising and touring and all these other sort of revenue streams that are part of the job that, you know, that are super important. And at the end of the day, most artists just want to be spending time either making music or recording music or playing music.

Like they don't want to be, you know, having the headaches of having to deal with lawyers and business managers. And that's not really their focus the majority of the time, right? Yeah, and I would also add that there's more and more options and more places, more ways to distribute music than ever. Like we kind of were hitting on earlier, you're going to have. have to be on Spotify. You're going to have to be on YouTube. And then you're going to have to have some strategy to try to get your music attached to different advertisements and different branding or commercials or Peloton. And if you look at kind of the modern, even the modern music label, which is more like being maybe like a representative or something or like an agent,

like a talent agent maybe for actors. Even that is, It's not easy. There's a reason why, you know, I wouldn't know what to do. I mean, let's say I had a band and I know there's all these different ways I could potentially build a fan base, but I wouldn't know where to begin. And so the expertise inside these, whether it's the big label or even the more modern, quote modern labels like a believe in France, it's still a lot of work. And there's some economics that are that are deserved there, whether it may not.

not be owning of the master, maybe it is. But, you know, I think on the low end, it's 10% of revenue, but you're on the high end, it's whatever is negotiated. I don't think these 360 deals are being done anymore. But it's, it's, yeah, it's quite a lot of work. And what you're seeing, you're seeing a lot of money going into music, rolling up music catalogs and music. And one of the reasons, you see even Oak Tree is financing. There's, there's, There's several bigger private equity funds going into this and rolling up music rights. And it's not just because multiples are high in the market and they're hoping to go public. It's really because there's never been a bigger spread between what people earned in general and what is really possible.

And so, you know, you may have an artist who can't tour anymore and they're kind of near the end of their, you know, maybe they have died or maybe the heirs own it. Or maybe they're just can't tour anymore and they just, it makes sense to sell for some multiple of revenue. But the reason that somebody else can buy it and make money with it is because they can figure out how to, it's like the early days of the internet. You could figure out how to get on, you could rank on Google, you'd pay somebody to help you rank on Google search. It's kind of like that.

I only imagine a Google search situation across, you know, for many different, many different avenues. So it's a very, very rapidly evolving space as far as monetization is concerned. And you're going to need somebody in the middle if you're going to be serious about your work. And I've come around to kind of believe that, yeah, there's going to be a different deal for different artists. There's going to be rappers that come out, you know, and they self-published in the beginning, but they're going to need to hire somebody to help them move along because You can't build a multi, multi-million euro brand just in your garage. You can get started and it puts you in a much, much better negotiating position if you already have,

if you've already had millions of people listening and loving your music, but you still need help. And it's not just somebody to book your tour. It's more than that. So there's value for even the old labels, but I'm sure that they are pivoting and changing very rapidly internally as well. the old way that they used to make money has evolved. I mean, they're no longer stamping CDs anymore, but that doesn't mean that they are melting ice cubes by any means. Yeah, it's incredible how they've been able to adapt to all these changes that have taken place, right?

I mean, if you think about how devastating it was for the industry in the mid, sort of mid to late 2000s, when piracy hit, it's pretty incredible what they, how they were able to kind of navigate through that. I think kind of adding on top of what Jeremy was saying, it's pretty instructive to, you know, just look at the data when it comes to, especially being a superstar, because I think it's important to separate different kinds of artists.

And not all artists want to be superstars, right? But if you want to be a superstar, you know, the top 10, top 20, they're all signed to a label. And take a look, for example, at Taylor Swift, who's been one of the most kind of vocal and, you know, she had this whole drama with her masters and her previous label. And like, you would think she's the first artist who kind of just, or like the main artist that you would think that would kind of go out and strike on her own. But she turned around and she signed with Universal. So that already by itself tells you the fact that Universal is, you know, adding a lot of value. to her, to her career and to her life in, in general. Now, she obviously got a really good deal.

She's going to own her masters, et cetera, but she's still, you know, she's still with, with, with a label. Now, what, you know, going back to that comment, I, I just said in terms of the different kind of aspirations that artists have, the independent market is, it's probably very appropriate for, for an artist that may not want to be a global, superstar and they just want to kind of do their own thing on their, you know, what they call do it yourself, the do it yourself route and, you know, maybe have three or four cities where they have most of their fan bases. And thanks to streaming and touring, they can probably make a decent living out of something like that. And I think that's actually another interesting

opportunity for Spotify to kind of give the appropriate tools to those kind of artists in the future. How important are labels for organizing the production of high quality music and organizing the vision of labor in the music production market and give a certain planability for this? When it, I mean, when you think about so superstars, right, like just pop music in general, and you can broadly expand that to other genres that have basically become very global nowadays. hip-hop and reggaeton and things like that. You know, again, the top, call it top, top 50 or whatever, however you want to segregate that, the majority of that is signed onto a major label.

And it's probably not only related to the quality of the production that these recordings, you know, are, are going through, but much more related to, you know, the brand and the capabilities of putting out that record on a global basis, which takes a lot of, again, a lot of logistical know-how network, a lot of money, and there's an image that's always associated with most of these most of these superstars, right? And that image takes also a lot of, a lot of time, effort and money to build, not to mention, like, how much something like,

you know, like a Duolipa tour would cost, right? Like you, these are very, very high budget and, and complex, you know, organizations that take care of things of, of this nature. So again, in that part of, of the, the of the market, the labels are very important. Well, and also as the tools, the digital tools grow and explode, you're going to need help.

You're going to need more and more help. I mean, I could see a whole team dedicated to a superstar just focused on tools of the top three DSPs because the sky is the limit on a lot. I mean, just looking at the top 10 or five or 10 Spotify tools. that exist just today, and those have evolved enormously just in the last year, I can't imagine the combination of things you could do. It's just kind of like whatever you can create, whatever you can dream of. I could see somebody at a label whose idea is to dream up ways to promote XYZ person. And it starts with identifying the superfan and the traits of the superfan,

where they are, what other things they listen to, how they listen to it. And let's say they knew you can find information like, well, this is the demographic of the superfan, just name a demographic of a person in this part of the world, and they generally listen to it, why they're, just before they go to bed, or just when they're in the gym, you could organize all kinds of promotional tools around those, around that, around that knowledge, whether it's deciding to, I don't know, hey, this is some up-and-coming artist, and, you know, he's, and you know there, everybody listens to it at the gym. And now he's, he's going to, for his super fans, he's going to talk about, like, his favorite workout. And then maybe even sing

something, or it's going to be, right, hey, maybe we should have him, her, play some music at home and have everybody vote on what they liked, ask me anything, scenarios. And it just goes on. It's whatever you can, you can kind of think of. And so as these tools grow and grow and grow. And there's more things that they're going to say, you know what, I think we could sell in that, Jim, maybe we could sell Jim, maybe this wrapper, because right now, you know, you hear about some of the big wrappers. They own a steak and, and vitamin water. I forget which rapper owned vitamin, own like a steak in vitamin water. And he may, he had like, you know, 10 or 20% of vitamin water. When it sold to Coke, he made hundreds of millions. And you see these,

every now and then these, these people get involved. But imagine that times a thousand because there, there's something that you could be a part of as an artist, a promotional deal that you never would have been able to think of before because it didn't require you to be the biggest and the best. Or maybe it, maybe it is for the biggest people, maybe the biggest stars, the superstars. It's instead of just being involved with vitamin water, it's involved with 20 or 30 other things that are unrelated and don't compete with each other. So as these ideas snowball and grow and the tools to become, just to make so much money with your brand. It's all about building the brand equity.

Right now, the equity of these brands is just zero. Everybody's focused on the streams. The streams is just kind of the only thing that's really been there before. But the stream is not what's interesting. The stream is not what is, that's not really what we're talking about. I think it's the, as these tools to unlock the industry evolve, I think the hiring profiles at the big music label labels will. be more tech-type people than or ad tech or or you know the types of people that they hire

will evolve but it's kind of like McDonald's becoming healthier over the years they just adapt to the environment so do you see them also in the third or early ending of the transformation to digital the labels or what is your take on the digital state of labels I think they're very aware you know their shareholders in Spotify, they were part of the starting, I mean, they were part of the original group that set around on a table, as far as I understand it, sleep, you may have more on this. But the way I've heard the story told is that Daniel Eck, you know, got everybody in a room, and they agreed on a deal, and they were all kind of partners in this, which is part of

the problem now, decoupling away from these original partners as far as the original economics. And so that's another topic. But I think that they are very, very, very, very aware because, you know, their revenue had gone. I mean, they were willing to try anything is the way I understand it. I mean, they were getting crushed by pirating and they said, okay, well, let's give this a shot. And then it worked. So they know what's there. They understand what's happening. And from the interviews we do and conduct with industry, you know, people in the industry. You know, they're involved with Spotify and all the DSPs are really involved with the music labels and meet with them sometimes every day. I mean, they have teams, they have they have a

group at Spotify, the way I understand it at least, that it just meets with the sign to different people at the different labels and they just are have open communication and their job is is just that. So I would imagine they're very much on the, on the, you know, aware of what's happening. Yeah, I mean, and the opportunity. I suggest anyone who hasn't, who has an interest on Spotify,

the labels or just the music industry in general, take a look at the presentation that Pershing Square Taunton put out on universal music. Obviously, we saw that announcement a couple of weeks ago. And, I mean, the whole investment thesis for the company is, is based off of, of streaming. So, I mean, that's their biggest, that's their biggest selling point.

And just, you know, going, going digital in, in general, right? I think at the, as it stands right now, digital, which includes obviously streaming ads supported and things like TikTok, Facebook, Peloton, you know, et cetera, that's probably around 60% of a label's revenue today with the remaining. 40% being physical sales and things like merchandising and other other revenues they get a little bit from touring depending on on the the contracts that they have with with certain artists but the majority of it is is already on coming from from streaming so that's and it also happens to be the highest margin business right so that's their biggest that's their biggest focus going forward

no no question with yeah we have the chart of the the revenue shares yes exactly so it's that's the global recorded music, right? And that's 50% of the revenues are basically coming from streaming today. Yep. I think in the States, it's actually closer to 80. But you still have, you know, a pretty, maybe not fair to call it too significant, but, you know, physical has actually leveled off a little bit. recently but you know it's not such a fast as such a fast decline as it used to be and you know

if you look under the hood actually things like like vinyl are or are growing in double digits if i if i recall correctly and then you have countries like japan where and i think actually germany tillman as well is it's still very big on physical people still buy CDs in japan yeah yep i've read some reason photos. I've read that too. So it's, um, it's, look, and there's a lot of things happening. I mean, I just zooming out, it's, it's easy to be critical on the labels for being big and slow.

But, um, I wrote out a timeline of just that, the, some of the Spotify tools that that have been, that I think of, I've been interested in just since I've owned the stock since late 2018, early 2019. And it's only been, I mean, a lot of the stuff that they're doing now, is very, very new, and you can't expect full complete adoption overnight. It's all very cutting edge, and it's all, I mean, I think it's important, and it shows the direction of where things are going, and it will be adopted.

I think you'll see the music industry, you'll see the big labels adopt more and spend money for these tools, but they're all relatively new, or they are new. I mean, there always were some kind of promotional tools out there. it started with, really, the first promotional tool was just the playlist, as far as I know. And once that playlist and that recommendation music, that engine was developed, it gave some, maybe some opportunity to put, you know, just put me some music ahead of others.

But it's only been recently that the real tools have come about. And I think that's what's growing exponentially, and why I'm excited about the company, because what people don't realize is how fast that's developing And what we could see is the music industry, you know, I think paying, rightfully so, to pay, to spend more money to grow in different ways that just hasn't happened before outside of, you know, beyond just streaming. With the returning growth we see on this chart, I have the feeling that there are also some new battle is opening up in the music industry. And there are some actors coming to the playing field like Pershings, where you already mentioned. And as investors in music, it haven't been there before.

We already mentioned the topic of songwriters versus Spotify versus labels or musicians versus Spotify versus labels. The percentage of what is going to the musicians is a battlefield. We have the streaming platforms versus labels a bit. What are the power games you're observing and how would you comment them as part of the new coming growth? And what kind of new actors have come to the playing field music industry? So I would say, you know, the biggest new actor that we've seen as a result of streaming is what is known as a distributor, right?

So you may have heard, actually Jeremy mentioned one a little bit earlier, which is believe that actually just IPOed in France. Some of the other more popular ones are CD Baby, TuneCore, which is actually owned by, I believe, and DistroKid. But there's a lot, right? So this is especially relevant for independent artists that obviously when some, you know, when you have a song recorded ready for commercial use, you're not going to go out and upload it manually into Spotify, YouTube, Apple Music. because there's hundreds of these called DSPs, right? And as an artist, you need maximum exposure. So what you do is you hire a distributor, also known as an aggregator, and you pay them somewhere around 10% of your revenues,

and they basically take care of putting out your music in all the relevant channels, the digital channels, and they also help you with, you know, collecting the royalties, et cetera. So that's the biggest sort of new player that we've seen as a result of streaming. And again, it's much more related to the independent part of the market, which is anywhere from a quarter to, yeah, around a quarter of the market with the other three quarters being part of the labels. And it is also just social media in general. I think the social piece of music is really early and may not be necessarily an obvious new player,

but anyone that can, I think as soon as the wheel starts turning on music becoming more social, and we can talk about that, just audio in general becoming more social, that audio code and cracking that audio code, there's going to be new players. and there's going to be existing players that become much more important, and there's probably going to be others that are less important.

So social and finding a way, you know, just anybody that can find new ways to help build a brand of an artist are going to increase in value and become more important. And those that don't allow, don't reduce those frictions will become less important. So as a closing question for the music and the labels part, before moving on to podcast as the next audio opportunity, please give a yes or no answer to the questions, are the labels becoming replaceable? Hey, Tillman here. I'm sure you're curious about the answer to this question. But this answer is exclusive to the members of my community Good Investing Plus.

Good Investing Plus is a place where we help each other to get better as investor today by day. If you are an ambitious, long-term-oriented investor that likes to share, please apply for good investing plus. Just go to good minus investing.net slash plus. You can also find this link into show notes. I'm waiting for your application. And without further ado, let's go back to the conversation. So let's move away from music to the podcast market. As you can see, I brought some graphics. can see the growth of the podcast audience. It's estimated to grow 20% Kager over the next years, and they guess it would double 2020-23.

The next graphic is the unique podcast account by year. We already mentioned this, that there's so much new podcasts on Spotify that are growing, and the podcast producer market is widening. we see the podcast market growing growing strongly but i think also from my experience as a creator myself there are still many hurdles in the creation and the growth of podcasts what do you think should be done on the producer side or what innovations will unlock even more growth and what does help or has held some producers back to produce podcasts as well I think when it comes to the hurdles that I, that I think, especially Spotify, is focusing on solving the next couple of years and should be a very big enabler for the marketing in general.

You know, one is discoverability because podcasts still suffer from, you know, not finding the right. audience and you kind of just need to promote it on on social media and and things like that but but it's it's still not you don't have the same tools as you would if you're if you're a musician and kind of just you know aiming to get on a certain playlist and having the algorithm recommend you a song based off what you listen to i think that's kind of the next frontier when it when it comes to to podcasting on one on one side and the other part is is monitoring Right? Because the better and the easier that it gets to monetize your podcast as a creator, it's going to be not only better for the creators, but it's going to bring in more and more creators and almost the more kind of professional and high budget produced content. Right. So it's going to be it's going to be better for everyone in my opinion. And this is both advertising, subscriptions. different it's it's all being tested out as we speak because it's such a new market right

i don't know what you want to add to that jeremy i i don't think we understand just how far behind audio is um or talk audio is podcasting is i mean it's um there's some really interesting statistics out there but just to zoom out a minute and think about how hard it would be with this podcast So this interview we're doing, let's say it's an hour and a half or something or two hours in total. And, yeah, I could post it on Instagram, but what percentage of people are going to listen to it? And if they did click on it, how many people would actually listen to the full, the full, I mean, I guess if you were really into this and you were doing research on Spotify and whatever, but it's more likely that the people that are listened to it will come at it from a different way. So the tools that allow social media to be, to grow and to have grown so exponentially just don't really apply to audio in general, but especially to podcasts, because podcasts are so

specific. They're so specific to kind of what you're interested in. And there's just so many podcasts coming out every day. I had a couple of notes from an interesting, I listened to the Doug Embrace interview from the founder of pods. which was recently acquired by Spotify on the Not Boring Podcasts, which I recommend. But, you know, one of the stats, the one of the stats they talked about

was that the average podcast or the median podcast is downloaded only 123 times, and I guarantee that will go down as the number of podcasts go up or put out into the system. So, you know, finding a way to bring audio into the modern era of, discoverability and searchability is really the opportunity, the real opportunity for Spotify. So it's not just in talk, but also in music as well. But on the podcast side, as Gustav Soderstrom, the chief technology officer of Spotify, has talked about, it's easier for them to experiment with these tools in podcasting because they have complete control over that versus the labels are harder to work with and slower to move

because they don't want to disintermediate their own cash flows like this moment. So the opportunity to socialize or to move, to make a podcast discoverable and people actually listen to them is really interesting challenge. And the pods acquisition is an example of, I think, where that industry is going and what the opportunity really is there. Because, you know, so again, social media is designed for print. It's designed for, you know, it's designed for pictures and posts and blogs and, you know, look at, you know, what do people post on Facebook? What do people post on Instagram or Twitter? it's just different for, you know, for audio is inherently difficult socially.

And Daniel, it talks about this, and then there's other people as well. But I think the path they're going down to fix this or to create, to unlock this opportunity is with, I think, what Pods is doing. And that interview with Doug and Bruce is really fascinating. I think there's a variety of ways they're going about it. One of the, you know, the pods itself, and I've played around with it just a little, but pods uses, builds a social profile and you very similar to what Spotify does on the music side. And it uses machine learning to pull out snippets, little pieces, maybe one or two sentences

that are really the kind of the heart of a podcast or something interesting. And then it builds a cohort of those and collects and puts those together. So when somebody searches a topic on pods, and the example in the interview they gave was COVID, you know, you could, it could potentially produce, you know, one or two lines of talk from five or six podcasts from really credible people that had been given in the last six months and actually create, It's a way for those creators to be heard, and it's something, it creates a short form version of something that was really long and tedious and difficult.

Because right now, for example, if you want to research, I use, I generally, in stock research, I rely on podcasting quite a bit. And sometimes there'll be a keyword and a stock, a company I'm researching, and I know that it's a podcast. I've got to listen to the podcast for an hour, and I don't want to listen to it. I keep hitting the forward button, forward button, forward button. And I'm like, I'm not, I just want to hear what this random person has to say about this stock. And maybe the podcast is on something totally different. So if I could, if I could, you know, pull out that one key piece that I'm interested in and have that package with similar data and given to me just like a Google search, it's a way for creators to get to be discovered. and it's an area that they're it's kind of the way they're there i think they're path forward

um today but i think there's going to be more more tools like this especially with live audio rs s is still a big thing in podcasts uh why is that bad yeah so rsss i think was basically designed in the in the 90s right it's it's it's just something that kind of just, it's a directory, right? And it pushes, it pushes whether it's an email or in the case of a podcast, it's just the MP3 and you just kind of automatically download that. But besides that, you have no real traceability or engagement metrics that tell you whether the person is going to listen to the podcast or not and forget about monetization

as well because the only supported advertising, format would be the creator just reading out whatever brand they're partnering with. And again, you can't really measure if that listener, listen to that part or not. So when Spotify decided to get into podcasting, it was a little bit controversial in the beginning because they obviously embraced their, you know, their streaming nature, which they are very, they were built on top of that and they're very true to that, right, in large part because you would be able to get these metrics and now more recently we've seen that you have the capabilities of dynamically inserting advertising that can be targeted to the specific listener,

right? And, you know, they've, in the beginning, the reason they were criticized a lot was because in many ways it was considered, you know, like a close-end ecosystem for podcasting. But I think more recently that they have announced this, you know, this open, open and the more open-ended platform through the use of Anchor, which is, you know, the podcasting hosting company that Spotify bought. they've actually proven that they're going to be much more creator friendly than otherwise some people would have would have thought i found it pretty fascinating that you know i've been reading ben thompson for for a couple of years now and originally he was a big critic of

spotify's stands on podcasting to the extent that he ended up pulling all his podcasts from the platform but once spotify you know came back and announced their intention to be more creator-friendly and open-ended and, you know, this audience network and not really taking a lot from, from creators, especially compared to Apple. He basically, you know, completely did a complete 180 and brought all his podcast back to Spotify and recognized that they were doing the right thing. I thought that was super interesting. And I'll just, you know, I could just add to that that the typical walled garden model that

that social media is, is kind of the opposite direction that Spotify is going now. So the Waldgarden model is, hey, you post your content on Facebook. You don't get anything for it, and Facebook just makes money from it. And the idea, and that's, it's a one-way monetization. And Spotify looked up and said, okay, we want to create this platform that's different from RSS, because the way I understand it is RSS wasn't possible in streaming, and I don't understand the technical reason for it, or maybe it wasn't possible for them or all of streaming.

I'm not sure. But this open access platform allows a podcast owner, even a large, so for example, the example that was recently talked about in a podcast with Gustav on the Means of Creation podcast. If listeners haven't, they should listen to that. was, you know, it allows even the large content owners like the New York Times or something like that to post their content on Spotify and decide if they want to use their billing platform or not. But if they already have, like Ben Thompson, if they already have a subscriber base and

they already have a billing base, it allows them to put that on there and not necessarily have to, you know, and be able to have complete control over that. So with Apple Podcasts, you do not have access to your user base. So if you're trying to build a subscriber base, you don't have, you can't get their emails, for example, you can't interact with your users directly, and you have to use their billing system. And so if you have an existing podcast with, you know, a million followers or a million paid subscribers, you can't move it to Apple because, and before, you couldn't move it to

Spotify either. And I think that was Ben Thompson's problem with it, because in order to move it, you would have to ask all of your subscribers to unsubscribe and resubscribe them all over again to to anchor and so now in the open access platform protocol it allows everybody it allows you to move your your your material over to Spotify and you know if you don't want to use their their billing system you don't have to you can continue using it and it also allows you to decide if you want to monetize on their ad insertion streaming technology or not. You can use your own.

But what Spotify gets out of is they can just get access to the data. They want everybody, they want all audio available on Spotify, which makes perfect sense. And as Gustav, the chief technology officer, says there's no way we can have all audio on the platform if we have to monetize all the audio. Because inherently, a lot of people say, no, we don't want Spotify to monetize it. We want full control. We want to monetize it. That's why Apple doesn't have access to a lot of audio because Apple highly, highly controls the way it's monetized.

And it doesn't allow you to have the interaction with the subscriber. So this is Spotify going the complete opposite direction saying we don't want to be a walled garden. We want to build products that are inviting that makes the podcast owner want to use, want to be on Spotify and then choose if they want to be on Spotify. and then choose, if they want to, to monetize with Spotify or not. But either way, we want to make sure they're on the platform. And so it basically gives you zero excuse to not be on Spotify. Even a competing podcast company would have no choice. But there's no downside to allowing Spotify to distribute your product.

I mean, they're in 178 countries, and you can upload on Spotify, and you could continue monetizing yourself and have not. nothing to do with Spotify. But Spotify also wins because the person in whatever country can, it's all, you know, everything's available in one player. So actually ultimately, Spotify really is, really is winning slowly in the background of, even when you're, even when the creator choosing not to monetize on Spotify. So the open access platform is a, is a really big deal because it allows, again, it creates kind of a no excuse situation for everybody. including the large podcasts, even competitors, to move over onto Spotify and allow Spotify

to be one of however many distributors. And then their bet is that they'll be able to help make you a lot more money if you choose to partner with them on ad insertion because now they've got so much more content and so many more subscribers. It doesn't mean you can't monetize on other platforms as well, but they are really in the lead and they're really there's I can't really think of anybody else maybe YouTube that could afford to do that and just say sure come on on for free and you have completely control over it and you can take it off like this you can remove it from a system too if you want tomorrow and you don't

have to use our billing system and you can you're not tethered to us in any way I mean that's in exchange for that they just want to see the data flow of who's moving in and out of there so if you choose to and I think some sales rep will probably call and say look you know I see you're probably only making so much money here we can probably increase that if you if you use our ad insertion technology so there's a it's it's brand new um but it's again um it's one it's one step towards being very very creator friendly and just kind of bringing these podcasts to the platform now the monetization of it is a different thing and and one of the monetization tools would be um like a pods that we talked about earlier where it cuts your it uses machine learning to snid bit

to cut just in the little pieces, the podcast, and get it out there and market it. Maybe it's a campaign in Green Room around live where the creator hosts something special or charges for a unique event with the super fans, et cetera, et cetera, et cetera. But anyway, not to go in too much, but I'm also really excited about the move to the open platform and away from the Weld Garden model that most big social, social, platforms rely on as their moat it's quite fascinating how your answers feel feel if differently compared to the music industry in the music industry more more talking about the kind of old town that was run down or it was invested in for a certain while and that now gets rewifed and

there are new investments in it and here in the podcast space it seems like a very small playing playing field with some settlements already set but everything is still in the making and dynamic um it's quite interesting let's also look at the site for advertisers um how easy is it for advertisers to advertise in podcasts and where there might be a blockade for further growth or a hurdle for further growth yeah so you know it's still in in large part podcasting is still a very small market because not many advertisers have decided to go and and you know serve ads in that in that medium i think generally speaking the the advertising industry is is not known to be you know like a dynamic and fast-moving industry that's just

going to you know jump on board of a new of a new consumption form that's just taking place and Spotify themselves have gone through different sort of iterations in terms of what the best way is to serve an ad. So we're still in the very early stages of this advertising opportunity in my opinion. I thought it was interesting. I was reading a transcript of an expert call from like an advertising executive. And he said it, I mean, basically what I just told you guys, but he gave out the example of, you know, taking an advertising that we currently have on radio and putting it on podcast is, it makes absolutely no sense.

Like, it's not as simple as you would think. There's a lot more that goes to it. So I think in large part, it comes to, you know, the advertisers realizing that podcasting is, is, is an engaging and superior advertising medium and also having, you know, enough inventory as it comes to, as it relates to the brands that decide to advertise on it. And then you also have things like the self-serve ad studio where it's more similar to what a Facebook would offer you where to just go and put up a marketing budget and, you know, kind of just upload your, your content, your advertising content to be, to be served as

as inventory. So again, a lot of, a lot of changes are, I think, are going to be taking place. But, but I think it's a very, very large potential for both Spotify and the industry in general. Spotify's management has estimated that advertising could eventually become anywhere from 20 to 40% of their revenues. Right now, it's probably around 10, if not, if not somewhere below that, but speaks to what they, you know, what they've been focusing on and the potential that they're seeing in this, in this market. Yeah, and most of that revenue now, advertising revenue is on the music side, which is really just part of a funnel to the premium.

So, you know, I'll just add to that. One of the reasons that a lot of the radio advertising doesn't translate over is because the CPMs are so much higher in podcasting because the, the, the, the, of the targeting and the measurement is just so much more superior. And you've seen that in the transition from linear television advertising over to streaming. The streaming, you know, an ad on Roku may have maybe 10 or sometimes 50X, the cost of some of the really low cost ads on late-night TV that just run. And part of that is this, you know, it's hard to charge, it will put it this way, it's easier to charge a massive premium. if you can buy very specific data and tie that to something.

I mean, there are faults in podcasting attribution right now because, I mean, and it's getting better. We interviewed a guy from a company called PodSites, which is one of the attribution monitors for Spotify, the third-party companies that monitors the, I guess, the attribution of their podcast advertising and helps them measurement and verify the measurement as a third-party, almost like an accounting, an accounting type of relationship. But, you know, there's some technical hurdles, and I'm not, it's hard, I don't, I don't recall all of them or can't really fully explain all of them, but some of, they have to do with the,

the targeting of where somebody is all the time, I mean, when they're listening, because if you're listening, depending on where you're listening and how you're listening, changes the ability for the for the advertiser for a Spotify for example or or even an Apple to to target or to understand exactly who's on the other end there are some cases where they can where it's clear and then in other cases there it's less clear so you know with cookies kind of going away and IDFA and whatnot I mean there are there's a benefit to a company like Spotify because what happens is they can use data across their entire system that so you can buy an audience and that and that audience data comes from from one of the

reasons that you know music and podcasts and then audiobooks will all be on the same platform is because they want they can buy you can buy an audience based you know based on my music habits but you know for a podcast based on music habits for example so they can they can decide like okay, this guy listens to this type of music at this time. And then these are the couple of podcasts he's listened to or she's listened to. And it just makes it easier to build a profile in that person when you can see all of their audio habits, not just podcasting. So it does, it does give, you know, it is creating value, a lot of value for a company, you know, for company like Spotify with that size, that reach. And, you know, but there's no real retargeting.

So, yeah, there's some limitations, but at the same time, it's just an enormous, enormous opportunity because of the engagement. But the engagement causes a much higher CPM, which causes advertisers initially to say, wait, wait, wait, I'm used to spending a local dealership $500 a month on the radio station. I'm not going to spend, but that same reach may cost 10 to 20x that. on a podcast. So it's going to take time. They don't just move overnight. So it comes down to maybe waiting for the consumer to fully move. And then all of a sudden, that $500 option on the radio ad for the local, the sale at the local dealership is just, maybe it just fades away. Or maybe that car dealership, you know, comes up with $10,000 instead of $500 to do an advertisement. I don't know how that shakes out, but the high CPM is justified, and that's part of the reason it's a little

slower. And then there's the programmatic piece, which, Sleep, you were talking about, I feel like that's, I don't know, but it seems like that's a really new, it's really new for Spotify to have a really cutting-edge programmatic interface with a lot of the third-party media distribution companies that, you know, businesses rely on for their media buying. Yeah, I would just add, Because it's a question that I've heard and have been asked multiple times as it relates to Spotify's business and the advertising opportunity. When it comes to the margins and the revenue share for subscription and advertising, these are basically separate businesses. So if you're a premium subscriber and you say pay $10 a month and you listen to 50% of the time you're listening to music and the other 50% of the time you're listening to a podcast, 100% of that premium, you know,

the premium price that you're paying is still going to the labels, okay? That's not being separated out to the podcasters because of the label agreements. the interesting part is that on the advertising side that's where this has been you know separated and agreed upon with with the labels to have the the podcasting side segregated so obviously any advertising that takes place through through a podcast is going to be shared obviously between just Spotify and the and the and the podcaster and the creator right so it's a it's a higher margin opportunity as well Yeah, incentives matter. And that's, it's, the more people, the more content that's on every day that goes by, there's more, more content uploaded to the platform on the podcast side and the music side. Even, even if the subscriber base slows and is half the growth that it has been, it doesn't really matter.

It's really, I think one of the KPIs that I get asked about that I think is less important. It's just that the subscriber growth rate is not as important as I think the, When thinking about modernization potential longer term, I think about the amount of content becomes more important because the faster the content can grow, the more opportunity there is to be able to build a profile on that person and to monetize that content because those eyeballs become more and more valuable, the more content there is. And so there is a real incentive for both Spotify and the content creator to not only put the assets on or put the content on Spotify, but to potentially, you know, to monetize and to sell ads against it because it's a high margin business for both sides. And arguably, the more data that's on Spotify and the better their algorithms can get, the higher, I mean, the return you're going to get as a content owner by sharing that with them versus other outlets is probably, you know, could potentially be a lot better. But it's going to be different.

Each DSP will have a different rate and a different potential. But the cards are set up for, you know, the cards are set for, you know, the cards are set for, for it to be very, attractive for both sides to sell advertising against. And I could see that growth just being phenomenal and at some point, very, very high margin for Spotify. And that's where I think their longer term mark, one of the areas, one of the biggest opportunities for their gross margin profile. Yeah, it's not a coincidence that they raised their gross margin long-term guidance

from 30 to 35 percent prior to shifting to a broad audio strategy to once that happened, they took it from 30 to 40 percent more recently on the stream on event. I think in large part related to that. And sleep was several years ago, wasn't it as low as 11 percent? I mean, it's zooming out. I think it's really phenomenal how their gross margin profile has changed over the years. Yeah, yeah. Yeah, there was a big step change before the IPO because they were able to agree better, better terms prior to them becoming public with the labels.

I think, you know, that's another topic for later on, whether, you know, that relationship and the future of that, of those payouts. But I think they'll find ways to increase that, not necessarily by hurting the labels and artists, but by just increment. growing the pie through higher margin revenues that's what's said on top of that right the Spotify for artist tools and so by back to the podcasting stuff and they can experiment and create opportunities and create new markets for podcast whether it's simply selling advertising which is kind of a well they have subscriptions now subscriptions exactly you can allows a podcast artist to yeah to to have to have you know know just to earn like a monthly fee like the ben thompson example but i think there'll be more

more you know promotional stuff you there's a lot of you'll be able to pay spotify um to connect the dots and build an audience and discover the audience and and you'll be able to buy an audience essentially and and and pay them to interact with that audience and whether it's you know live or whether it's events or whether it's um i heard a i heard somebody talking about a um uh there was a podcaster that a lady that that hold it held her own masterclass and so she used one of the live tools to host a masterclass and charged what she said was equal to what she would earn in a whole year with her with her substack so I think there's going to be all kinds of ways that these people will all kinds of business models will be formed on top of this and yeah it's

pretty exciting that's also it all feeds into the margin the margin model There's not a lot of really big tech businesses that you've seen expand their margins from, you know, for a potential, I guess, when they hit their target of 4X in less than 10 years. And generally, it's the opposite. They start really high. Gross margins are sometimes in the mid-90s. And then as time goes on, they just go down, down, down. And it's a little bit the opposite at Spotify, which makes it unique. But let's go into this details in the next episode.

Okay. Maybe I can also add an anecdote on the way advertising is done in podcasts and formats like this. I have the comparison between YouTube and Spotify. So if someone wants to come on a podcast, he mostly has to approach the producer directly and get in touch with them. So you have the problem. You have to get to a certain scale to be interesting for certain people who want to do advertising. And also the process of advertise placement, pricing, whatever is a process with a lot of friction and you have to do personal negotiations and stuff

like this and in youtube for instance you can directly go there and say i want to do advertising in the finance segment and people who are interested in stocks it's not that detail that you can say i want to go into a certain format but in the general field you can be easily placed and i think this is still missing the podcast space so there's a lot of friction on the episodes and such. Oh, yeah, absolutely. You're going to be able to buy audiences. And again, it hasn't evolved as fast as I wanted it to, but it's evolving. I mean, you're going to be able to buy audiences. And there's small podcasts that could look up and receive a check in the mail that was bigger than they ever thought for a month because there was a very high CPM ad shown in their

podcast because the topic they happened to cover happened to do with, you know, was related to a big brand that wanted to buy that specific audience. So I think going forward, it's just going to be about filtering the content to make sure it's not completely worthless. And I think you'll be able to reach in and just buy an audience. And it doesn't really matter. I mean, it doesn't matter how big the podcast is or how many followers the podcast has necessarily.

But from a pure advertising perspective, as time goes on, I think you'll just, yeah, it'll matter less and less, you know, how many followers you have necessarily. On the pure advertising role, there'll probably be a lot of other ways to make money if you want to build your brand and build a podcast. But just on the pure advertising side, I think there'll be a point where they can reach me or they can reach you listening regardless of what you're listening to. That's my point. Maybe let's take a look.

as one of the last points in the audiobook space. We see also growth there. I will show chart to this. What other trends do you see in the audiobook space? Why is it interesting considering the whole audio opportunity? Well, I mean, in terms of just the format, obviously it's a very highly engaged audience. So it's, you know, it's such a. natural fit to what Spotify is doing already, that it makes perfect sense for them to, you know,

find their place in that in that vertical, right? I think the first big indication that we've seen recently on that was the partnership that they announced with Storytel, which is an audiobook company. I think they have over 500,000 audiobooks or so. I think it's going to take time and considerable effort to build that catalog because in some ways it's kind of similar to the to the label relationship because I think you have three or four big publishers that control most of the market and you know you're going to have to work out if they do if they're serious on that they're going to have to work out a deal with with these with these large book publishers and yeah to bring bring over some of that catalog to the to the platform

and have it monetized in a certain way. Because, again, one of the obstacles is that they're not going to be able to take any share from that $10 a month that you're paying essentially to the labels and artists, right? So it's either going to be advertising or a separate subscription. But we know they're looking at it. I think another interesting, you know, way to think about it. And Spotify's management has framed this way before is that, It's not entirely fair to separate audiobooks from podcasts because in many ways, the lines

between them are blurring. If you think about a mystery novel, how is that that different from like a crime or a mystery podcast? Like if anything, the podcast might be even better because it has more sound effects, it's more engaging. You have someone speaking to you. That's not maybe with a very monotone. So in some ways, a podcast for some things, might be a much better.

you know, way to consume that specific content. But again, it's a, it's a very early and nascent market. So I think there's there's there's there's you have to you have to try and attack every every single part of it and see kind of what sticks. Right. What do you think Jeremy? Yeah, same. I think they're experimenting with it. They're starting with a small audiobook company in Sweden. And I it's it, you know, the big vision is all audio available on the platform. And I think they're probably, if I had to guess, they probably are doing a similar deal with, with storytell that they would like to do with, you know, the New York Times or any major publisher of content and just say, look, put your stuff on the platform. And the details

of how, you know, they're probably going to experiment with different ways to make money and different ways to monetize. And then as they, because it's bundled together, with podcasts and music, which is also very important, like you said, there really is no really differentiation. But there's going to be benefits because if you're going to Spotify for your audiobooks, your podcasts, and your music, and it's also a, like a browser, so to speak, and a search engine for audio, so it's not just a place where music is, or where, these books and podcasts are siloed but actually a place of that creates massive discovery of your

podcast and or enables you to make money from advertising that you would not be possible otherwise because it's drawing data from from listening habits of you know you're buying an audience that is maybe not really relevant to your podcast or this much bigger than your podcast then yeah they'll probably experiment with different ways. But what I don't know is it's not really clear how the collaboration will be if you'll actually have to kind of pay, have a separate subscription, because I don't know how Storytale will expect to be compensated. Maybe it's advertising. Maybe it's an ad-based thing that feeds into the freemium model. I could see that. I mean, maybe the perfect world, they take a risk where they say, look, well, we're going to, you know,

Spotify will do a dynamic ad insertion and sell ads. They'll get a, cut of that and then at some point that'll feed into a subscription premium and that goes and that somehow is a part of your subscription your premium subscription and they and that is an excuse to raise the price of the premium subscription by you know by one euro a month or something so i i'm not sure how it's how it's ultimately going to play out but i think it's smart what they're doing i think it's smart that they started with the open access platform announcing that and then bringing on audio or the audio book stuff as just basically another segment or another group of audio assets onto the platform and like I said, starting probably with the advertising component to it and

then just going from there. I'm not sure how these audio book companies, I'm not sure how their business is structured, whether they actually own all the assets themselves, like a major, you know, like a music label, or if they're just kind of a gateway to these. small owners of book owners that you know you and I write a book and pay somebody to read it and all of a sudden it's an audio book i i'm not sure i haven't looked into that have you yeah i'm not i'm not sure either actually but it would be interesting to to get a grasp on that i mean at amazon basically did that with with their Kindle and audible stuff like that so

maybe they try to replicate some of that and then offer a separate subscription as well who knows Yeah. I think the most important is, you know, get on the platform and be available to everybody. And my guess would be it's going to be available for everybody even on the freemium side, which if that's the case, it's going to be a breakthrough. It'll be kind of them. Yeah. And it's their model, right? And there's just so many different verticals besides it's not only audiobooks, right? I talk about meditation and like well-being as being. another one that I think they should go after as well. It's such a big part of, and it's true audio. Like when you think about people using things like Headspace and Com, like that's an audio app, right? And then you have other things like education where people are willing to spend a lot of money on their right, you know, listening to the right teacher and having the right course and things like that. So, you know, again, it's what you were saying, Jeremy, right? They're trying to be this one place where everything audio related and just be the browser or the Google.

And I know there's more and more seeing themselves as that player in the market, right? And nobody else is really going after it the way that they, the way that they are. With the last question, I want to shift to the perspective of the creators and the creator economy. And if you think about the big circles we had, the big waves in the creator economy, you had the blocks and the substacks, that space is already quite taken. You have video, which is mostly YouTube in the creator economy. And is the audio space the last place that isn't fully taken and doesn't fully settled in your eyes? It seems like a big open ocean, the last open ocean.

And again, the Doug Embruce interview from Pods, he really goes into this. And it hit home for me one of his interviews where he basically just said he can't believe that even venture capital was so slow to invest in the space. And people just kind of left audio for dead. And one day, you know, like he says, one day it isn't. I mean, it is, it's a big open ocean until one day it isn't. And I'm sure I'm chopping. I'm miss speaking, miss saying what he said.

But yeah, it seems like an enormous opportunity because social media has, it was not built for audio in the way that audio needs to be consumed. It's not built for consuming full-length audio. So until that code is cracked, so to speak, I think there's an enormous opportunity because, like, we talked about it at the beginning, that TAM is just so small for something that is consumed between two and four hours a day by every human, and not that everybody will be monetized, but, you know, you ask yourself, like, what is a language worth? I mean, what is the Spanish language worth? Well, I mean, in a world where you could never monetize it, nothing, I guess, technically,

but it's actually very, very valuable in a world where you could figure out a way to monetize it that was beneficial to everybody. All of a sudden, it's maybe extremely valuable. So I think it's an enormous opportunity because it's been an afterthought. And, you know, people like the founder of Clubhouse, I forgot his name, have made strides in kind of trying to unlock this. And there's been some recent attempts that are now fueling into what Spotify is doing, you know, new features. But, yeah, I think the sector is just so underappreciated. It's incredible to me that the biggest player and, you know, Spotify, the biggest player in the industry,

and the most respected DSP, the inventor of the streamer, essentially, the group on the cutting edge of unlocking this stuff is still such a small company. And it's because the industry is still small relative to how much engagement there is on average. And you tell me one other medium where there's so much engagement and such low revenue. I mean, if you had the ARPU per person, per music consumer, audio consumer is just, I mean, I don't know what it would actually be if you divided the total number of people divided by the hours they listen to a day, divided by how much money that equates. You know, if you consider the record industry is worth how many, you know, 30 billion between 25 and 30 billion. And podcast ads are only worth, you know, 800 to a billion. I mean, you're talking about a fraction of a penny in ARPU per person. and that's an enormous opportunity.

I think I round the numbers on that once and came at a 16 cents per hour when it comes to Spotify, something like that. That they're monetizing at? Yeah, like that's how much Spotify costs per hour. Oh, that's what the consumer. Yeah, exactly. But then if you increase, obviously,

you increase engagement on that and whatever, and it's even, it becomes even, even lower because that's that's assuming that people spend a little bit less than an hour per day I think was the number I was I was using but but they do spend a lot more than an hour a day isn't it it's I think it depends I guess it also depends if you're looking at premium only or the or the or the MAU but there's been different stats thrown around I've all I've seen others that that are as high as two but But the opportunity is for or more, right?

Because that's what the market, that's kind of what the market is. And if anything, it's going to go up with the proliferation of devices and headphones, right? That's right. So if people are willing to pay, I don't know, between 8 and 20 cents per hour for Spotify premium, I mean, just imagine, I mean, if you extrapolate the total amount, the total value of the entire industry divided by the number of people and the hours they spend and just audio in general, it's, Like I said, it's a fraction of pennies, and it's a fraction of a penny.

And it's just, I like opportunities like that. I love situations like this where people sort of believe that it's over. The industry is it is what it is. It's just about streaming revenue or it's just, you know, it's kind of a forgotten. It's the last big forgotten area of consumer tech that hasn't really found its way. and the prize at the end is going to be just so big because it has been left for dead for so long and yeah it's really exciting

just to think about what the addressable market could be and Spotify is the leader and well a leader maybe the leader depending on how you look at it but I'd say for all of the DSPs not just for Spotify there's an enormous opportunity for YouTube and TikTok and different types of DSPs that have different roles in the broader ecosystem. It's a very interesting opportunity. Right.

How many pictures can you look at in a day? Then I'm very, very happy to discuss in the next episode the strategy Spotify is doing to enhance the ecosystem, strengthen the ecosystem and then unlocked the code of success for audio creators and the audio category at all. And I want to thank you very much for your time and for coming on for this discussion. I'm happy to record the next part very soon. Thank you to both to you. Thank you for having us, Tillman. This was fun. Thank you, sir. Bye-bye to the audience. We are looking forward to having you again for the second part thank you bye bye as in every video also here is the disclaimer you can find a link to the disclaimer below in the show notes the disclaimer says

always do your own work what we're doing here is no recommendation and no advice so please always do your own work thank you very much