Podcasters and broadcasters have sung similarly when they complain that the amount of advertising dollars poured into both types of audio hasn’t kept up with actual consumption. But the scope that digital music has to offer the market could trigger a chorus of celebrations based on estimates by Luma Partners.
“It’s approximately 20% of the digital time that is spent, and yet it’s not as well-positioned from a marketing perspective,” says Luma Partner Conor McKenna. He believes that if advertising percentages are better correlated with consumption patterns, millions of dollars can be pumped into digital audio. “That’s an opportunity worth $45 billion,” McKenna said during an appearance at Luma’s Digital Media Summit earlier this month.
However, even though Luma is an investment bank focusing on marketing and digital media believes that audio-based advertising has some issues associated with this format. However, it assumes that the move away from cookies for advertising can help the industry. “We’re currently in a world where we’re transferring from third-party data to first-party data platforms. A few massive first-party data platforms are in charge of the entire ecosystem. Therefore, there’s a lot of potential there,” McKenna said.
Another aspect that could help the growth of digital audio, particularly the rise of podcasting and radio, is the growing creator economy. In part, thanks to the rapid growth of Instagram and TikTok, Luma expects nearly $6.2 billion to be invested in marketing via influencers this year. According to the company’s forecast, this number could reach $7.1 billion next year.
“The creative economy has become too large for us to overlook,” McKenna said. “This is fueled in the first place by consumers’ adoption.” He anticipates that numbers will keep growing, mainly because influencers are moving from pitching to creating companies. McKenna mentions YouTube’s famous Jimmy “Mr. Beast” Donaldson as an excellent illustration. Luma states that Mr. Beast hopes to reach a $1.5 billion value for its online and studio brand.
Luma Chief Executive Officer Terry Kawaja said that artificial intelligence could also alter everything since it blends the creative with the data, positioning it as a threat and an opportunity for businesses.
“I believe that the marketing industry is obsessed with the idea of efficiency, which is why things cost less, mostly with an emphasis on data and media. It’s all very well and well, but it fails to consider the bigger view,” Kawaja said. “The bigger picture is efficiency which is mostly an emphasis on creativity… If AI is applied to creativity and efficiency in marketing and media, prepare because it’s a new era.”
Luma’s outlook is based on uncertainty in advertising and Wall Street. McKenna stated that the rise in interest rates had been a “massive influence” on the deal market and companies themselves. While he claims there’s been a “stabilization on valuations,” it’s not where executives’ focus is. “Profitability is becoming more important for those who have gotten past the initial stage of company creation,” McKenna told investors.
The tracking of Luma indicates that in 2022, no public companies were launching after the IPO took place in 2021. In the VC market, which has financed the bulk of the podcasting industry’s early-stage expansion – Luma estimates that $190 million was raised in the first quarter in 546 deals. This contrasts with the $371 million raised in 7,924 sales in last year’s first quarter.
The year ahead could be a different one. At the very least, a new audio company is set to go public, and LiveOne intends to separate the PodcastOne Division into a standalone firm.
“We’re beginning to see signs of stability,” McKenna said of the marketing and ad tech companies now being positive on the market.
Kawaja stated that there are indications that the tailwind could begin to overtake the headwinds of economic growth. “We are going to see positives in this quarter, as there isn’t a recession in sight,” Kawaja said. We note that 95% of marketing firms’ ad technological technology beat their revenue estimates for the first quarter.