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RockWater Roundup

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by RockWater, Chris Erwin

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Chris Erwin and Andrew Cohen quickly break down Media x Commerce and Creator Economy news. From digital video and social audio to livestreaming, NFTs, sports betting, and more.

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4/24/2021

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February 24, 2022

Riches in Niches and the 40% of Non-Whites (2022 Prediction)

We’re in the midst of not one, but two, once-in-a-generation paradigm shifts: the “Streaming Wars” and the “Audio Wars”. And industry players are spending big on "land grab" strategies to own tomorrow's consumer. But in 2022, we expect the deal flow to evolve, where streaming and podcast platforms will:<ol><li>Expand their audience acquisition efforts beyond “core” consumers and into underserved communities (e.g. BIPOC, LatinX, AAPI, Women, Gen-Z, etc)</li><li>Generate incremental audience reach, while increasing platform stickiness and deepening monetization by onboarding passionate affinity-groups (e.g. sports fans, true crime fans, kids & families, etc.)</li></ol>These two goals share one solution: specialized content creators dedicated to valuable niche verticals. There’s a lot to break down here, so we've split up this analysis into a 2-part episode. Today we walk through how the next phase of the “IP Wars” -- across both video and audio -- will be impacted by a renewed emphasis on studios and production companies that cater to underserved / multicultural audiences. Then on our next episode, we’ll break down the role of creators that cater to passionate affinity-groups.Subscribe to our newsletter. We explore the intersection of media, technology, and commerce: <a href="https://wearerockwater.us20.list-manage.com/subscribe?id=699cb66f8f&u=7c8d2ac82ab5e5c6aa3ae4b23" target="_blank">sign-up link</a>Learn more about our market research and executive advisory: <a href="https://www.wearerockwater.com/" target="_blank">RockWater website</a>Email us: rounduppod@wearerockwater.com--EPISODE TRANSCRIPT: Chris Erwin:So Andrew, you just wrote a beast of a piece that is our first 2022 prediction. And that is that the IP wars will evolve to prioritize specialized creators that super serve distinct communities. I will say, look, the feedback I got from some of our readers is how long did it take to write this thing? Andrew Cohen:Well, we wrote a long one about the IP wars and M&A in the fall. And I guess had a lot more to say. There's a lot going on. So excited to get into it. Chris Erwin:It's funny, every time you and I talk about an outline for our predictions, we're like, all right, let's try and get this down to two pages. And then it comes out five times the size and we're okay with it because it's good content. Andrew Cohen:I appreciate the leeway. Chris Erwin:All right. So let's set this up for our listeners. We are in the midst of not one, but two once in a generation paradigm shifts, right? The streaming wars and the audio wars, which we've written extensively about in 2021. Both markets are undergoing transformational growth. So for example, the OTT video market is projected to be worth 218 billion by 2026, that's a 19% CAGR from 2020. And then in terms of audio, monthly podcast listenership is expected to hit 164 million by 2023. That's a 41% increase from 2021. So as a result, both industries are undergoing land grab spending sprees, operating on a similar principle, spend aggressively on IP and talent that will attract and retain audiences in an effort to win market share today while each market is in its formative stage, and consumers are developing their routine. Those who do this successfully will become the default destination for generations to come when the market is fully matured. Chris Erwin:So there's a few different deal examples I'll quickly walk through here. I think we had initial like 30 deals on this list, but we got it down to four. So on the video side, we're seeing studio and production company M&A, we saw Candle Media acquire Moonbug Entertainment for three billion in November of last year. And then we've also seen interesting IP and talent deals on the video side as well. So I think ViacomCBS paid $900 million to expand and the universe of South Park Studios. That includes in creating more content and then moving into different mediums like gaming, film, TV, and much more. Chris Erwin:And then on the audio side, again, studio and production company, M&A, we saw Amazon acquire Wondery for 300 million back in December of 2020. And then similarly, also some IP and talent deals are ramping up. Spotify signed Joe Rogan to an exclusive distribution deal for what was initially reported at as 100 million by The New York times. But which I think just out this morning or yesterday, I think the updated estimate is that it's a $200 million deal. Pretty impressive numbers here, Andrew. Andrew Cohen:For sure. And definitely think looking forward, this land grab is far from over. Definitely do not expect the deal flow to disappear in 2022 when it comes to the IP wars, but we do expect it to evolve. So we wrote about it in the piece and we'll talk about today. So we expect both streaming and podcast platforms are going to do two things. One is that's expand their audience acquisition efforts beyond kind to these core consumer groups and into what we consider underserved communities. So that's BIPOC, Latinx, Asian Pacific, women, gen Z, all of these other communities. And two, they're going to want to generate incremental audience reach while increasing platform stickiness and deepening monetization by onboarding passionate affinity groups. So things like sports fans, true crime fans, kids and families, sneaker heads, all of these kind of really sticky communities. Andrew Cohen:And as you we think about it, these two goals share one solution, which is specialized content creators that are dedicated to these kind of valuable core communities. And there's a lot to break down here. So what we're going to do is split up this analysis into a two part episode. So today we'll walk through how the next phase of the IP wars across both audio and video is going to be impacted by a renewed emphasis on studios and production companies that cater to underserved and multicultural audiences. Then on our next episode we'll break down the role of creators that cater to these passionate affinity groups and how that's going to affect the next wave of M&A across these IP wars. How does that sound? Chris Erwin:Yeah, sounds good. It'd be way too much for one episode. And I think we're still biting off a lot here. Let's dive into underrepresented communities. So as future phases of the streaming war and the audio wars unfold, right, the consumption preferences of early adopters, they're all but cemented. Therefore, the high growth demographics will become increasingly valuable targets for customer acquisition. As a result, platforms are increasingly focused on providing inclusive storytelling with diverse representation so that consumers from all backgrounds can find programming that brings them onto these platforms and keeps them there. Chris Erwin:So let's look at some key stats. These are pretty eye popping to me. Non-white consumers account for about 40% of the US population. And that number is steadily increasing. Also, the buying power of non-white consumers has grown by 555% since 1990. So that went from 458 billion to three trillion. So no platform will win its respective land grab without this 40%, right? This is probably going to be the new majority over the next few years. So as the initial target audience is all but acquired, the next phase of the streaming wars and the audio wars will be focused on multicultural audience expansion. Now, although this trend is universal across both streaming and audio, there are nuances in terms of how these trends will manifest themselves this year. So let's break them out one by one, starting with the streaming wars. Andrew, take it away. Andrew Cohen:Yes. So taking a look at how underrepresented audiences are going to impact the streaming wars in 2022, just like we've seen in the past with the investments in Moonbug, Hello Sunshine, all of that, the flow of investment capital from private equity funds in 2022 is going to mirror the capital flow from the major content buyers, which is mostly the streaming platforms. And we believe that in 2022 content spends are going to be redirected towards talent and IP that can help them reach new multicultural demographics. This is important. BIPOC audiences, for example, they over index on streaming. And despite making up only 13% of the US population, they actually make up anywhere between 15 and 39% of the viewership on top OTT platforms. Yet, despite this less than 5% of the leading actors on streaming shows are black. So it's no surprise that a recent study showed that the film and TV industry can unlock an additional 10 billion in annual revenue. That's a 7% increase by, "Addressing the persistent barriers around diversity and representation." That's huge, but also not to mention it's just the right thing to do. Chris Erwin:100%. This gap in the market Andrew has enabled the emergence of niche streaming platforms like Tyler Perry's BET plus, which reach 1.5 million paid subs in its first 18 months. This increased demand is already leading to a surge of investments in supply via new production companies that focus on expanding representation through storytelling. A few examples here, ViacomCBS partnered with Kenya Barris and others to launch BET Studios, which provides equity ownership to black creators across premium TV and film content. Also MACRO, a film studio with the state admission of the voice and perspective of people of color in film and media recently raised 150 million. Chris Erwin:Now there's other examples like LeBron James’ SpringHill Entertainment and more, but we got limited time. So we got to keep moving. As the streaming land grab expands, we expect these production companies to become increasingly valuable. Therefore, we predict that private equity companies will soon begin acquiring more studios with a specific focus on the demos that have long been overlooked by Hollywood. And in order to position themselves for returns on those exits, we predict that venture and growth funding will start pouring into those spaces in the near term as well. So then the next question is Andrew, how will this trend play out in the audio wars? Andrew Cohen:Good question. So similarly podcast providers need to find new audiences and luckily for them, multicultural consumers love podcasts. In fact, 43% of podcast listeners are non-white. So given that less than 40% of US population is non-white that means that podcasts over indexes on diverse audiences. And the growth of these audiences are actually dramatically outpacing the growth of white listenership. So for example, Latino podcast audiences have grown by 6x over the past nine years. BIPOC and Asian listenership has grown by 5x over the past nine years. And by comparison, white listenership has only grown by 17% over the past six years. Andrew Cohen:So there's some saturation here. So therefore we believe that we'll soon see kind of the audio native version of BET, Telemundo, Shondaland emerged to capitalize on this next wave of the audio spending spree. But also the video native companies that have already built fandoms in this space, like the company I just listed, they will soon begin to double down by expanding into audio, which I think leads to kind of the big conclusion, which is that really it's going to be these specialized content creators are really going to be medium agnostic going forward. What do you think? Chris Erwin:Andrew, to that end, the worlds of audio and video are converging. So all the major streaming services have launched major podcast initiatives and are adopting podcasts into film and TV shows. For example, Spotify, Wondery and other owners of audio native IP have signed major output deals to adapt their podcast into film and TV. If you can create content that connects deeply with a particular community, you're going to be in high demand by the platforms vying to win new eyeballs or new ears. So therefore in 2022, we expect that specialized studios and production companies will seek to maximize their value by expanding their output to cover both mediums. So the most valuable IP creators in 2022 will be the one who can delight one audience across two mediums. I like this phrasing. Think you came up with this, Andrew, the most valuable bullet makers quote unquote, will be those who can leverage their singular expertise to supply the front lines with the ammunition to win the fandoms they so desperately need. And I think with that, I think that ends part one of this part two series. Next week we'll talk about passionate affinity groups. Andrew Cohen:To be continued. See you next time.

February 10, 2022

Birth of the Ownership Economy: 2021 Year In Review

2021 was the year acceleration stuck. It was also the year in which the “passion economy” gave birth to the “ownership economy”, which blurs the line between creators and fans into communal ownership. All driven by the Web3 boom. And it reveals a glimpse into a possible future where all platforms are built, operated, funded, and owned by their users, who are rewarded with tokens that are proportional to the value that they’re able to create. Chris and Andrew explain this paradigm shift, summarizing in just 20 minutes the 15 industry articles, 31 podcasts, and 7 industry watch lists the RockWater team published in 2021.Subscribe to our newsletter. We explore the intersection of media, technology, and commerce: <a href="https://wearerockwater.us20.list-manage.com/subscribe?id=699cb66f8f&u=7c8d2ac82ab5e5c6aa3ae4b23" target="_blank">sign-up link</a>Learn more about our market research and executive advisory: <a href="https://www.wearerockwater.com/" target="_blank">RockWater website</a>Email us: rounduppod@wearerockwater.com--EPISODE TRANSCRIPT: Chris Erwin:So Andrew, it is the end of January and we are recording our first Roundup podcast of the year. I think we've left our listeners hanging a bit. Andrew Cohen:Pros and cons of not being a full-time media company, try our best to turn out excellent content, but not always the most timely we do our best Chris Erwin:We're full-time advisory and just added doing some direct balance sheet investing this year into digital goods as well, trying to have all of... Stay updated on all things content, a little bit of a challenge, but we do our best. So we just published a piece that summarized all of our amazing thinking and all of our articles and podcasts in 2021, it was our year in review and we talked about two key themes. So I'll talk about the first one. And then you could talk about the second. How does that sound? Andrew Cohen:Sounds good. Chris Erwin:All right. So looking back on 2021, one thing that didn't surprise us was sticky acceleration. So we defined this as that there was certain things, dynamics of the economy that were pulled forward during COVID in 2020. These things include e-commerce penetration, content consumption, and content spending. And what we saw in '21 was that this acceleration, it wasn't a reversion back, it was sticky. It stayed with us in 2021, actually continued along it's trajectory. So let me review a few key stats on that front. On the e-commerce front, reminder that in 2020 during COVID e-commerce sales grew 32%, 2021 they grew by another 16%. Incredible. On the audio front in 2020, 52% of consumers said they began listening to more podcasts. Last year, monthly audio listenership was up 7%. Chris Erwin:In OTT video by the end of 2020, 73% of consumers were streaming more OTT video content than they were before the pandemic. Last year in '21, the average number of streaming services per consumer increased 28% year over year. For the creator economy 2020, we saw Cameo grow its bookings by 350% and its GMV by 4.5 times while Only Fans grew its user base by 75% month over month during COVID. But last year in '21, the number of digital creators increased 48% year over year growing the total value of the creator economy market to $104 billion, which we covered in a pretty foundational piece at the end of last year. Chris Erwin:So look, a lot of things I think people had been anticipating were going to happen in the digital content e-commerce economy for a while, got pulled forward during COVID 2020, that stayed the trend last year. But as a result of these macro shifts, capital flowed accordingly, right? So we saw $5 billion of investor capital flow to the creator economy, total telecom, media, tech, aka TMT investments hit $233 billion, 27% year over year increase from 2020 and total content global spending increased 14% to $220 billion. Really some staggering numbers here, Andrew. So that was sticky acceleration, but something else happened here too. Tell us about that. Andrew Cohen:That might have surprised some people that kind of sticky acceleration, but I think we were always bullish that COVID was more of an accelerant than an aberration and I think that proved true in 2021. But I think one thing I could admit that I definitely did not see coming the beginning of 2021 was the birth of the ownership economy. So just take a step back first, we had the attention economy, let's call it 2010 to 2020, where social media incumbents empowered traders to reach and engage audiences at scale and monetize that reach through ad revenue and grant partnerships. Then last year we wrote about this at top of 2021, we were seeing the birth of the passion economy, where immersion creator economy platforms and services were empowering creators to monetize their fandom directly with things like subscriptions, merch, tipping, you name it. Andrew Cohen:And now what we saw in 2021 with the mass adoption and integration of crypto, it allowed creators to drive value beyond merely kind of transacting with their fan communities. And through the implementation of digital scarcity, web3 has enabled creators to monetize and engage their audiences in totally revolutionary new ways. So through limited edition drops and auction models, creators are now able to create and monetize new classes of the super fans, which can be capitalized upon far beyond the price of a single branded hoodie. And in these ecosystems, fans transcend the role of being mere consumers and actually become shareholders and collaborators they're incentives are now completely aligned with those of their favorite creators and their platforms. And the result is what we're calling the ownership economy, which blurs the line between creators and fans into communal ownership. And it reveals a glimpse into a possible future where all platforms are built, operated, funded, and owned by their users who are then rewarded with tokens that are proportional to the value that they're able to create. Andrew Cohen:And so the seeds of this ownership economy, we saw begin to sprout in 2021, and we definitely expect them to blossom beyond in 2022. Just a couple stats that really stand out from 2021. First of all, NFT sales in 2021 hit total sales volume of $23 billion, which was up from only $340 million in 2020. So again from $340 million in 2020 to $23 billion in 2021 is pretty incredible. And so as a result, we saw things like the NFT marketplace OpenSea, they recently raised a $300 million Series C for a $13 billion valuation. We saw similar valuations from Dapper Labs and other in the space. This is definitely something that we think is going to continue to emerge and grow in 2022. But as a reminder, we don't believe that this is at odds with the passion economy, see this as kind of a new subset of the passion economy. Definitely think that there's room for the web2 and web3 versions of this to continue to evolve together and not necessarily a zero sum game. Chris Erwin:Andrew, I'm just looking at those numbers when you say the sales volume for NFTs from $340 million in '20 to $23 billion in '21 that reminds me when I first started investing in Ethereum and Bitcoin back in 2017. And I just remember the trading volume, I felt like it probably like 10X during that year. And everyone was talking about it, all friends were like, "Are you investing in crypto? Where are you at?" And this year I could say, now the amount of texts that I got from friends and industry peers are saying, what's your status? What's your portfolio in NFT? Looking at these numbers, it explains all that context. Andrew Cohen:Very jealous of you, I wish my friends were telling me to invest in crypto in 2017, would be in a lot better place right now. Chris Erwin:Well, Andrew on the burgeoning ownership economy, right? So I think what we've established is this is going to be a recurring trend in 2022. And we have some predictions that I'll come out and talk about this. But before we get into those for the year ahead, let's take one last look back at how these trends shaped our priority coverage verticals in 2021. So as a reminder, if you go to our website, wearerockwater.com. You'll see all the different verticals where we specialize. So this includes audio, food, livestreaming, media and commerce, OTT video, and sports, and probably and it's something that we should add will be web3. I have to talk to our website developer about that. Chris Erwin:So we are now going to walk through across those main categories. What are the main highlights from last year? And keep in mind. There's a lot here. Our team wrote articles, industry watch lists and podcasts on all these topics. So they're all on our website wearerockwater.com go and check it out. So I think the first key theme, Andrew, is the creator economy and all things at the intersection of media and commerce. What's a highlight that stood out to you? Andrew Cohen:To me, when I think back on the creator economy in 2021, I think of the creator war which is yet another wars add to the list. Then we saw these emerging creator economy platforms like Patreon, Substack, how they began to establish market share and raised big money to build out tools and services, to empower and expand creator monetization. And in response, all the incumbents, the Metas, the TikToks of the world, YouTube, they began to replicate those tools in house. So like Facebook launching basically its own version of Cameo and its own Only Fans, as well as billion dollar creator funds that it launched to keep these creators in their ecosystems. I think that was really a defining characteristic of 2021. And now we're kind of beginning to see some of the seams of these creator funds begin to fray at the top of 2022. So very curious how these platforms are going to continue to evolve their models to keep creators happy in 2022. Chris Erwin:Yeah. Everyone's talking about that recent Hank Green piece on the TikTok creator fund, but love to save that for a separate podcast. So yeah. Look, I think in a similar vein in livestream shopping, right? So this is a trend we started covering a couple years ago when we saw a hundred billion plus market size out of China. And we're asking ourselves, why haven't these capital flows and investor conversations been happening here in the U.S.? Well, that changed. So all the major incumbents, they enter the race within livestream shopping, we think of YouTube and Meta and TikTok, Twitter, Pinterest. And we even saw some big livestream shopping festivals during the Q4 holiday season from YouTube and Facebook. Chris Erwin:But in addition to the incumbents, we also saw the emergent livestream, commerce, native platforms, raising big money to compete with and establish market share against those incumbents. So Whatnot became the first unicorn to emerge in a livestream commerce space at a $1.5 billion valuation. We also saw NTWRK raise a massive Series C and then other investments to Popshop and a bunch of other upstarts that raise rounds as well. So I think we're going to increasingly see capital flows to these upstarts in the new year, but we'll get to more of the details there in our upcoming predictions. Andrew Cohen:Absolutely. So moving to audio, what happened in audio in 2020? To me, the biggest defining trend of audio in 2021 was the birth of social audio. If you would've said the word social audio to me, 16 months ago, 18 months ago, I would've had no idea what you're talking about. And just within the first six months of 2021 Clubhouse raised at a $4 billion valuation. Facebook, Twitter, LinkedIn, Slack, Spotify, Reddit, Discord, they all invested and launched major social audio initiatives. Twitter acquired Breaker, Spotify acquired Locker Room to support these endeavors and it still has yet to be seen where this trend is going to go. Andrew Cohen:Definitely Clubhouse is not what it was at this time last year, but we are seeing a lot of activity on Twitter Spaces. And it seems like the space is very much influx, but led by Facebook, Spotify, a lot of the big platforms are really taking this seriously and continuing to invest in it. So I don't think that we can say that the story of social audio is over quite yet, but it began in 2021 and excited to see where it goes in '22. Chris Erwin:Totally agree. In addition into social audio, there's also some major acquisitions across a traditional podcasting space. So we saw SiriusXM, Pandora acquire Triton digital for $230 million and we saw Libsyn acquire AdvertiseCast for $30 million. So the capital's still flowing in the traditional part of the audio space. On top of that, we saw some major talent and IP deals from the top audio platforms that are vying for early stage market share, all with the goal of winning what we describe as the 'audio wars'. So we saw Call Her Daddy the podcast migrated over from the Barstool network, go over to Spotify for a $60 million licensing fee. And then Smartless was licensed by Amazon for an $80 million fee. So yeah, the money is still moving towards these tentpole talent and tentpole IP in audio, which is also what we're seeing in traditional video and OTT video as well. And we'll get to that in a moment. Andrew Cohen:So then moving on to sports, definitely 2021 was an exciting year for sports. Two things to me that really stuck out in terms of how to capture what happened in the world of sports business in 2021, I would say one, the explosion of sports betting in the U.S., cannot talk about sports in 2021 without talk about betting. Sports betting revenues doubled in 2021, putting it now at $52 billion and it's only skyrocketing up from there. And as part of a downstream result of this, but also as a result of several other factors like streaming wars cord-cutting, the increasing value of live content, which we've written about before, but the live rights values for sports teams are also continuing to explode. So this past year, the NFL re-upped its live media rights packages bringing in $110 billion over an 11 year deal, which is an 80% increase from its last deal cycle. Andrew Cohen:The NFL also re-upped its live rights package, doubling it in total value. And so as a result, we're seeing a ton of private equity capital moving into this space as well, especially in European markets. We're seeing American investors begin to invest in the media entities and live media rights packages for European sports leagues. So most recently we're seeing a bunch of U.S. PE funds bidding on French soccer leagues, media rights packages, which are being valued at about $14 billion right now. So a big reason why the overall sports economy is continuing to skyrocket at the pace that it is, I would say it's because of gambling, but also because of the huge valuation growth that we're seeing in their live media right packages, which is really the biggest revenue driver for all the major leagues. Chris Erwin:The numbers coming out of the sports media space, Andrew, which you've really educated me on, have just been so eye-popping over the last year and a half. I just can't believe it and it continues. Something that we covered extensively last year was the rise of creator competitions. So this is often merging traditional and digital native talent together for a tentpole competitive event that is then wrapped in a lot of different content that helps to market it and amplify the fandom. And it really led to some pretty incredible figures. So we saw Logan Paul fight Floyd Mayweather that drove over $50 million in pay-per-view revenue. Chris Erwin:We saw House of Highlights drive a hundred million views across their platforms for the first of its two showdown event series. So shout out to Doug Bernstein and Drew Muller, some of our friends over there. And just in December of last year, Triller announced its plans to go public at a $5 billion valuation, which I think is quadruple what it was last valued at. And as a reminder, Triller is one of the platforms that has actually really gotten behind these creator competition series and a lot of them actually go down on their network. Andrew Cohen:Bullish on creator competitions, bearish on Triller, save that for another episode. Chris Erwin:We'll have to see how that IPO goes. It's been planned, but it has not yet happened. And I think that'll be a good bellwether of the market here. Andrew Cohen:So then moving on to OTT video and the streaming wars, so really continue to escalate in 2021. And especially with really a subset of the streaming wars, which we're calling the IP wars, where, because of these huge arms races for user acquisition between all of the highly capitalized streamers, we are seeing tons of investment capital, M&A activity around studios and production companies. And that really kicked up this year. So a couple examples, MGM studios was acquired by Amazon for $8.45 billion, which is 27.5X EBITDA. Roald Dahl, story company, so all of the IP by author Roald Dahl was acquired by Netflix for $686 million with a planned billion dollar production spend behind it to put into original content, video games, everything. Andrew Cohen:And Candle Media, new venture by Mayer, Staggs and Blackstone made a couple big acquisitions, including Moonbug for three billion and Hello Sunshine for $900 million. So as the streaming wars are picking up, we've said the production companies to studios, they are the bullet makers, they're the arms dealers and they're more valuable than ever before. And that really became true in 2021. Chris Erwin:Shout out to Roald Dahl's estates. He is my favorite author. Favorite book is Boy, his autobiography. It was just cool to see that happen. Hopefully Netflix is a good servant of the IP that he's created. Andrew Cohen:I'm ready for a Matilda sequel bring back Danny DeVito. Chris Erwin:Dude, Danny DeVito all day. And also from New Jersey. Rise of kids screen time. So I think another thing that we saw in OTT video is 2020, there's a big inflection point here where I think kids in 2020 for the first time started watching and consuming more content on digital than they were in linear, that is a big deal. And so as a result of this, we started doing a little bit more work in the kids space. We were hired by a kids audio company and also a kids retailer and toy manufacturer. So we really believe in the space in that there's a lot more headroom here. So a few quick stats, kids screen time increased 50% since March 2020, 70% of kids spent at least four hours per day on screens. That's 10% year over year increase. 85% of kids under 11 spend an average of 85 minutes per day, watching videos on YouTube. Chris Erwin:And as a result platforms like Amazon, Spotify and Roku, they're all launching kids focused platforms. Instagram tried to launch a kids’ social network, but ran into some snafus there that might emerge again this year. We also saw YouTube, Netflix, ViacomCBS, Warner, Apple, Disney, all increasing their spends on kids' content. So it led to some things like what you talked about, Andrew, the $3 billion acquisition of Moonbug. And then we also saw Like Nastya a massive kids' YouTube personality that is also on a bunch of other platforms signing a major deal with Will Smith's Westbrook studios to produce a portfolio of animated content together. So yes, again, this is the kids and family screen time and retailer space and area that we get really excited about. Andrew Cohen:Absolutely. And so last but not least in food, media and commerce. We've always said that much like the kids and family vertical, food, media, really over-indexes on commerce conversions. And we saw that kick off in 2021 where we've previously seen a ton of activity in the CPG space with things like Complex and their Hot Ones hot sauce. During COVID we saw that continue, Barstool launched their frozen pizza line all across Walmart's nationwide. We also saw it expand into the experiential realm, both digital and IRL. So Ghost Kitchens really came on the scene this year, headed up by MrBeast Burger, which sold a million burgers in its first three months and has expanded rapidly since then. Also seeing companies like VDC, Virtual Dining Concepts, and our friends at Popchew build really exciting companies around turnkey style Ghost Kitchen platforms made for traders, brands, publishers to activate their audience in this kind of virtual restaurant and business model. Andrew Cohen:And now that things are moving back into brick and mortar, I wouldn't say post COVID, but now that we're not all locked down in our home, we're also seeing the success that some of these virtual restaurant models have had move back into the real world. Again, Barstool has launched a chain of some bars, sports bars, pizza restaurants. And I think with the success that we saw of tying out food markets globally before COVID, I think we're going to see that come back in 2022 in a big way and have these omnichannel food experiences between Ghost Kitchens, in-person restaurants, as well as more CPG activation. So it's an industry that's continuing to kick up steam in 2021 and [inaudible 00:19:54] that really excites us. Chris Erwin:Andrew, so I think we're definitely past our time limit. So just a reminder to our listeners guys, we wrote about all these topics in 2021. So if you go to our website, wearerockwater.com go to the content section and you'll get industry articles, industry watch list, podcast about everything that we just talked through. There's a lot there. And then upcoming Andrew, I think we just started to drop our predictions. I think our first one that's out is How Future IP Investments Will Super-Serve Under-Served Audiences Like the 40% of Non-Whites. So I think our next microcast is going to have to cover that topic as well as some other predictions that we have. I'm just looking at our recording. I think we might be a bit past our 15 minutes, Andrew, but maybe that's the new normal for 2022. We're going to be a little bit long-winded this time. Andrew Cohen:New normal. All right. See you next time. Chris Erwin:All right. Later.

December 9, 2021

The US-China $295 Billion Livestream Gap

Livestream shopping festivals in the US are ramping up during the holiday season. From Facebook and YouTube to even Twitter. And our RockWater team has been participating in all of them. Yet livestream commerce sales forecasts of $5 billion in the US still significantly lag China's sales forecast of $300 billion. Chris and Andrew therefore analyze the key market drivers explaining the revenue gap. Subscribe to our newsletter. We explore the intersection of media, technology, and commerce: <a href="https://wearerockwater.us20.list-manage.com/subscribe?id=699cb66f8f&u=7c8d2ac82ab5e5c6aa3ae4b23" target="_blank">sign-up link</a>Learn more about our market research and executive advisory: <a href="https://www.wearerockwater.com/" target="_blank">RockWater website</a>Email us: rounduppod@wearerockwater.com--EPISODE TRANSCRIPT: Chris Erwin:So Andrew, over the past few weeks, our team has been tracking some interesting activity in the livestream shopping space. So we've seen some holiday livestream shopping specials from social incumbents, like YouTube, like Facebook, and even Twitter. You and the rest of the team have really been digging into some of these case studies to learn more. Andrew Cohen:Yeah. No, we've been having a good time going through watching all of these big, new launches from all the major social incumbents for livestream shopping. And they're all have varying degrees of qualities, all are doing some things right, something's not as right. All in all it's been a big kind of improvement for the US livestream shopping ecosystem. But all of them still remind me of actually a 2021 prediction article that maybe we got right, maybe we didn't get right because the problem that we called out in that article really still seems to be persisting. That's the common theme that I'm seeing across all these streams. That problem is what we're calling the product gap. Chris Erwin:The product and the authenticity gap is part of that. Andrew Cohen:Exactly. Chris Erwin:So let's dive into that. Listeners, if you're familiar with our writings and some of our forecast dating back around 12 to 18 months ago, you've probably heard us talk about this before, but we're going to go through this observation that we cited dating back nearly a year ago. Talk about how it's evolved and then how we think things are going to change in solving this product gap going into 2022. So let's dive in. Chris Erwin:There's currently an authenticity gap in the US livestream shopping market, and it's preventing creators and thus consumers from really adopting the medium. And although the current sales volume in US livestream shopping is low. I think we're looking at some numbers of around 5 billion. The investor interest is quite high at, I think around 220 billion of investments that we've been tracking. So we surveyed around 10 prominent digital talent managers over the past year who represent hundreds of clients that influence hundreds of millions of fans. And the goal is to learn about their initial experiences with livestream selling in the US. And Andrew, I think to our surprise, there's only one manager we spoke to who ever had a client actually participate in livestream selling. And even then it was only one client in one campaign. Chris Erwin:We were surprised to hear that livestream selling is barely on the radar of most major US creators. Despite the fact that all the major social and commerce platforms have been developing products and features to make it easy for them to host livestream shopping experiences. So we asked them why and Andrew, one of the answers that we heard a lot was, and it really stuck out to us is many US creators view livestream selling as an overly commercial venture that will alienate their core fans through perceived in authenticity. And to quote, one manager told us specifically, "My clients don't want to be a walking, talking billboard. You can only ask your fans to do so many things. Pushing too many things, especially when you're doing a ton of brand deals is not a good long term look." Andrew Cohen:Seems like right now, amongst traders livestream selling is kind of being framed as a choice. Choosing either direct to consumer revenues or fan delight, but really at its best, we believe that it's an opportunity to do both. And I was surprised by the sentiment because digital creators are already massively influencing purchasing decisions. The US influencer marketing industry has grown about 50% year over a year since 2016. I think it's currently valued around 14 billion, 44% of gen Z consumers say that their purchasing decisions are based on recommendations from a social influencer. So, and made us ponder, where is this disconnect? How do we bridge this gap between the indirect influence of social marketing and this kind of direct salesmanship of livestream to commerce? And how come one is accepted as organic and natural and is part of our kind of everyday commerce experience and the other one is more distasteful? And I believe and we believe that it's due to a lack of access to sellable product inventory. Basically in other words, it's the authenticity gap, which is a direct byproduct of the product gap in the US livestream shopping ecosystem. Chris Erwin:Before diving into explaining the authenticity gap. Also just want a note, Andrew, so estimating the influencer marketing ecosystem around 14 billion, and I think just another number to add on to that, which you had actually wrote about the creator economy just over the past few weeks that that's estimated at over 104 billion. And that creator economy intersects in a very strong way with livestream shopping. So I think it just reinforces just how big the opportunity is here. But on your last note, I think as you're talking about the authenticity gap, I think we want to better understand why does that exist? Can you give us a little bit more color? Andrew Cohen:Really we think that the authenticity gap, this idea that creators feel that they're being inauthentic by pursuing livestream shopping is really because of this product gap, which is that creators don't have enough products to create genuine livestream selling content on a frequent basis. So it's always, let's look to China for an example. So on average, the top grossing streamers in China go live more than 300 times a year. They average about eight hours per stream, featuring all sorts of different items in each stream. And as a result, 25% of livestream shopping consumers in China are daily active users. And 71% consume it at least once per week. So this recurring active engagement is one of the major differences that explains why China's total livestream revenues are so much bigger than those in the US. I think China is running 300 billion today because Chinese viewers, they tune in on a regular basis because their favorite KOLs stands for key opinion leaders, basically their word for creators or influencers, but they always have cool new products to offer that they can authentically endorse. Andrew Cohen:So Chinese creators are able to stream every night without having to worry about being inauthentic because they have enough access to product inventory to enable them to service and delight their fans by consistently offering discounted access to the products that they genuinely love and personally endorse, which just makes for a much more engaging experience. And this is because brands and retailers in China are fully invested in this livestream shopping economy and it's become a vital part of its infrastructure. So over 100,000 brands and retailers participate in the Chinese livestream shopping market. On Singles Day, for example, Alibaba's version of Prime Day, it generated 75 billion last year in total livestream sales and over a thousand different brands participated. Chris Erwin:Yeah, the numbers from China are eye popping and particularly when you compare it to the current situation in the US. So let's talk about that. So by contrast in the US livestream shopping market, many creators, including those with millions of fans, they often don't have products to sell besides their own merch or products from a brand sponsor. Right. Now that may be enough to host a few successful live streams, but in order for a creator to go live on a recurring basis, like you were just talking about in China, they need a recurring stream of products that they can authentic and enthusiastically endorse. So then the question arises, why are US creators so limited in the products they can sell? Again, going back to our talent manager and talent rep survey, we've heard from their reps that even if they were interested in pursuing more direct commerce initiatives between product sourcing, development, and deal rights management, that procuring a wide array of products that fit their brand in audience is a logistical nightmare, right? A ton of work. Chris Erwin:So despite the creator's ability to influence purchasing and the high profile celebrity led product launches that circulate across all of our LinkedIn feeds and on social media, the reality is that most US creators rarely sell products directly to their fans. Their D2C commerce footprint is usually limited to just a few skews of brand and merch. So as a result, many established US creators are reluctant to pursue live stream selling because they believe that continuously pushing the same few products is actually going to alienate their fans and really dilute the sense of authenticity and trust that their influence is built upon. Andrew Cohen:But then the flip side of this is by only participating in livestream selling when they have a new brand sponsorship or merch line to launch, US creators are failing to kind of cultivate the user habits, the recurring long term usership that will drive the US livestream shopping market to the scale of China. And on the other hand, most of the US participants in livestream shopping who do have a diverse and robust product inventory, they're mostly, small boutiques or even national retailers like Fred Segal, who's on talkshoplive, Walmart who just did something with Twitter, but they don't necessarily have the audience influence or the reach or the engaging on camera charisma that's necessary to fulfill the potential of livestream shopping. So really the US livestream shopping market has to bridge this gap in order to drive those outside revenues that come through active and recurring engagement at scale. Andrew Cohen:And creators can use the live medium to engage and entertain fans in a personal and interactive format while also sharing the products that they love most. They're kind of performing the role of like the cool best friend with the deep product passion and expertise. And that level of authenticity and trust is going to be what powers the livestream shopping experience in the US, just like it has in China. However, until there is enough product accessibility to enable creators to host on a consistent basis, creators are not going to adopt the medium and neither will their fans. And I think it's going to kind of stay in this in between zone until we cross that gap. Chris Erwin:And I think that's just an interesting note is you gave some of the examples of Fred Segal on talkshoplive, or Walmart or JapanLA on Popshop. That consideration is a lot of these retailers, they were originally brick and mortar. And then during the eCommerce migration and digital transformation, they went online and they created web and mobile based storefronts. But it's completely different to think about putting your product in a livestream shopping environment where users are used to having a personality, right, in a livestream situation. Chris Erwin:And I think a lot of these brands got a lot of work to do, to think about how do they attach the right personality, the right influencer, whether it's someone that they incubate in house or that they find on social media accounts that already have an affinity for their brand. There's a lot to do there, but when they do it right, it's really powerful. So, okay, Andrew, so with your last point, a big question arises is how do we bridge the product gap in the US? How do we drive retail adoption and these product creator marketplaces that you're describing? What do you think? Andrew Cohen:So far we've seen, especially the major social incumbents, the ones who have launched recently, Twitter, Facebook, YouTube, they've attempted to solve it three different ways. I don't think either of them have quite hit the mark. One is using brands and retailers as the primary sellers. So rather than hosting it on a creator's feed, just letting a, like, for example, be Vuori hosted one on Facebook and they could use their own talent to sell, but that's one attempt. The second is using creators with their own product lines. Again, it's tough to do on an occurring basis, but YouTube, when they do work with creators, it's creators that have their own merch to sell. And then number three is sponsored streams. So these will pair a creator with a retail sponsor with inventory that they want to promote and sell directly. So these are all attempts. However, this doesn't really sufficiently bridge that divide and we believe that there needs to be more done. And we think that more will be done. We highlighted two. Chris, what do you think? Chris Erwin:So I think diving into one of them it's that more brands and retailers will turn to livestream eCommerce as a new sales channel, which will in turn increase the volume of sellable product inventory that is available to creators. So just to give some background numbers here in 2020, US brick and mortar retail sales declined by 10 and a half percent, right, primarily driven by COVID. But meanwhile, eCommerce revenues grew by 44%, right? We saw a massive pull forward migration into eCommerce purchases. Because livestream eCommerce is an extension of social selling, with the added elements of time and interactivity to drive urgency and increased conversions, our team actually anticipates that many of the same retail categories that perform well in eCommerce and influencer marketing will likely be the first to meaningfully invest in live streaming. Chris Erwin:So in particular, these retail categories include beauty, health and wellness, food and beverage, fashion, home goods, parents and kids, and technology, which are actually among the most popular livestream shopping categories in China last year in 2020. Andrew, the influx of product inventory into the livestream shopping space will be a meaningful step in the evolution of the US livestream shopping market. But that alone will not fully close the product gap, nor will it be enough to address the looming authenticity gap. Even when there is enough product volume and diversity to power frequent and consistent habits, one major challenge will still remain, how will best fit creators and products actually find each other? I think you has some interesting ideas here. Andrew Cohen:I think what really is going to need to happen to close that gap is that tech enabled marketplaces are going to emerge that connect creators with best fit products and vice versa. So again, let's look to China for some inspiration. So not only are there 100,000 plus brands and retailers that are pumping product into this ecosystem, but almost more importantly, Chinese livestream commerce platforms make it really easy for KOLs to access these products. So when a KOL logs on to Taobao Live, Pinduoduo, Tmall or [inaudible 00:13:30] to plan an upcoming livestream, they can easily search through all of the product inventory that has been uploaded onto the platform by brands and retailers and select the products to feature based on what kind of feels authentic to them and their audience and what they can speak to and sell. Andrew Cohen:So actually a rudimentary version of this does exist on Amazon Live today, but really nowhere else that we've seen in the US. On Instagram, even as more and more brands and retailers are uploading their inventories to the platform shopping portal, the products are still siloed from the personalities who might be most effective at selling them. So brands and retailers still need to do all of the heavy lifting to create the content or to find the right content creators to actually drive traffic to their Instagram storefront. Meanwhile, the perfect creator who's out there who's most well positioned to move the products that are on that brand's Instagram shopping portal is over on their page engaging a dedicated community every day on the platform, but likely failing to monetize their influence because they don't have any products to sell. Andrew Cohen:So that's really the product gap, which flows downstream of this authenticity gap, which flows downstream of just a lack of recurring user ship for livestream stopping in the US, which is really one of the biggest differences between the 300 billion that's happening in China and the five billion that's happening in the US. However, we do believe that this is going to change in the coming years. We believe that influencer and brand marketplaces kind of like what was originally the vision for YouTube's FameBit, that they're going to emerge to connect best fit products and sellers. And that really ultimately the right technology will play the role of matchmaker. And perhaps these solutions will be built out by a dominant social platform, or by a dominant commerce platform, maybe by one of the incumbents like whatnot or network. Excited to find out though. Chris Erwin:And I think on a closing note that our team is actually doing some interesting advisory work for some of those companies, which is fun. All right, Andrew, I think we're out of time. So as always, till next time. Andrew Cohen:See you then.

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What is RockWater Roundup?: Chris Erwin and Andrew Cohen quickly break down Media x Commerce and Creator Economy news. From digital video and social audio to livestreaming, NFTs, sports betting, and more.
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