This Week in MediaTech 🚀 | Monetising Fandom
Friday 8th January, 2021
Themes I’m exploring this week 🕵🏽♂️
Startups that enable music fans to express their fandom
Bas Grasmayer of Music X wrote a thought-provoking essay this week on the topic of fan-centric streaming services. Two facts in particular blew me away:
Only 30 percent of Tencent Music’s revenue comes from subscriptions, music downloads, and advertising revenue. 70% comes from fan-to-creator micropayments. These can be straight-up donations from fans, or given in exchange for virtual goods.
The ARPU of Tencent’s social entertainment business (based on micropayments ) was 18x higher than that of its online music business (based on subscriptions and downloads).
Tencent Music is monetising fandom through micropayments with an ARPU an order of magnitude greater than subscriptions. This is in stark contrast to the incumbent western music streaming products, which generate basically no revenue from fandom.
This is a massive opportunity for startups to address, in my view.
I would describe the dominant streaming strategy of the past decade to be a ‘one size fits all land grab’™ based on four components:
Pricing: Sell a fixed-price ($9.99/month) subscription to as wide of an audience as possible. Run this for as long as possible, before moving downmarket by introducing discounts and bundles. Reduce ARPU in the process.
Growth: Continually grow top of the funnel by acquiring more free (ad-supported users). Convert as many of these users into paying subscribers. The funnel ends there.
User segments: All users (whether they are laid back listeners or superfans) are born equal. They receive the same features and are monetised equally.
Value proposition: First it was the ability to listen to some songs. Then it was the ability to listen to most songs (bigger catalogue). Then it was algorithmic recommendations (discovery). Then it was playlists (community).
I believe that unless it changes tack, western music streaming will reach the top of its S-curve. Music subscription penetration in the US is roughly c30%. Meanwhile, c35% consume music via an ad-supported tier. Converting this latter cohort of ‘late adopters’ will be exponentially more difficult (since they place less value on music, and are therefore, less willing to pay). Chasing this segment feels somewhat fruitless. The bull case for incumbents is an increase in subscribers, at the expense of ARPU (as late adopters come in at a lower price point). Spotify is already suffering from this problem.
A more sound strategy for the industry would be to focus on better monetising the segment of users who are willing to pay more for music. These ‘superfans’ want to showcase their fandom. They want to spend money to support the creators and artists they love. Superfans have existed since the dawn of music, but have been ignored by streaming incumbents.
Tencent Music is a case study in how to cater to superfans’ wants. For example, users can skin their app to match their favourite artist, purchase behind-the-scenes content or a pre-release streaming block for a new record. In 2016, pop singer Jay Chou sold limited time early access to his Bedtime Stories LP for $3. Tencent then added a new gamified dimension to this fandom by publishing public leaderboards that ranked fans on how many times they purchased the album. In Jay Chou’s case - the winner had bought it 400 times 🤯.
Contrastingly, there are limited ways for superfans to express themselves digitally in the west.
Major streaming services own the exchange of audio. Social media channels own (to a degree) the non-audio relationship between fans and artists. Unlike in East Asia, there is no product (of scale) that enables fans to both consume music while simultaneously expressing their fandom.
Tencent’s segment split suggests that this opportunity is potentially greater than the entire revenue pool of subscriptions. This is a major revenue gap that will inevitably be filled by someone.
My bet is on a startup winning here, not the incumbents. I do not believe that the incumbents will be able to simply layer on a ‘fan-centric’ business model on top of a ‘catalogue-centric’ product. We have already seen early evidence of them failing to do this. In 2020, Spotify and SoundCloud both launched features that enabled donations (as a response to lockdowns affecting artists’ live revenues). Neither have led to any success stories with respect to fundraising volume. Rather than being seen as a way to express fandom, they were viewed by users as a form of charity. In many cases, it was felt that this charity was undeserved.
Tencent, on the other hand, offers monetisation options that enable fans to make selfish purchase decisions without merely relying on donations. Superfans receive tangible (exclusive content, skins) and intangible (gamification) rewards in exchange for their micropayments. This is the opportunity that I believe can and will be addressed by a startup in the West.
What does this music-tech fandom unicorn look like? My guess being would be a product that combines livestreaming + recorded music, video + audio, desirable (and maybe tokenised?) virtual goods. It will likely have to strike innovative record-label licensing deals in order to make its economics work. It would also need to generate an ARPU much higher than Spotify’s ($5-6/month) to compensate for a lower number of subscribers (given it is not designed to be a mass market product).
A few startups innovating in this space currently (thanks to Bas for flagging many of these names):
Mixcloud (my old employer) - fans subscribe directly to the creator, rather than the platform. Creators can set their own price, and determine what their fans get in exchange (exclusive tracks, blog posts, tickets).
Renaissance: Let’s artists host ‘streaming parties’ where fans are ranked on public leaderboards based on how many times they have streamed a song/artist.
LÜM, users can earn or buy on-platform currency called “notes” that they can then redeem for rewards around specific tracks and artists. Gifting will display fans as supporters on the tracks’ and artists’ profiles, which also have leaderboards for top supporters.
Matter lets artists monetise on top of streaming consumption through a digital Marketplace for music assets and a paid membership feature called Artist Clubs, which are similar to channel memberships on YouTube and Twitch.
Currents.fm allows artists and curators to build playlists of tracks from multiple sources like SoundCloud and Bandcamp, and fans to access those playlists via four different support tiers ranging from free to $10/month.
Blockchain based music platform Audius is intent on letting artists set their own per-stream rate for their songs.
Catalog (from the team behind Zora) lets artists press and sell single edition, digital records - authenticated using a tokenised certificate.
News from this week 🗞
Gaming 🎮
Roblox raises $520 million at a $29.5 billion valuation. It also announced that it will go public through a direct listing. Notable investors in the round include Warner Music Group - signalling further intersections between gaming x music (Sony invested $250m in Epic Games in 2020). Link
Playtika, an 11-year-old social casino mobile gaming company, has fleshed out the terms of its IPO indicating a market value of c$10 billion. That's >2x what a consortium of Chinese companies spent to acquire the company in 2016. Link
Fortnite maker Epic Games announced the acquisition of RAD, a 32-year-old maker of game development tools. RAD has many products that are well known (and loved) by game devs. Bink is its best known product - a video codec for games that focuses on high compression and speedy rendering. Link
Pokémon GO creator Niantic has acquired Mayhem. Mayhem is a San Francisco gaming startup that's building a league and tournament organisation platform to help gamers create their own communities around popular titles. Mayhem was in Y Combinator’s winter 2018 batch and went on to raise $5.7 million in funding. Link
Audio 🎧
Boat - India’s fastest growing audio and wearables brand, has raised $100 million. Boat is arguably the most successful hardware startup story to date in the world’s second-largest internet market. Link
Alibaba shuts down 12-year-old music streaming app Xiami. Xiami was once known for its smart discovery, elegant design, social features and support for indie musicians, which helped attract a loyal following among China’s artsy, hipster types. The beginning of its decline coincided with the battle for music rights in China. A digital music behemoth was formed in 2016 when Tencent bought a majority stake in China Music Group, which brought to Tencent a reservoir of exclusive music deals. By 2017, Tencent’s music apps controlled as much as 75% of China’s music streaming market. Link
Video 📹
Teamflow lands $3.9 million for a productive virtual HQ platform. Formerly known as Huddle, Teamflow is creating a virtual headquarters to help distributed teams collaborate and communicate from a singular platform. Competitors include Branch, which has a more social feel, and Hopin, a platform last valued at $2 billion, which produces digital conferences. Link
Dutch startup Media Distillery raises €3 million for AI that analyses video content. The Dutch company’s patented ‘Deep Content Understanding’ technology can screen a video for relevant subject matter, events and time stamps, generating metadata that clients can monetise to engage more viewers. Last year the platform analysed over 7.5 million hours of content, used by video providers such as Telenet (Belgium), YouSee (Denmark), Eutelsat (France), Proximus (Belgium) and VTR (Chile). Link
Hopin buys livestreaming startup StreamYard for $250M as it looks to expand its product lineup. The acquired company, which bootstrapped itself to material revenue scale, will retain its brand and in-market product. The deal is worth $250 million, paid in a mix of cash and stock. Hopinraised a $40 million Series A in late June of 2020, and a $125 million Series B last November at a valuation of $2.125 billion. Link
Veo raises $25M for AI-based cameras for sports. Veo has designed a video camera and cloud-based subscription service to record and then automatically pick out highlights of games, which it then hosts on a platform for its customers to access and share. Link
AR/VR 👓
Perfect Corp., developer of virtual beauty app YouCam Makeup, closes $50 million Series C funding. YouCam Makeup lets users “try on” virtual samples from more than 300 global brands. Launched in 2014, YouCam Makeup has c50 million monthly active users and has expanded from augmented selfies to include livestreams and tutorials from beauty influencers, social features and a “Skin Score” feature. Link
Practically, an EdTech platform based in India has raised $4 million. What differentiates Practically is its approach to learning, which includes immersive videos, interactive augmented reality and 3D simulations. Link
Omnivor, a 3D holographic content startup has closed a $2.75 million Seed round. Omnivor provides a ‘turnkey solution for building, hosting and streaming volumetric video assets for advertising, entertainment, training and other content needs. Link
A report from DigiTimes says that Apple is now in the "second phase" of production for its AR glasses, citing supply chain sources. Now, what the "second phase" means is a bit ambiguous. However, when lined up with other leaks, it's enough to lend some optimism to an imminent arrival (12-24 months). Link
Meanwhile, Facebook's planned smart glasses will arrive “sooner than later” in 2021, but won’t feature the kind of digital overlay technology that is associated with augmented reality, according to hardware chief Andrew Bosworth. The glasses, which are being built in partnership with Ray-Ban and parent Luxottica Group, will connect to a device, but users won’t be able to overlay digital objects onto their real-world view. Link
TikTok rolled out its first lidar-powered AR effect this week. Snapchat was among the first apps to leverage the iPhone 12 Pro’s LiDAR Scanner for AR, but now TikTok has followed suit. The effect features an AR ball, similar to the one that drops in Times Square on New Year’s Eve. After a countdown, the ball drops and explodes to fill the room with confetti, as well as a floating “2021” in the air. Link
Other 🤷♂️
Local news app News Break raises $115M. The press release claims this round makes News Break “one of the first new unicorns of 2021,” but the startup declined to disclose its actual valuation. Founder and CEO Jeff Zheng said that when he started the company in 2015, the goal was to differentiate itself from other news aggregation apps by focusing on local news, and to “help or empower these local content creators.” Link
Text marketing startup Voxie raises $6.7M in Series A funding. Voxie lets businesses have personalised text conversations with customers at scale.Link
Interesting data from this week 📈
A scatter chart of the top 50 grossing films from 2019. There’s a slight linear correlation between budget and returns, but more importantly, none of these films cost less than $20m, and the average film cost $129m to make.
Source: Nathan Baschez
Thank you for reading✌️