05 April 2016
Startups
At Cisneros Interactive, under RedMas, we launched the first and only audio advertising network in Latin America and the United States Hispanic market, Audio.Ad. We did this because we are optimistic that users will increase their listening time on streaming services. Just like video/tv is seeing a monumental shift from Linear TV to video streaming (TV Everywhere, Netflix, YouTube, etc), we know that audio/radio is going the same way, and more listeners will stream podcasts, music, and news shows on their desktops and smartphones.
So why do I have such a negative title to this blog? Well, because the most popular companies offering these streaming services have monumental revenues and growth, but are still losing money. Why? Large parts of their revenue is going to music labels and publishers.
Pandora, which happens to be the #1 radio station in the USA in terms of audience (streaming or terrestrial), offers a “customized radio service” which in my opinion is truly fantastic. It is a publicly traded company, so here are their financials: 2015 Revenue of $1.2B, with an operating loss of $170M. In 2014 their revenues were $920M up from $600M in 2013. In 2016 their revenues, mostly from advertising, will probably increase another 20% but the company is still racking up losses. About 50% of its revenues go to pay music rights.
Spotify, is a global company with about 30 million paying subscribers and 70 million free, advertising supported users. Its “on-demand” service is also fantastic. Based on a Wall Street Journal article, “Spotify Seeks to Fine-Tune Music Rights as It Gears Up for IPO”, these are Spotify’s financials: 2015 Revenue of $2B, with a net loss of $200M. Music labels get about 58% of the revenue, and there is an additional 15% that goes to music publishers (songwriting rights).
Don’t get me wrong, there is nothing wrong with music companies getting paid, which obviously allow them to pay artists and songwriters, who are the creators of all this wonderful content. Also, both Spotify and Pandora are valued very highly (Pandora is valued at $3.2B) so investors think these companies will either renegotiate more favorable terms with the music industry or increase so much in scale that they will one day become profitable. I think the second reason is the most expected.
The point of my title is that after several years in business, and with more than a billion dollars in revenues, these companies are still losing money. Margins, when positive, will probably not be big. For two companies who are revolutionizing the music industry and benefitting millions of users with a great service and the music industry as a whole with a new and large revenue stream, the value they will extract does not seem commensurate to their innovative efforts and risk they took.
I recently read an article “Emerging Markets present a great opportunity for mobile and app advertisers. But how do you enter them” which contained some good data points which I will share with you (just the data pertaining to Latin America).
Finally, there seems to be no secret to what many, including us at Adsmovil have been saying since 2011. Skeptics may have pointed out that data plans were very expensive in Latin America, that “all you can eat” data plans did not exist, and that most people used prepaid phones so they would not have credit for data consumption.
Well, according to the study I read and using data from the PEW RESEARCH CENTER, this is the penetration data from Latin America:
Percent of users with internet access and who own a smartphone (Pew, 2014)
And these figures are from 2014, so they are much higher now since smartphone penetration has increased very rapidly.
And with this increase in usage and smartphone ownership, mobile advertising has increased greatly.
Mobile Internet Ad Spending 2013-2018 (US$ millions, eMarketer March 2015)
This data is consistent to what we are seeing in Adsmovil (and if you follow Facebook’s and Google’s quarterly earning reports it all points to the same). In Latin America mobile advertising growth is projected to grow almost 70% from 2016 to 2017, and then another 50% from 2017 and 2018.
This is very good news, and I remember distinctly our first visits in 2011 and 2012 to ad agencies. There were no advertising budgets for mobile marketing. A lot has changed in the last 4 years!
When I used to work at McKinsey almost 20 years we once did a pro-bono project for the Florida Council of 100 (a non-profit organization comprised of executives of large companies based in Florida), and we realized that contrary to popular perception, most jobs are created by medium and small sized companies.
I was reminded of this when I read an independent study from the University of Pennsylvania on Kickstarter’s impact on the overall community. It turns out that since its launch on April 2009, Kickstarter (for those unfamiliar with this company, it’s the leading crowd sourcing site to finance creative projects) has delivered very impressive results:
• 8,800 new companies
• 29,600 full-time new job + 283,000 temporary jobs
• Kickstarter-funded companies had $5.3B in revenue
These are very significant figures (Google which is one of the most valuable companies in the world has about 58,000 employees), and proves how large an impact start-ups can have in job creation. Interestingly, in the USA the law that allowed equity crowd financing was called the Jobs Act (Oct 2015).
Fortunately, in the past couple of years several governments in Latin America have realized the importance of start-ups in fueling both innovation and job creation. Chile has its Start-Up Chile fund, Colombia has Innpulsa, Buenos Aires has Start-Up Buenos Aires, just to mention a few of these government sponsored programs.
And Latin America also has its own “Kickstarter”. Idea.me, Latam’s largest crowd sourcing site, is now operational in Argentina, Brazil, Chile, Colombia, México, Uruguay, and Miami. Lower ecommerce penetration and cultural differences such as a general mistrust of strangers and lower “social responsibility” consciousness has hindered Idea.me’s growth.
However, with an experienced and committed new backer, Alejo Nitti (co-founder of Tom’s shoes) and a new management team, we hope that Idea.me can create a similar impact in Latin America as Kickstarter has in the USA.
Visit www.idea.me and support a creative project of your choice (disclaimer: Cisneros is a small investor in Idea.me).
We have been reading for years how Digital TV streaming is changing the way in which we watch television. For example, people between the ages of 18 to 24 only watched movies and TV shows half the time on a television set. But, what’s going on with the radio and audio?
In recent days, Audio.Ad launched the study “State of digital audio in the US Hispanic market”, looking to analyze audio content habits of Spanish speakers through different Internet connected devices.
Within the general findings and conclusions of the study, I want to focus on the streaming results.
3 out of 10 respondents in the study consume audio through online streaming sites. The apps most used by Hispanics are: Pandora (not available for Latin America) with 33%, Spotify with 15% and Bandcamp with 15%.
Pandora is a platform that allows you to create your own radio stations with your favorite type of music; nevertheless, even though the Spanish speakers’ most listened to application in the US continues to be limited, its service is not available outside the US, Australia and New Zealand.
In the case of Spotify things change a little bit. According to The Telegraph, it is the first musical streaming service to reach 100 million active users throughout the world, and 30% of this figure are premium users.
And Bandcamp, app that supports artists’ success through the purchase of music by their fans, turning it into an exclusive service based on user experience and musical taste. By 2015, music lovers had paid US$ 162 million to artists using Bandcamp.
All of these have a defined target and audience that, when aggregated, provide a great entry gate for online advertisement, where histories and emotions play a fundamental role in connecting brands and Hispanics with audio messages.
I invite you to experience Audio.ad.
