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How Big Is The Digital Audio Opportunity? Luma Pegs It At $45 Billion.

Broadcasters and podcasters have sung from a similar hymnal when complaining that the amount of ad dollars funneled into the two forms of audio has not kept pace with actual consumer usage. But the size of the digital audio opportunity may bring a chorus of hallelujah based on new estimates from Luma Partners.

“It’s about 20% of the digital time spent, and yet it’s always lagged behind from an advertising perspective,” says Luma Partner Conor McKenna. He estimates that if ad share is more closely aligned with consumer usage, billions of dollars could flow into digital audio. “That's a $45 billion opportunity,” McKenna said during a presentation at Luma’s Digital Media Summit earlier this month.

Even though Luma – an investment bank focused on digital media and marketing – thinks digital audio advertising still faces some challenges inherent to the format, the pivot away from ad cookies will help the sector. “We’re now in this world where we're shifting from third-party data to first party data platforms. And these are some very large first party data platforms who control this ecosystem. So there is a lot of opportunity there,” McKenna said.

Another factor that should help digital audio, especially podcasting and digital radio, is the growth of the creator economy. Thanks in part to the rapid rise of Instagram and TikTok, Luma expects nearly $6.2 billion will be spent on influencer marketing this year. And that number will hit $7.1 billion next year according to the firm’s forecast.

“The creator economy has now gotten too big to ignore,” McKennna said. “This is driven first and foremost by the consumer adoption.” He expects those numbers to continue to climb, especially as influencers have gone from being pitchmen to actually building the companies themselves. McKenna points to YouTube star Jimmy “Mr. Beast” Donaldson as a good example. Luma says that Mr. Beast is looking to achieve a $1.5 billion valuation for its studio and online brand.

Luma CEO Terry Kawaja said that artificial intelligence also has the power to change everything as it combines the creative with data, positioning it as both a threat and opportunity to companies.

“I think the marketing industry is obsessed with this notion of efficiency, making things marginally cost less, usually with a focus on media and data. And that's all well and good, but it doesn't capture the broader picture,” Kawaja said. “The broader picture is efficacy, which is largely a focus on creative… When AI gets applied to creative, and it addresses efficacy in media and marketing, buckle up, because it's a whole new world.”

Luma’s outlook comes amid an uncertain time in both advertising and on Wall Street. McKenna said that higher interest rates have had a “massive impact” on both the deal market and companies themselves. So while he says there has been a “stabilization on valuations,” it is not where most executives are focused. “Profitability has become increasingly important for anyone past that early stage of company formation,” McKenna told investors.

Tracking by Luma shows that in 2022 there were no new public companies launched after there were 18 IPOs in 2021. And in the venture capital market – which has been funding most of podcasting’s early stage company growth – Luma says $190 million was raised during the first quarter among 5,426 deals, compared to $371 million raised in 7,924 deals during the first quarter of last year.

This year could be different. At least one new audio company is expected to go public, as LiveOne plans to spin-out its PodcastOne division into a freestanding company.

“We're starting to see some stabilization,” McKenna said of the ad tech and marketing tech companies that are back in the green on the stock market.

Kawaja said that there are signs that the tailwind will start to take over from the economic headwinds. “We will see the good news in this quarter – there is no recession,” he said, pointing out that 95% of ad tech and marketing tech companies beat their first quarter revenue guidance.

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