In the battle for VC funding, Asian podcast platforms claim victory over content-driven firms

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Podcasting has quickly moved from a niche obsession to an area drawing considerable investor interest across Asia.

Consider Vietnam-based Voiz, which raised an undisclosed sum in seed funding from 500 Startups earlier this month. Or India’s Kuku FM, which brought in $5.5 million in a Series A round backed by Vertex Ventures and its existing investors this February – last year the company garnered seed funding from Shunwei Capital, India Quotient and 3One4 Capital.

In China, Matrix-backed Lizhi got listed on the Nasdaq in October last year – the company’s expansion plans include countries in Southeast Asia. Another China-based podcast firm Ximalaya, which counts Xiaomi Corp, TAL Education, Kleiner Perkins and WestSummit Capital among its investors is gunning for a $350 million raise. It is also contemplating an IPO this year, according to media reports.

Binh Tran, GP of 500 Startups Vietnam is clear that he expects audiobooks and podcasts to grow in Southeast Asia as they have done in the US and China. He says, “It is like an infant, but we believe it will emerge as a sizable market, with growth rate projected in the 25 per cent to 30 per cent range, per annum in 2020 and beyond.”

When it comes to India, Piyush Kharbanda, partner at Vertex Ventures Southeast Asia and India says, “There is significant market potential – India has the third largest audio listener base after China and the US, with about 176 million audio content users projected by 2023.”

Perhaps the ultimate recent validation for podcasters came when Joe Rogan signed an exclusive deal with Spotify, pegged at over $100 million. The platform also signed on celebrity Kim Kardashian West for an exclusive podcast. However, as many podcast content companies in the region are discovering, Rogan is an outlier. For those expecting a similar windfall, it is likely to be a long wait, with no end in sight.

That’s because the focus for VCs is very clearly on podcasting platforms and not individuals or firms in the business of content.

Speaking about the investment in Voiz FM, Tran of 500 Startups says, “We were looking for a team with the right approach to building companies: the ability to test out hypotheses about customers and the market, with the least amount of money and time.”

Inspired by founder Thai Tran’s fondness for audiobooks, Voiz FM brought on board its first angel investor who helped it stitch up partnerships with local publishers and telcos. The app was officially launched in October 2019. Voiz FM has so far been heavily skewed towards knowledge sharing; a very important category in Vietnam. Popular titles include Dale Carnegie’s ‘How to win friends and influence people’ and a podcast from Long Bui, the winner of a national English contest called ‘How to speak English as fluently as Vietnamese’.

On remuneration models, Tran says, “Subscription is our sole revenue stream but we will diversify it in the next six months with advertising and B2B solutions.”

No revenue, no problem

When it comes to Kuku FM, there is at present no revenue model. Subscriptions are on the anvil, but still at least a year away, according to co-founder and CEO Lal Chand Bisu. Advertisers are present on the platform – brands, local media houses and Bollywood films – but are not being charged.

Bisu explains, “We first want to become the best product in the space and only then focus on monetization. Else, it will be a distraction.”

As avid listeners of podcasts, the founding team at Kuku FM conducted research pre-launch, to gauge market potential and ensure that the new venture was more than a passion project. Initially set up as an avenue for user-generated content, Kuku FM now features curated contributions from YouTubers with large followings, radio jockeys and voiceover artists – a professional user-generated content model, as Bisu calls it.

Kuku FM has focused on programming in Hindi which is spoken by over 43 per cent of India’s population. The firm has started foraying into several regional languages, as well as English. It claims a userbase of between 90,000 to 100,000 people who spend 50 minutes a day on the platform.

The revenue model is expected to be evenly split between subscriptions and advertising, similar to China-based podcast firms like Ximalaya and Lizhi that Kuku FM’s investors have previously worked with.

Research done by the firm has revealed that 63 per cent of its audience – primarily from the Tier II towns in India – was comfortable with a monthly fee of Rs 100 ($1.3) for unlimited access. Audio in particular has an edge given its low supply.

Bisu says, “You can get infinite text and video, but you don’t get audio as freely.” He points to Storytel – its vernacular language offering for India is built around paid content. The Sweden-based firm has over 50,000 users, with an asking price higher than Netflix. He adds, “This is why we have a strong conviction that monetization will be easy. When we are ready, we will start.”

The discontent with content

Interestingly enough, there are incumbents in India who are already along the monetization journey. At podcast firm Aawaz, which has focused on Hindi content from inception, revenues come from a mix of branded content and a suite of voice-based ad solutions from its parent company Agrahyah Technologies.

But the funding journey for these firms has been less smooth. Aawaz raised a seed round of $1 million from friends and family and were in talks to raise a Series A round early this year.

Sreeraman Thiagarajan, CEO, Aawaz says, “March onwards, the sentiment has been terrible. We have decided to pick this up, after an improvement. We are close to cap ex breakeven. The sponsorship for one show pays for 10 others – it is a well-oiled engine. For us, capital is not for survival but for inorganic growth.” Aawaz is also working on a programmatic network to serve up relevant advertising within podcasts.

In spite of IVM being synonymous with podcasts in India, driven by a branded content-based revenue stream, investor interest from VCs has been poor, and the company is yet to turn a profit.

Speaking to DealStreetAsia, its founder and CEO Amit Doshi says “We want to raise now and see an opportunity to really accelerate what we’re doing.” Last year, the predominantly English language content focused firm, made a serious foray into regional languages. Doshi says, “We’re having a number of conversations with media companies, VCs and funding organizations. The one challenge has been that while India has a fairly decent tech VC ecosystem, our business is not really tech. I am trying to see if there’s any way of navigating that. To be honest, I feel like I haven’t got much traction over there.”

IVM is now focusing on media organizations – both legacy companies and new-age ones – as well as PE investors who are willing to looking further afield from technology businesses.

It is an issue that surprises observers of the space. Karthik Nagarajan, the chief content officer of media agency Wavemaker who also runs a podcast on IVM says, “While not on top of VC activity, when I look at some startups in the space, I’m a little puzzled that we haven’t had a Gimlet-like acquisition”, referring to an exclusive content arrangement between Spotify and podcast firm Gimlet.

Even the advertiser ecosystem – a major source of revenue for most monetization driven podcasts – does not have a very nuanced understanding of the space. Nagarajan says, “The entire brand ecosystem has been criminally slow in adopting podcasts. They look at it from the lens of paid digital media in terms of reach and engagement. They do not understand that podcasts have the most extraordinary unaided recall in the history of advertising.”

It ultimately boils down to the fact that tech-driven plays in the podcasting space, have a distinct advantage, according to Yash Sankrityayan, principal at Jungle Ventures, who also runs a podcast on the world of Southeast Asian startups and investments called Upside Town. He says, “We typically want to invest in a platform that enables creators and content, as opposed to a content creator. In the case of content, its attractiveness is not something you can predict or control via a formula. Therefore, you can see a lot more investment in enabler or collaboration platforms like Kuku or Voiz.”

Nansi Mishra who runs the 100X Entrepreneur podcast adds, “In India, running a podcast or a channel of multiple podcasts is a lifestyle business and not a VC-sort of business. VCs typically want millions of dollars in returns. Podcasting platforms like Spotify or Kuku FM have that potential. The platforms themselves may buy studios, and that’s the opportunity we can look for in the coming years. But for now, I don’t think VC firms will invest in podcast studios.” As for advertising, Mishra says, “Ad revenue is not scalable in 2020. It can change in the coming years.”

When asked why Kuku FM has succeeded in securing funding, Bisu says, “It has to do with the team. We are serial entrepreneurs who know the space.” Previous to Kuku FM, Bisu and his co-founders had created a startup that was acquired by Indian edtech firm Toppr.

The rest has to do with Kuku FM being, by Bisu’s own admission, a technology-driven data-heavy company. He says, “We take into consideration what users are hearing, and when they drop off. Around 20 per cent of the team know how to write a query and see user behavior,”

Kuku FM also claims to have taken AI-driven steps in aiding discoverability – a big problem for podcasting platforms. Bisu says, “Users want to consume content by mood. We convert the audio into text and our system learns different sorts of content and guesses what people who have liked something would also want to hear.”

Vertex Ventures’ Kharbanda adds: “For a company like Kuku FM, some of the key metrics we were looking at included engagement and retention among a set of so-called power users, and understanding how large this market segment is going to be in the near term. The other key driver was around content preferences, and how the company can acquire such content in a scalable manner. The combination of the two will drive significant monetisation, although we are somewhat early in the market adoption curve.”

Voiz FM too touts its tech-driven chops – apart from a recently launched recommendation algorithm, its working on in-house AI voice technology. Voiz FM’s Tran says, “This will allow us to increase the ‘stickiness’ of our app and provide a better chance to convince listeners to purchase premium packages.” Expected to launch next quarter, the AI-voice technology will reduce time and production costs, besides allowing the audience to choose accent and gender on podcast narrations. Tran says, “More than 80% of respondents could not distinguish our AI Voice from a human voice in a blind test.”

The road ahead

Voiz intends expanding its offering of copyrighted material to 1,500 audiobooks and 5,000 podcasts. When it comes to expansion, Tran says, “We do plan to move to other Southeast Asia markets, but will carefully consider between consolidating Vietnam and expanding elsewhere. We don’t want to stretch our resources too much. As Vietnamese often say ‘chậm mà chắc’, which means ‘slowly but surely.’”

500 Startups’ Tran adds, “Voiz FM’s growth needs to match the adoption rate of listeners. If they are seeing unmet demand, then perhaps additional capital is needed. However, we wouldn’t want them to raise to inflate growth just because the demand isn’t there. I think there’s a correction occurring in the market and investors will be expecting much more in terms of traction. Voiz FM needs to be prepared for that.”

Kuku FM is in no hurry to raise Series B and is clear that it only wants investors who, according to Bisu, “believe in the future of the audio market.” He adds, “It’s a long-term game. You have to wait eight to 10 years for it to become really big.”

 

Editor’s note: This article has been updated with comments from Vertex Ventures.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.