Inside Radio: Inside Radio Q&A: Alkali Partners’ Chris Skubic and Mun Hoe Sze Tho

When Cloud Cover Music decided to exit the retail music service business with a sale to SiriusXM, it turned to Portland-based independent tech investment bank Alkali Partners to find a buyer. Chris Skubic, Alkali Partners’ managing partner and lead on the deal, sees the transaction as another indicator of the “feverish pace” of deal making in the fast-growing audio tech business. In a Q&A with, he and Vice President Mun Hoe Sze Tho discuss the current deal market, consolidation, and why interactivity is central to the future of audio.

What deal making do you see ahead in the audio/radio/podcasting businesses?

Chris Skubic: We expect the current high levels of M&A activity to continue; primarily driven by players in the media and entertainment space pursuing deals with software startups. We’re seeing this now with audio media companies acquiring marketing and ad tech firms. By adopting their technological solutions, companies like those in podcasting can garner more revenue by optimizing and targeting ads for increased conversion for their partners.

We also see the potential for additional M&A activity around marketing attribution analysis technology. Players in the background music space want to demonstrate their value proposition to their retail customers by providing analytics that measure how certain types of music impact basket size and dwell time – a trend that has led to several successful transactions for companies we advise. AI-supported podcast automation and royalty tracking software are other fields we are watching closely. With all these game-changing technological innovations, it’s easy to see why deal activity will continue at a feverish pace.

Do you expect more consolidation in the audio space?

Mun Hoe Sze Tho: It depends on the market segment. For example, we anticipate continued consolidation in B2B music distribution as large media companies want to capture and monetize foot traffic from commercial locations. There will be plenty of similar stories in the coming year, given the ever-growing number of audio-focused startups within entertainment tech fueling the AOOH (Audio-Out-Of-Home) trend. The speed at which these innovative technologies are entering the market is pressuring larger companies into buying situations instead of taking the considerable time needed to build it themselves. Given that these acquirers are often not traditional tech companies, developing these solutions in-house is also especially costly. It makes going out and buying a market-proven solution that much more compelling.

That said, there is a lot of competition at the smaller end of the market. For these startups, it becomes critical to shape your story for a potential exit. Large players in the space are desperate to rejuvenate their offerings and bolster their position in the shifting marketplace. Creating the right narrative for a buyer can boost valuations tremendously, along with thorough data ownership best practices and limiting client churn.

Has the space become too crowded? Or is there room for expansion?

Chris Skubic: No, the space hasn’t become too crowded. That’s not to say it isn’t very competitive, butt here is plenty of room for innovation as evidenced by all the new tech startups creating efficiencies across the audio media industry. We are seeing it most clearly in the royalty space. Established musicians have sold their catalogs to make up for the concert revenues they missed out on during the pandemic. The private equity purchasers are fiscally disciplined folks who are determined to upgrade old-school spreadsheet-based attribution systems to better collect streaming royalties. Their determination is creating opportunities for tech entrepreneurs. This is one of many areas of the business we’ll see transformed by innovation in the near future, and our group is very excited to help those founders turn their sweat equity into a successful exit.

There's lots of talk about an audio renaissance in terms of content and consumption. Is that true in terms of the financial industry's view of audio companies?

Mun Hoe Sze Tho: While the audio consumption model has transformed, the desire to consume audio content is still significant and the notion that content is king still rules. Today’s audio consumers want to control what, when, where and how they listen to content.

Internet and audio applications allow consumers to interact with content which enables the content creators to attribute consumption behavior 100 times more personalized than broadcasting; this is significantly driving listener monetization for content owners. Now that the distribution big picture is in place, there is a landgrab for content ownership which we’re seeing in purchases of music rights by private equity firms and podcasts by DSPs. Given these trends, we expect big things from software companies like Cosynd, bquate, Soundtripe, Distrokids, CDBaby, and Chartmetrics.

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