Audius Fundamental Analysis

Introduction

The music industry has seen tremendous fluctuations in its business model the past couple decades. Dating back to pre 2000s, the predominant method of purchasing music was by buying physical albums and CDs(how prehistoric) and then accessing the music through a device that could read the music i.e. a CD player or vinyl record in some instances. This method of music distribution dominated the music industry for a few decades but was quickly wiped out(although not completely but is fairly not existent these days) by the rise of internet. 

 

With the internet, came the ability to share digital files. Websites like Napster allowed users to share music or any digital files of that matter, with one another for free across an open platform. This pissed off a few people in the music industry, as torrenting music for free became a dominant and mainstream way of obtaining music. Steve Jobs ended up putting a bandaid on this issue with the launch of the Ipod nano and Ipod Shuffle alongside the launch of the App store which allowed the purchase of music, most importantly the purchase of individual songs for a low price of 99 cents. This devaluation of music, and the flexibility of purchasing of individual songs rather than full albums allowed the music industry to temporarily revive itself before people inevitably realized purchasing songs like this eventually adds up and torrenting music is still the best option. 

 

So how does the music industry beat free music? By devaluing music further through music streaming platforms like Apple Music, Amazon music and most importantly Spotify. These platforms allow users to stream unlimited music for a fair subscription fee but pay out very small amounts for each stream to the artists. It’s evident that despite the many innovations and iterations the music industry has experienced over the past few decades, there is still a lot of work that needs to be done in the realm of making music profitable for non-mainstream artists. 

 

What’s especially evident from all of this, is that the music industry desperately needs a platform that awards the artists, that takes power from the record labels and the industry at large and gives it to the up and coming independent creators and artists alike. This leads us to Soundcloud. For those unaware, Soundcloud is a music platform founded in 2007. From its inception, Soundcloud was designed for small artists by allowing them to have greater access and opportunity to grow their fanbase and gain exposure. The problem with Soundcloud is that it has been in a steady nosedie since 2017 when 40% of their workers were laid off. This was due to Soundcloud not adapting the platform properly, they introduced unfriendly monetization models, high subscription fees and algorithms that made it extremely difficult for upcoming artists to gain exposure. A platform that allows upcoming artists to gain exposure but also has enough prevalence to compete with conglomerates like Spotfiy is needed. Introducing….. Audius!

What is Audius?

Audius is a decentralized music platform that looks to put power back into the hands of the creators. It’s important to note that Audius isn’ the first project to attempt this, Potentiam.io was the first with a few minor differences from Audius. Audius looks to build on the legacy of Potentiam.io to achieve what Potentiam.io wasn’t able to; a decentralized, high quality music streaming platform that gives the power back to the creators. The real question when evaluating cryptos in their early stages is to ask ourselves how big is the problem that this project is looking to solve?

 

Use Case

The music industry generates $43 billion in revenue a year but only $12 billion of that goes to the artists. Some concerning examples would be Pharrell’s song “Happy” obtaining 43 million plays on Pandora and only netting him $5000. Or similarly, DaftPunk’s song “Get Lucky” had 100 million plays on Spotify but  only gained an estimated $9 – 10 thousand. It’s evident through examples like this that music streaming is effective in generating an audience but not effective in generating income for artists. 

 

Market Report

The music streaming industry generated $24.4 billion in 2020 and this number is expected to grow by 18% every year, reaching $77 billion by 2027. This is good news as it shows Audius is partaking in a rapidly growing industry, therefore there is lots of room for many competitors to grow in the space. The main competitors in the space are:

  • Spotify
  • Apple Music
  • Pandora
  • Tencent
  • Amazon
  • Soundcloud
  • Google
  • Tidal

Looking at a few of the competitions valuations versus their user bases we have:

Spotify – 345 million users and a $54 billion valuation. 

Soundcloud – 175 million users and a $700 million valuation as of 2017(most likely lower in 2021)

Pandora – 58 million users and a 3.5 billion valuation. 

 

Given Audius’ user base of 4 million users at a 300 million valuation this would indicate that Audius is greatly overvalued right now. Similar to many tech companies and crypto project this has some truth to it but also Audius is potentially worth far more, let me explain. 

Audius' Opportunity

Audius has grown the platform to 4 million users from August 2020 to now, this is impressive growth but also an underwhelming number compared to their massive competitors. What’s important to recognize with any form of platform like music streaming, is that there is a large network effect that takes place. For example, let us ask ourselves why do artists put up with these outrageously low streaming royalties from companies like Spotify? The answer is; because they have too. Spotify has such a large network effect(massive user base) that in order to stay relevant and gain exposure for their music, artists have to list their music on Spotify, and Spotify has all of the power to negotiate the royalties. This outlines the current problem in the industry, where artists have no power whether it’s because of record labels or the streaming platforms, they are essentially  “slaves” to the system. 

 

Auduis has an amazing opportunity to capitalize on this problem. Nothing is stopping everyone from switching over from Spotify to Audius tomorrow(besides the amount of content and features on the platform). If Audius can build up the amount of artists on the platform then they can create a snowball effect where more and more users will adopt the platform and then they can slowly chip away at the market share of their competitors. 

 

Granted, competitors like Spotify have loyal user bases, tons of features like podcasts, daily mixes etc. as well as an active user base that makes discovering music and connecting with friends and sharing music on the platform fun. Audius’ competitive advantage will stem from it being built for artists, the potential for NFTs in the future(this can be a game-changer for the platform) as well as the various features that having a cryptocurrency will bring(to be discussed in tokeconomics). 

Team

If you’ve read any of Spectacle’s fundamental analysis, you’ll know I put a heavy amount of emphasis on the teams behind the projects. At the end of the day, ideas don’t build themselves. Dedicated and forward thinking individuals who can work cohesively as a team is what will drive any project forward and should be taken into account when investing in cryptos or companies that don’t have a lot of history. 

For Audius’ team there’s a lot of good news. Their main team has a lot of prior experience with several software engineers coming over from Amazon and Google. 

Advisors

One great aspect of Audius is that in addition to a solid team they have a really solid group of Advisors backing them. The list includes but is not limited to:

  • deadmau5
  • RAC
  • 3LAU
  • Bing Gordon – EA Games Co Founder
  • Tom Schmidt
  • Justin Kan – Co founder of Twitch

Advisors like deadmau5, RAC and 3LAU help bring millions to the platform but will also help bring other DJs and artists to the platform therefore continuing to fuel Audius’ growth. Advisors like Bing Gordan, Tom Schmidt and Justin Kan look to be great additions in helping the project stay well networked as well as choosing the right business decisions to last in the long run. 

Tokeconomics

Given Audius’ decentralized nature, 90% of the payout for streaming music goes to the artist and 10% goes to the node operators. In reference to the graph below, we can see that the AUDIO token has a scheduled release with fully supply being launched by 2026. A portion is distributed to the community, investors, the team and the foundation. Two important features of the AUDIO token is the feature access and governance. 

 

Feature Access: This is one of the coolest parts about AUDIO but it’s also a feature that is in early development and it’s hard to predict where this will go. Essentially, AUDIO can be used as collateral to unlock an additional artist tool kit. Some early examples of this would be artist tokens, badges and earnings multipliers. Additionally, in the future fans may be able to delegate their AUDIO to a specific artist as a way to bet on that artists growth. I’m not sure how I feel about this idea though as social media would just end up being everyone shilling their favourite artist to gain money, we already have enough shilling. 

Governance – Many crypto projects have launched this feature or are looking to launch it in the near future. Token governance allows token holders to vote on changes, features and the direction of where the platform/project is going. It’s a great way to create a community behind a project but also a great way for decentralized projects to be put into the hands of the people. 

Conclusion

Audius is without a doubt one of my favourite projects in crypto right now. For transparency sake, I’ve been in since 40 cents although I’ve sold a majority of my position, I will be holding onto the remainder for quite awhile as this project has a lot of potential. It’s not all glitter and gold though, Audius has huge competition in this space along with issues such as its platform being difficult for artists to upload music to, copyright issues and potential lack of adoption. Regardless, I believe Audius has the ability to flesh out these issues and become the future of decentralized music streaming alongside NFTs for the music space. Only time will tell if they can accomplish this goal but now is a great time to get in on this 50% dip from the all time highs, that is if you believe in the project. 

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