The buzz around AirPods

UNTIL RECENTLY the ear was a part of the body relatively unconquered by commerce. The neck long ago fell to the necklace, the ruff and the tie. The wrist surrendered to the bracelet and the watch. The eye sold out to spectacles, shades and mascara. But the ears were a low-rent zone for business, good mostly for cheap jewellery, earphones and hearing aids. Walk around any big city and it is clear how quickly that is changing—thanks to headphones, earbuds and a torrent of new stuff blaring through them.

Apple, as usual, caught the trend early. The number of its AirPods, mocked for looking like broken Q-tips when introduced in 2016, is estimated to have doubled to 60m pairs this year. They have spawned a wave of imitators, from Amazon’s black Echo Buds to Xiaomi’s Airdots (popular in China) and Microsoft’s Surface Earbuds—which creepily link directly to its Office software, including PowerPoint. The devices grow symbiotically with another craze: for streamed audio content in addition to music, such as podcasts. Apple helped popularise this genre. But Spotify, a Swedish streaming service, and big American broadcasting conglomerates, such as Liberty Media, are muscling in.

Industry executives contend that audio is undervalued—especially compared with video. As Spotify’s co-founder, Daniel Ek, said earlier this year, time spent on each is about the same, but the video industry is worth $1trn versus $100bn for audio. “Are our eyes really worth ten times more than our ears?” he asks.

The eyeball plainly still dominates. The number of screens dwarfs that of “hearables”. Between them, just three Tinseltown groups—Warner Media, Disney and Netflix—have spent as much as $250bn on visual programming since 2010. Audio, including music, comes nowhere near. That said, the battle to “monetise the ear”, as Greg Maffei, Liberty Media’s boss, puts it, is in full swing. These days no one would lend Mark Antony theirs; they would rent or sell them.

Take hardware first. Apple does not release figures for any of its “wearables”, but AirPods are the fastest-growing of all of its products, with profit margins above 50%, says Dan Ives of Wedbush Securities, an investment firm. With the new noise-cancelling AirPod Pro, which costs around $250 a pair, he reckons Apple’s ear-ware may generate up to $15bn of sales next year. That would be about four times the revenues of a headphone veteran like Bose. Horace Dediu, a technology analyst, predicts that this quarter AirPod sales could exceed those of the iPod at its peak around Christmas 2007. With iPhone sales slowing, AirPods are a new way of generating revenue from Apple’s legions of loyalists; they even allow Siri, the company’s voice-activated virtual assistant, to worm her way closer to listeners’ brains. The overall market is spreading to the masses, too. Some wireless earbuds sell for as little as $20.

Audible content is likewise undergoing a mini-revolution. For the third year in a row, revenues from recorded music in America grew by double digits in 2018, largely thanks to subscriptions to Spotify, Apple Music and the like. Podcasts have grown both more numerous and more compelling. This year Spotify has set out to rule the roost in this medium, which Apple first streamed via iTunes in the mid-2000s. The Swedish firm acquired Gimlet, Anchor and Parcast, three firms that serve different aspects of the podcast market; it now hosts a staggering 500,000 podcasts; hours spent listening to them grew by 39% year-on-year in the third quarter. In October it boasted that the conversion of podcast listeners to paying subscribers is “almost too good to be true”.

The battleground stretches beyond earbuds to the car radio. On December 12th the Wall Street Journal reported that SiriusXM, a satellite-radio arm of Liberty Media, had sought clearance from the Department of Justice to raise its stake in iHeartMedia, America’s largest radio broadcaster and a big podcasting platform. The aim would be to compete more effectively against Spotify and other audio-streaming services both for subscribers and advertising revenues. Previously Mr Maffei has talked excitedly about podcasting.

The proliferation of digital-streaming devices has spawned the growth of other listening formats. This year, for the first time, the Audio Publishers Association, an industry group, reported that half of Americans listened to an audiobook, a trend it said was boosted by the popularity of digital-streaming devices, as well as podcasts. Audible, owned by Amazon, is the market leader. Malcolm Gladwell, an American author and podcaster, has turned the audio version of his latest book “Talking to Strangers”, into what seems like a supersized podcast, with his own narration, actors and music. Romantics see it as a return to the oral tradition.

Though small, some of this spoken word has better economics than the sung variety. As Ben Thompson of Stratechery, a tech newsletter, has pointed out, the more music Spotify’s customers download, the more its costs rise because of payments to record labels. Podcasts are different. Spotify has more bargaining power over myriad individual podcasters jostling to reach its 248m-odd users than it does over record labels. It also buys its exclusive podcasts at a fixed cost. The problem is advertising. Ad revenues are paltry. In America terrestrial radio still accounts for 82% of an audio ad market valued at more than $17bn. SiriusXM and Spotify have just a sliver of the pie.

A back door to the brain

Apple has the clout to make the industry more profitable. It could use its strong position with AirPods, Apple Music, podcasts and Siri to create a swirl of audio content around the iPhone—an ecosystem in the jargon—and take the lion’s share of advertising. For the time being, though, it appears to be more focused on creating video content, in its battle for eyeballs with Netflix. That is lucky for Spotify. It gives it a bigger opening in the audio market. It is good for listeners, too. The last thing anyone wants is a Big Tech behemoth controlling the next best thing to a brain implant. ■