Streaming Competition

Posted on September 23, 2016 by

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By, Wendy Day

For the past 5 years, music industry pundits (including me) have been talking about how streaming will take over the way people listen to music. It was common sense really; why spend a dollar on owning one song that sucks up memory and bandwidth, when for $10 per month almost every song known to humankind can be heard on demand and shared with others via your playlist that comes down from the cloud?!

So one fine day in July 2011, up pops Spotify in the US. We’d heard about it for years, as it had launched from Sweden in 2008 and Europe was loving it before we even knew what it was. Those of us who traveled overseas saw a large amount of people listening to music on their smartphones in Europe and Asia. Seeing this coming was certainly not rocket science or stealth predictions. It was kind of obvious. Friggin’ obvious, in fact. Ear buds and headphones became a common cell phone fashion accessory and a company called Beats made a great producer and a label head more wealthy than the music industry ever could. People traded in their iPhones and Androids annually for the next, best incarnation of a cell phone. Each company focused on outdoing the others.

Today, five years after its US launch and 8 years after its inception (almost to the day), Spotify has 100 million users of which 40 million are paid subscribers. Its closest competitor, Apple Music (ya know, the folks who already have everyone’s credit card number on file), has 17 million paid subscribers since launching in July 2015 (6/30/15 to be exact).

In the past few weeks, I’ve heard Pandora is getting into the streaming business, Amazon is rumbling about a music streaming service, Facebook is hiring someone to do music licensing, and now the good folks at Clear Channel Radio–I mean, iHeart Radio are announcing a streaming service to combine with the availability of streaming their terrestrial radio stations…all for $9.99. Not trying to be snarky, but the stations can be streamed now from their website on any smartphone, for free–and didn’t folks turn to streaming to get away from terrestrial radio, their annoying ads, and hearing the same 10 songs every hour? I guess they feel offering both will please everyone, while taking in extra ad revenue for the expanded listeners if they package it all together for advertisers. Is SiriusXM going to be the next entry into the streaming competition? With 31 million paid subscribers, they’d have a leg up on the others.

While Universal’s top dog decried “no more exclusives from our artists,” Apple Music retaliated by saying “exclusives work to build our platform” while adding a million more subscribers this summer. I’m guessing Uni’s decision was based on the research that hit the Internet about Frank Ocean’s ‘exclusive release’ on Apple Music being bootlegged over 753,000 times in one week rather than folks joining Apple Music to stream it.

All of these companies jumping into the streaming arena seem crazy to me. It’s not like the marketplace is saying they wish they had an alternative to listening to every song they ever wanted to hear, whenever they wanted to hear it. Streaming numbers are growing. But the product is the same. It’s like choosing between cable television companies when they all deliver the same 999 channels. The only unique differences will be playlists (music recommendations) and pricing, and I’m guessing Apple, one of the most valuable companies on earth would most likely win a price war. Music is not the bulk of their business, it’s ancillary. Ditto Amazon. Everyone else is in the listening-to-music business as their business model.

I guess what I’m saying is that streaming music is 100% of Spotify’s business (well, plus ad revenue), but what if streaming is only 1% of Apple’s income*? They could afford to take a loss in that area and offset it with the profitability of the rest of the company. That is, IF the streaming companies were profitable… Tidal lost $28 million last year, double what Aspiro lost (Tidal’s Swedish holding company). Spotify lost over €184 million (Euros) last year even though it paid out to labels and artists over half the royalties of all streaming services combined. Pandora, which is considered a streaming company just not on-demand, reported losses of $169 million even though they brought in $336 million in revenue in 2016. Pandora’s business model is 100% music streaming and ad revenue, much like Spotify but unlike Apple.

Please notice I didn’t mention income from paying to get added to playlists here–could that be the next big revenue generator for streaming services?

In the first half of 2016, revenue from subscription music services more than doubled which created an overall market growth of 8.1% according to RIAA. Paid subscription on-demand streaming services generated $1.013 billion, which is a growth of 112% even though download sales and CD sales continued to decline. Total 6 month US recorded music industry revenues increased by more than $250 million to $3.43 billion on a retail basis in the first half of this year.

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In the first half of 2015 (pre-Apple Music), 9.1 million people subscribed to a streaming service. In the first half of 2016, there were 18.3 million people, an increase of 101%. There was a slight increase of 4% from non-interactive revenue distributed by SoundExchange (looking at you, Pandora!). It went from $387 million in the first half of 2015 to $403 million in the first half of 2016. Just to be clear, these are the year over year statistics that compare the first half of 2016 with the same 6 month period in 2015.

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The retail stats from the first half of 2016 show on-going declines: CD sales went down another 14%, digital download sales dropped 17%, and vinyl surprisingly declined 6%. The purpose of showing these statistics is so you know where the music industry is headed. If you don’t step up your streaming game you are going to get left behind. This also means it’s a singles market and a playlist market, so while you put your energies into albums and mixtapes–meaning bodies of work, you will want to also be sure each song can stand on its own and fit into a playlist. Know your fanbase, your target market– how do they prefer to consume their music? And more importantly, how do they discover new music because you want to be THERE!
*Here’s the math in case I screwed up: Apple Q3 income: http://www.apple.com/newsroom/2016/07/apple-reports-third-quarter-results.html
Apple posted $42.4 billion in income for their 3rd Quarter ending 6/25/16. Simple math tells us that if they had 17 million subscribers at $9.99 each (which is $509,490,000), Apple Music is only 1% of the income for that Q3.

509,490,000 
42,400,000,000

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