The battle for streaming music is heating up within the entertainment industry.
As techradar reported, streaming has overtaken physical music sales in the US, surpassing $1 billion dollars in revenue. Whilst music ownership is not dead, there has been a continued decline in physical sales in recent years. What may be more disruptive is the article’s suggestion that streaming will surpass digital distribution in the US by the end of the year.
This trend means that many of the companies that were key players in the conquering of physical music by digital media, like Google, Apple and Amazon, are now moving into the “Spotify-esque streaming services.”
So, what does the future hold for streaming services, and how will brands compete, not just to grow users, but to ensure profitability?
Spotify has just raised $1 billion in convertible debt, as reported by the Wall Street Journal. As TechCrunch writes, despite having €570m in the bank, Spotify is likely to need the additional funding to compete with Apple’s deep pockets. Just last week, Spotify CEO and founder Daniel Ek announced that the streaming music service now has over 30 million subscribers, 50% more than in June 2015, when Spotify last released figures. With over 75 million monthly active users, Spotify is also focusing on programmatic advertising to extract more value from those users on its free, ad-supported tier.
Though Spotify is clearly in the lead, Apple Music now has 11 million subscribers, after launching just nine months ago.
One company that already has a strong position in this market is Deezer, the third largest music streaming service worldwide. This week they set out their plans for an IPO on the Paris stock exchange. The FT’s report on this highlights a number of angles including: the expected upsurge in demand for such services; their apparent differentiation strategies (incorporation of spoken word and premium CD quality sound subscriptions); and perhaps most interestingly the issue of high costs to the streaming industry due to royalty payments.
In Bloomberg, Leonid Bershidsky asks whether Deezer and its competitors, can make money from streaming, highlighting that both Spotify and Deezer have persistently made losses, whilst Apple has not started to charge its subscribers yet.
Despite the rapid growth of music streaming, he points out that so far costs for streaming services have risen in line with revenue. This pessimistic view is added to by Music Business Worldwide which highlights recent Nielsen data showing that spend on music streaming is “not exactly flying yet”, even in the US.
Relative struggling newcomer Tidal, relaunched one year ago by Jay-Z, has recently published figures showing 3 million subscribers. According to Billboard, 45% of those are paying for the high fidelity version of the service, one of Tidal’s key differentiating offers.
Adding to a crowded space, SoundCloud on Wednesday announced a new premium subscription service, SoundCloud Go. Launching in the U.S. immediately with other markets coming globally this year, the company hopes that it can convert some of its 175 million monthly users to paying subscribers, while giving them a mix of artist uploaded content as well as content from major and independent record labels.
Pandora co-founder Tim Westergren has just returned to the CEO position, and confirmed plans to launch a subscription service by the end of the year in an interview with Billboard. Tim also has eyes on international expansion, stating, “Our ambition is to be a global business.” … “I don’t think our idea is to blast out everywhere right away. But we have this great core business and we think it will lay on top of other core markets and we’ll do it extensively, but the U.S. is the perfect platform for launching internationally.”
The RIAA’s 2015 report shows streaming music revenue in the U.S. in 2015, at $2.4b, has overtaken that of digital downloads for the first time. Despite this however, RIAA Chairman and CEO Cary Sherman points out that vinyl is still responsible for more revenue than ad supported streams, at $416m versus $385m.
Alongside the battle for paid subscribers, there continue to be more moves within the music industry including the BBC’s new BBC Music app, featuring exclusive live performances, interviews, playlists and personalized recommendations. And Virgin Radio has relaunched after going off-air in 2008.
A few articles this week discuss options to improve profitability amongst streaming services.
In the US, Chris Versace argues that Government set royalties from streaming services to record labels are well above the market rate and should be reduced as part of an ongoing review.
Seb Joseph in the Drum focusses on Spotify’s efforts to better monetize its free users. The article interviews David Cooper, Spotify’s head of UK sales, who highlights the work they have done to demonstrate the incremental reach of Spotify over commercial radio amongst 15-34 years old, as well as an impending move into programmatic advertising.
Meanwhile, the Tech Times reports an interview with Midia analyst Mark Mulligan, who argues that the industry needs to find ways of capturing more users, by developing niche services that cost less and focus around a smaller selection of music.