Making Streaming Work (Fixing Playlists and Churn)

UPDATED 28/3/13 (see sections labelled ‘UPDATED’

During my SXSW panel I presented a slide that showed the distribution of paid, active free, and inactive users of the two big streaming services Spotify and Deezer based upon the latest data for both services.  What the numbers show is that inactive users is a big problem for streaming services, which in actual fact means that churn is a bid problem for streaming services.  (Something I discussed last week).

Paul Resnikoff at Digital Music News and Stuart Dredge at MusicAlly have since written pieces about the data and something of a debate is emerging.  But the important point is not whether Deezer has more inactive users than Spotify, but that streaming services as a whole have a problem with churn.

To illustrate the fact that this is not a Deezer problem I have created a new chart (below) that uses the latest available official numbers for all three types of users from both services.  The most recent total user numbers for Spotify are Facebook app users and are therefore not official stats.  The most recent official Spotify data for all three metrics is from year-end 2011 – when these numbers were filed in a company report – and for Deezer this means early 2013 when the numbers were quoted in the press.

UPDATED: Note that Spotify only ever mentions its total registered user number in company reports while Deezer have quoted theirs more frequently. So the Deezer numbers below are a more accurate representation of the current scenario whereas Spotify’s user base dynamics have changed markedly since end-2011.  (Whether that translates into more or fewer inactive users we’ll have to wait and see.)

deezer and spotify

Retention is a Freemium Issue not a Spotify or Deezer Issue

What is clear is that both services have essentially the same distribution of users, with the vast majority of both services’ installed bases being inactive users.  If you spread Spotify’s 2011 numbers over the course of the year, from the end of 2010 base numbers, this translates into Spotify acquiring 1.9 million new users every month but only keeping hold of 200,000 of them.

Again, this is not a Spotify problem, it is a fundamental issue with the freemium music model: many more people decide its not for them than continue using the service.  Over time this effect will soften, as people become more familiar with the idea of on-demand streaming.  But it will always be a key part of the mix for both free and paid users.

UPDATED: It is also not even just a music service issue.  As I discussed in a previous blog post about Facebook, social networks like Google+ and Twitter also have a big issue with inactive users, as this chart illustrates. In fact only a quarter of Google+ users are active, as are less than half of Twitter users.  As Daniel Ek correctly identified on Twitter, this is a problem that affects all businesses that have a free tier that requires registration.

Currently Deezer and Spotify are in growth stage and are more focused on acquisition than retention, but sooner or later they’re going to have to recalibrate their metrics if they want to move towards sustainable financial models.  It can be done, as Rhapsody shows us, but it is not an easy task, and it also doesn’t leave a lot of spare cash in the kitty for aggressive growth.

Any established subscription business – such as a cable or satellite TV provider – will tell you that managing churn is the overriding strategic objective.  Any subscription service – especially a nice-to-have like music – is going to be vulnerable to churn.  But this does not mean that the music subscription business is fundamentally flawed, rather that the industry needs to start thinking in terms of a much more fluid movement of users than was ever the case for downloads.  In the download model Apple locked in its customers with devices.  Streaming services have no such asset – at least not yet.

Playlists Belong to Users not Services

With time, clear blue water will emerge between the value proposition of streaming services, and this should be considered not just as a loyalty driver, but also as reason for people to swap and change subscription services just as people swap and change cars.  And for that to happen streaming services need to stop thinking about users’ playlists and libraries as the property of the streaming service to be used as velvet handcuffs and instead as the transferable property of the user, and by extension, the communal property of the marketplace.

Locking music consumers into devices sort of made sense for companies like Apple that were largely using music to sell hardware.  But for companies like Deezer and Spotify that are just in the business of selling music – or at least access to it  – there is no such justification.  The subscription market is only just getting going and there is far too much green-field opportunity for services to get bogged down in internecine conflict.  As MusicAlly’s Dredge correctly identifies, opening up Playlists could prove to be crucial to the long term validity of streaming and subscriptions (and Tomahawk is a great first step). But to really work, streaming services need to stop thinking about Playlists as their property and instead as the property of their users.  That’s when services like Tomahawk could come into their own and it is when mainstream music fans will view streaming services with less scepticism.   In the words of ShareMyPlaylists: Long Live The Playlist!

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9 thoughts on “Making Streaming Work (Fixing Playlists and Churn)

  1. Spotify or Deezer are just Napsters in improved and portable form consuming most of the goodwill that is left in th midia industry. No matter how many $4.99 or $9.99 folks you get you will plato on global basis at max. 25billion … and if they get ther it will be outstanding success and there will be NO MUSIC SALES at that point. Music industry is more confused then General Motors 5 years ago. It took some Facebook endorsement and same and desperados at labels swollowed new Napster poison pills.

    The answer is “DISCOVERY POINT MONATIZATION”
    Just convert Shazam, Gracenote, Soundhound and lirycs ID guys to instant mandatory purchase at 29 cents a tune. Buyer or streamer – “YOU LIKE IT – YOU GOT IT” $.29 charged to your phone!
    With over billion active users (w/ lyrics guys) you will have 100 billion industry in 18 months.

    Shazam and the likes have never been noticed by labels as a new Coconuts, Tower Records or Wallmarts.
    At one point they have got $1 for ID which was splitted with cell operator – it was service to pirate with no benifit to music industry.
    Then Steve Jobs foce them all to biggest case of industrial prostitution! All apps are FREE with one out of 20 to 50 IDs generating a sale at $1.29 and 19 to 49 providing a convinience to all freeloaders.
    RIAA should sue Shazam and friends for promotion of piracy in at least 19 out 20 cases!!!!
    IT is time to wake up convert all those ID guys to instant cash machines and more opportunitis will arive.
    SHAZAM with OVER 300 million users is in the RED every single year since 2002 they have revenues of less than 10 CENTS PER USER PER YEAR.
    My flooring store in Ohio will soon be bigger than SHAMAN. Most of the music industry top bras should be send to Kazakstan for wark practice ay the most successful veggie stand to learn how to monetize music.
    Internet is instant and portable it is 20 times easier to procure song now than in 1999 so price it at 29c and go to the sky. Are they afraid that if they convert from free ID to mandatory purchase that one of my Amish customers will come out an replace them?

    This prostitution must stop now!

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  4. I will admit I am one of the inactive users of Spotify. The reason is that it was not portable for me. I only recently got a smartphone but I’m not interested in running my phone’s battery down because I want to stream music. That’s why I have an MP3 player.
    I know that streaming will likely become the norm in the future. That time will come faster if they do improve their services. It will be interesting to see what streaming services come up with to retain their consumers.
    Do you think a piece of hardware designed specifically for music streaming is in the future?

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