Announcing MIDiA’s State Of The Streaming Nation 2 Report

2016 was the year that streaming turned the recorded music business into a good news story, with revenue growth so strong that it drove nearly a billion dollars of total growth. Leading streaming services spent the year competing with ever more impressive metrics while playlisting and streaming exclusives became cornerstones of the wider music market both culturally and commercially. 2017 is set to be another year of growth and the coming decade will see the music industry become a streaming industry in all but name. In this, MIDiA’s 2nd annual benchmark of the global streaming business, we present a definitive assessment of the global market, combining an unprecedented breadth and depth of supply side, demand side and market level data, as well as revenue and user forecasts out to 2025. This is quite simply the most comprehensive of assessment of the streaming music market available. If your business is involved in the streaming music market this is the report you need.

Key features for the report:

  • 32 pages
  • 4,650 words
  • 17 charts
  • 9,000+ data point dataset

At the bottom of this post is a full list of the figures included in the report. The report is immediately available to all paid MIDiA music subscribers.

To find out how to become a MIDiA client or to find out more about the report email Stephen@midiaresearch.com

Selected Key Findings

  • YouTube and Spotify lead Weekly Active User penetration with 25.1% and 16.3%
  • There were 106.4 million paid subscribers in 2016, rising to 336 million in 2025
  • Global streaming music revenue was $7.6 billion in 2016 in retail terms
  • 55% of subscribers create streaming music playlists
  • Universal music had 44% of major label streaming revenue in Q1 2017
  • 79% of streaming services globally have standard pricing as their lead price point

Companies And Brands Mentioned In The Report: 7Digital, Alibaba, Amazon, Anghami, Apple, Apple Music, CDiscount, Cstream, CÜR Media, Deezer, Echo, Google, Google Play Music All Acccess, Hitster, IFPI, KKBox, KuGou, Kuwo, MelON, Merlin, Mixcloud, MTV Trax, Napster, Pandora, QQ Music, Radionomy, Saavn, Slacker, Société Générale, So Music, Sony Music, Soundcloud, Tencent, The Echo Nest, Tidal, TIM Music, Universal Music, Vivo Musica, Warner Music, Worldwide Independent Network, YouTube, Vevo

MRM1707-infographic-promo.png

List of Figures In The Report

  • Figure 1: Penetration Of Key Streaming Music Segments (Subscriptions, Ad Supported Audio, YouTube/Vevo), April 2017
  • Figure 2: Overlap Of Key Streaming Music Consumer Segments (Subscriptions, Ad Supported Audio, YouTube/Vevo), April 2017
  • Figure 3: Key Streaming Adoption Behaviours Of All Consumers, Paid Streamers And Free Streamers (Including, family plans, trials, telco bundles), April 2017
  • Figure 4: Key Streaming Adoption Behaviours Of All Consumers, Paid Streamers And Free Streamers (Including playlist creation, curated playlists, radio impact, spending impact), April 2017
  • Figure 5: Weekly Time Spent Listening To Music And To Streaming Music (Streamers, Overall Consumers), April 2017
  • Figure 6: Age And Gender Distribution Of Streaming Music Consumers By Category (Subscriptions, Ad Supported Audio, YouTube/Vevo), April 2017
  • Figure 7: Average Number Of Tracks Streamed Per Week By Segment (All Consumers, Spotify, Apple Music, Subscribers)
  • Figure 8: End Subscriber Numbers For Individual Streaming Subscription Services, 2014 – 2016, Global
  • Figure 9: Weekly Active User Penetration For Selected Streaming Music Services, Q4 2016
  • Figure 10: Quarterly Major Label Streaming Music Revenue, Q1 15, Q1 16, Q1 17, Global (Millions USD)
  • Figure 11: Number Of Streaming Subscription Services Available By Country, April 2017
  • Figure 12: Key Pricing, Product And Trial Features For Music Subscription Services Across 22 Markets, April 2017
  • Figure 13: Streaming Music Revenue And Streaming Share Of Total Recorded Music Revenue, 2008-2025, Global
  • Figure 14: Global Streaming Music Revenue Split By Subscriptions And Ad Supported, 2008 to 2025
  • Figure 15: Streaming Music Revenue For 10 Largest Streaming Markets And Top 10 Share Of All Streaming Revenue, 2016 And 2025
  • Figure 16: Music Subscribers By Region (North America, Latin America, Europe, Asia Pacific, Rest Of World), 2013-2016
  • State Of The Streaming Nation 2 Infographic
Advertisements

Music Subscriptions Passed 100 Million In December. Has The World Changed?

In streaming’s earlier years, when doubts prevailed across the artist, songwriter and label communities, one of the arguments put forward by enthusiasts was that when streaming reached scale everything would make sense. When asked what ‘scale’ meant, the common reply was ‘100 million subscribers’. In December, the streaming market finally hit and passed that milestone, notching up 100.4 million subscribers by the stroke of midnight on the 31st December. It was an impressive end to an impressive year for streaming, but does it mark a change in the music industry, a fundamental change in the way in which streaming works for the music industry’s numerous stakeholders?

Streaming Has Piqued Investors’ Interest

The streaming market was always going to hit the 100 million subscriber mark sometime around now, but by closing out the year with the milestone it was ahead of schedule. This was not however entirely surprising as the previous 12 months had witnessed a succession of achievements and new records. Not least of which was the major labels registering a 10% growth in overall revenue in Q2, driven by a 52% increase in streaming revenue. This, coupled with Spotify and Apple’s continual out doing of each other with subscriber growth figures, Spotify’s impending IPO and Vevo’s $500 million financing round, have triggered a level of interest in the music business from financial institutions not seen in well over a decade. The recorded music business looks like it might finally be starting the long, slow recovery from its generation-long recession.

100-4-million-subs

Spotify Continues To Set The Pace

Spotify has consistently led the streaming charge and despite a continually changing competitive marketplace it has held determinedly onto pole position since it first acquired it. Even more impressively, it has also maintained market share. According to data from MIDiA’s Music Streamer Tracker, in Q2 2015 Spotify’s share of global music subscribers was 42%, H2 15 41%, H1 16 44%, H2 16 43%. Not bad for a service facing its fiercest competitor yet in Apple, a resurgent Deezer and an increasingly significant Amazon. Spotify closed out the year with around 43 million subscribers, Apple with around 21 million and Deezer with nearly 7 million. 2nd place is thus less than half the scale of 1st, while 3rd is a third of 2nd place. Meanwhile Apple and Spotify account for 64% of the entire subscriber base. It is a market with many players but only 2 standout global winners. Amazon could change that in 2017, largely because it is prioritising a different, more mainstream market (as long as it doesn’t get too distracted by Echo-driven Music Unlimited success). Meanwhile YouTube has seen its music streaming market share decline, which means more higher paying audio streams, which means more income for rights holders and creators.

A Brave New World?

So far so good. But does 100 million represent a brave new world? In truth, there was never going to be a sudden step change but instead a steady but clear evolution. That much has indeed transpired. The music market now is a dramatically different one than that which existed 12 months ago when there were 67.5 million subscribers. Revenues are growing, artist and songwriter discontent is on the wane and label business models are changing. But 100 million subscribers does not by any means signify that the model is now fixed and set. Smaller and mid tier artists are still struggling to make streaming cents add up to their lost sales dollars, download sales are in freefall, many smaller indie labels are set to have a streaming-driven cash flow crisis, and subscriber growth, while very strong, is not exceptional. In fact, the global streaming subscriber base has been growing by the same amount for 18 months now: (16.5 million in H2 2016, 16.5 million in H1 2016 and 16.4 million in H2 2016). Also, for some context, video subscriptions passed the 100 million mark in the US alone in Q3 2016. And streaming music had a head start on that market.

At some stage, perhaps in 2017, we will see streaming in many markets hit the glass ceiling of demand that exists for the 9.99 price point. Additionally the streaming-driven download collapse and the impending CD collapses in Germany and Japan all mean that it would be unwise to expect recorded music revenues to register uninterrupted growth over the next 3 to 5 years. But growth will be the dominant narrative and streaming will be the leading voice. 100 million subscribers might not mean the world changes in an instant, but it does reflect a changing world.

Have Spotify and Apple Music Just Won The Streaming Wars?

Spotify has just delivered 2 landmark data points: 40 million subscribers and $5 billion paid to rights holders to date. Although the 3 million added in Q3 was down on the 7 million added in Q2 (boosted by a summer pricing promo) there is no escaping the fact that Spotify’s momentum has accelerated rather than declined since the emergence of Apple Music. 2016 is proving to be Spotify’s year. The question is how well the rest of the market is performing beyond the 2 market leaders?

The streaming music market as a whole is experiencing unprecedented growth, with the major labels collectively reporting a 52% increase in streaming revenue in Q2 2016 compared to the same period 12 months ago. Given that total streaming revenues (including YouTube etc. but not Pandora) grew by 44% in 2015 (according to the IFPI) the picture that is emerging is one of, at worst, sustained growth, at best, accelerating growth.

Although the major label numbers have to be interpreted with caution due to factors such as Minimum Revenue Guarantees (MRGs) – see my previous post for much more detail on this – the headline trend is growth. However, headline growth is not necessarily a reflection of how most of the market is actually performing. In fact, a forensic examination of these numbers cross referenced against reported Apple Music and Spotify numbers reveals that the outlook for the rest of the pack is very different indeed.

streaming-market-share-q2-16

At the end of 2015 there were 67.5 million subscribers, by the end of June 2016 that had increased to 83.2 million – a 23% increase from the end of 2015 and a 63% increase on Q2 2015. Spotify’s subscriber count for Q2 2016 was 37 million (including super trialists) while Apple Music was just under 16 million. This gives them a combined market share of 56%, which in itself is not particularly surprising. However, when we look at what has happened to the rest of the pack that things start to get really interesting…

The Rest Of The Pack Is Getting Left Behind

By end Q2 2015 Spotify had 20 million subscribers and Apple Music none. This meant that the rest had 31 million between them. By Q2 2016 this ‘remainder’ had shrunk to 30.5 million. Among this chasing pack there is a diverse mix of stories, with some services showing solid growth, some losing lots of paid subscribers and some disappearing all together. Meanwhile Spotify and Apple Music added 32.7 million to the global subscriber base. Thus over the same 12 month period these two players combined, became bigger then the entire rest of the market in subscriber terms with a 63% combined market share. An interesting side note: Tidal’s reported revenues of $47 million in 2015 mean that it can’t have had more than around 800,000 commercially active subscribers by year end, which means that the reported and ‘implied’ 4.2 million current subscriber count is probably closer to half that.

Streaming revenue followed a similar trend with Apple and Spotify dominating and the rest falling slightly (by 1 percentage point year on year). Spotify paid around $1.6 billion in royalties in 2015 and a cumulative $6 billion by September 2016, implying about $1.1 billion in 2016 already. The amount that Spotify paid to record labels in Q2 was somewhere between $479 million and $622 million, depending on when and how Spotify paid for those 7 million new super trialists it acquired that quarter. Towards the lower end of that range is probably the safer bet. Apple by comparison paid around $220 million. And as with subscriber numbers, the rest of the pack lost revenue.

It’s A 2 Horse Race

When Apple launched Apple Music some less informed observers suggested that it was too late to the party and that there was only room for one big player. The numbers from Q2 2016 show that Apple was far from too late (fashionably late perhaps) and that the rather than being a winner takes all scenario, the streaming market is a 2 horse race. Unfortunately for the rest of the pack it does look like there is only space for 2 leading global players, with Apple clearly having played a key role in knocking Deezer out of 2nd place and racing on ahead.

Still A Place For Regional Leaders

This does not mean that there is not space for other players, there is. Especially regional leaders like QQ Music, KKBox, Anghami and MelOn. But the consumer marketplace only has so much appetite for global scale $9.99 AYCE services. Which is why pricing and product innovation are so crucial if the recorded music business wants a vibrant streaming sector. Compare and contrast with the streaming video market where there is immense innovation with niche services and a diverse range of price points. Music streaming needs the same approach. Tidal may have (very successfully) differentiated on brand and content but it remains fundamentally an also-ran, $9.99 AYCE service. As things stand, the only really serious attempt to play by different rules is Amazon’s steadily emerging streaming strategy. Expect that dark horse to make up ground by playing by different rules. Perhaps even Pandora may be able to break the mould too.

But it is only through differentiated strategies that serious inroads can be made and unless pricing and product innovation occurs (and the labels and publishers need to enable it) expect the streaming race to continue to be a tale of 2 horses.

What Frank Ocean’s Bombastic Blond Moment Tells Us About The Future Of Artists And Labels

When frank-ocean-blond-compressed-0933daea-f052-40e5-85a4-35e07dac73dfFrank Ocean’s latest album ‘Blond’ dropped, it did so like a nuclear bomb, sending shockwaves throughout the music industry. In one of the audacious release strategies of recent years Ocean and his team at 360 fulfilled the final album contractual commitment to Universal Music by ushering his breaking-the-mold visual album ‘Endless’ onto Apple Music.  Featuring collaborations from the likes of Sampha and James Blake and set as a loose soundtrack to art house visuals, ‘Endless’ looked like the sort of digitally native, creative masterstroke that would win plaudits and awards in equal measure. But no sooner had Universal executives started daydreaming about Grammys then along came what turned out to be the ‘actual’ album ‘Blonde’, self released by Ocean (Universal contractual commitments now of course conveniently fulfilled) and, for now at least, exclusively available on Apple Music. You can just imagine seeing the blood drain from (Universal CEO) Lucian Grainge’s face as the full magnitude of what had just happened came into focus. In truth ‘audacious’ doesn’t even come close to explaining what Ocean pulled off, but where it gets really interesting is what this means for the future of artist careers.

Artist-Label Relationships Are Changing

Quickly sensing the potential implications, Grainge swiftly sent out a memo to Universal staff outlawing streaming exclusives…though voices from within Universal suggest that this diktat had been in the works for some time . A cynic might even argue that it was politically useful for Universal to be seen to be taking a strong stand ahead of the impending Vivendi earnings call. As the ever excellent Tim Ingham points out, in practice Universal could put a streaming exclusives moratorium in place and still have a good number of its front line artists put out streaming exclusives. This is because many of the deals these artists have are not traditional label deals where Universal owns all the rights. And that itself is as telling as Ocean’s bombastic blond moment. Not so much that Universal is probably the major with the highest amount of its revenue accounted for by licensed and distributed works, but that any label’s roster is now a complex and diverse mix of deal types. Artists are more empowered than ever before, and thanks to the innovation of label services companies and next generation music companies like Kobalt, labels have been forced to steal the disruptors’ clothing in order to remain competitive.

Streaming Exclusives Represent Another Option For Artists

Just as labels had started to successfully co-opt the label services marketplace by launching their own – e.g. Universal’s Caroline – or by buying up the competition – e.g. Sony’s acquisition of Essential Music & Marketing – along come streaming services giving artists another non-label route to market. In truth, the threat has remained largely unrealised. Exclusives on Tidal have most often proved to be laced with caveats and get out clauses (e.g. Beyonce’s ‘Lemonade’ arriving on iTunes 24 hours after landing ‘exclusively’ on Tidal). Chance The Rapper’s (in name only) mixtape ‘Colouring Book’ and Ocean’s ‘Blond’ are exceptions rather than the rule. So all that’s about to change now right? Not necessarily…

Album Releases Require More Time Than Apple Probably Has

As anyone who works in a label will tell you, releasing an album is typically a long, carefully planned process with many moving parts. It’s not something you do in a couple of weeks (Ocean started building the hype and expectation for his latest opus a year ago). If, for example, Apple was going to start doing exclusives routinely, even if it just did 20, that’s still a new exclusive to push every 2 weeks. That might work, at a stretch, for music service retailing promotional pushes but is far short of a fully fledged album release cycle. Which means that even for just 20 exclusives Apple would have an intricate mesh of overlapping release campaigns. This is something that labels do with their eyes closed but would it require new organizational disciplines for Apple. Not impossible, but not wholly likely either.

In practice, exclusives are likely to be limited to being the crown jewels of streaming services, their most valuable players, creative playmakers if you like. Even for Netflix, that pioneering exemplar of the streaming originals strategy, only spends 15% of its $3 billion content budget on originals and probably won’t break 20% even by 2020. What Apple and Netflix have in common is that they are using exclusives as a customer acquisition strategy, achieving their aims by making a big noise about each one. But if you’re releasing exclusives every week or two the shine soon wears off. And suddenly the return on investment diminishes.

Streaming Exclusives Are Unlikely To Turn Into A Flood

None of this means that we won’t see more artists striking streaming exclusives. We will, regardless of what labels may actually want to happen. And most of those will probably be on Apple – the service with bottomless pits masquerading as pockets. But the trickle will not turn into a flood, a fast flowing stream perhaps (see what I did there) but not a torrent.

Although they might not realise it yet, Kobalt might find themselves hurting more than the majors from this latest twist in the Exclusives Wars. Kobalt has probably done more than any single other music company to drive change in the traditional music industry in the last 5 years, showing artists and songwriters that there is another way of doing things. But Frank Ocean has just shown that there is now new another option for established artists looking for options at the end of a label deal.

Most importantly of all though, is that streaming exclusives (and indeed label services deals) work best when an artist has already established a brand and an audience. Most often that means after an artist has had a record label recording career. Apple cannot be relied upon to build anything more than a handful of artist brands. One of the founding myths of the web was that it was going to do away with labels and other traditional ‘gatekeepers’. Now, decades later, labels still account for the vast, vast, vast majority of music listening. Make no mistake, a momentous value chain shift is taking place, with more power and autonomy shifting to the creators, but that is a long journey and ‘Blond’ is but one part of this much bigger shift.

The End Of Freemium For Spotify?

‘Leaked’ Spotify numbers emerged today indicating that the streaming service has just hit 37 million subscribers, which puts more clear water between it and and second placed Apple Music, despite the latter’s recent growth. It also means that Spotify is now nearly 10 times bigger than Tidal and probably Deezer (which hasn’t reported numbers since its France Telecom bundle partnership ended). It is beginning to look suspiciously like a 2 horse race. But there is a more important story here: Spotify’s accelerated growth in Q2 2016 was driven by widespread use of its $0.99 for 3 months promotional offer. Which itself comes on the back of similar offers having supercharged Spotify’s subscriber growth for the last 18 months or so. In short, 9.99 needs to stop being 9.99 in order to appeal to consumers. Which is another way of saying that 9.99 just isn’t a mainstream price point.

spotify june 1

As the IFPI’s 2015 numbers revealed, the average label revenue per music subscriber fell globally from $3.16 in 2014 to $2.80 in 2015, with price discounting a key factor. According to Music Business Worldwide, 4 million of Spotify’s newly acquired 7 million subscribers were on promotional offers and around 1.5 million of those are expected to churn out when their promotional period ends. That might sound high but it actually represents a 79% conversion ratio, which is a stellar rate by anyone’s standards. Meanwhile Spotify’s total user base is 100 million which means the free-to-paid ratio is 37%. So price promos are converting at more than double the rate of freemium. Does this mean the end of freemium?

spotify june 2

Freemium proved highly valuable to Spotify in its earlier years and continues to be an important entry strategy for new markets. But last year record label execs started to observe that free just wasn’t converting at the same rate it once did in mature markets like the US. This was because most of the likely subscribers had already been converted and so the majority remaining were freeloaders who were never going to pay, and warm prospects who just couldn’t bring themselves to pay 9.99. This is where price promos come into play. They deliver the impact of mid priced subscriptions, which is enough to to hook those wavering free users. Once they get used to paying the majority tend to stick around when the price goes back up.

Mid Priced Subscriptions Will Drive The Market, Even If By Stealth

I have long argued that mid priced subscriptions are crucial to driving the streaming market, and the burgeoning success of Spotify’s mid-priced-subscriptions-by-stealth strategy provides a bulging corpus of supporting evidence. In fact, the average spend of Spotify’s 7 million net new subscribers in Q2 2016 was $3.09 a month.  The tantalizing question is whether that 1.5 million promo users that are expected to churn out would take a $3.99 product if it was available?

As the streaming market becomes increasingly sophisticated, the leading players will have to rely ever more heavily on differentiation strategies. For Tidal and Apple that means urban focused exclusives, for Spotify (for now at least) that means algorithmic, personalized curation and aggressive price discounting. And in Q2 2016 it is Spotify’s strategy that is winning out, resulting in 2.3 million net new subscribers each month compared to 1.4 million for Apple Music and 0.3 million for Tidal.

Freemim is dead, long live price promos?

 

 

How Apple Music And Tidal Transformed Streaming (And Why Apple May Be Buying Tidal)

 

It is 15 months since the launch of Tidal (which was 2 months after Jay-Z’s Project Panther Bidco bought Aspiro) and it is 12 months since the launch of Apple Music (which was a year after Apple bought Beats Music). The streaming world has changed a lot in that time and both those companies have had a disproportionately large amount on influence on the market’s direction of travel. Their arrivals defined Spotify’s role as incumbent while simultaneously casting Apple and Beats as challengers. They have performed their roles of disruptive entrants well, reshaping the competitive marketplace with a strong focus on brand and artist exclusives. Now reports emerge that Apple is in talks to buy Tidal. First victory in the exclusives war or overspending for market share?

When Is An Exclusive And Exclusive?

In the streaming video world an exclusive means exactly that. If you want to watch ‘House Of Cards’ you need Netflix, if you want to watch ‘Man In The High Castle’ you need Amazon Prime. But in music the rules are far more flexible.

exclusives

Looking at the flagpole exclusives across Apple Music, Tidal and Spotify, most of these are available on other platforms as downloads, while many are available to stream. For example, Beyoncé’s ‘Lemonade’ is only available to stream via Tidal but was available to download on iTunes within 24 hours of release. Understandably, the exclusive albums of each company’s respective godfather are genuinely exclusive. But Rihanna’s ‘Anti’ was given away by Samsung while Spotify’s rock legends exclusives are streaming only.

Apple is beginning to push the envelope though, pitching creative solutions to labels and artists, resulting in output like videos for The Weekend and Drake. At the same time it is beginning to look suspiciously like a record label with the release of Chance The Rapper’s ‘Colouring Book’ mixtape. The net result of all this clamouring to be seen as the ‘home’ of an artist is resounding confusion and frustration for music fans. An avid TV fan may well accept the need to have both a Netflix and Amazon subscription because no video service claims to have all the TV shows and movies on the planet. However, the central proposition of streaming music services is exactly that…or at least it was until Tidal and Apple Music upset the the apple cart (ahem). The irony is that in scoring a quick win against Spotify, Tidal and Apple may have fundamentally undermined the long term positioning of the entire streaming music product.

Exclusives Cannot Recreate The 1990s

Apple Music’s head of original content Larry Jackson has said he wants to make Apple Music to emulate the success of MTV in the 80’s and the 90’s, creating the sense that artists ‘live there’. It is an admirable goal but the music world of the 2010’s is a dramatically different one. In those days there was scarcity (you had to buy music to listen on demand) and there was a finite amount of radio and TV. It was possible to control both the message and the audience. Now we are in the Era of Distributed Audiences where people are simultaneously in multiple digital places, with artists and labels racing after them in all those places. No amount of exclusive windowing is going to change that. The genie is well and truly out of the bottle.

The Economics Of Exclusives

Where the streaming video and streaming music markets match up is that content budgets are currently being used to drive user acquisition. While streaming services have a long way to go before they reach Netflix’s $6 billion annual content budget, both types of streaming service will overspend to get market share and will reel budgets back in later. So it should be no surprise that the amounts being spent on artists don’t really add up.

For example, Apple is reported to have spent $19 million on Drake and was rumoured to have bid up to $25 million for Harry Styles. If Styles had signed, even if he had racked up the same number of streams as Drake on Spotify in 2015 (1.8 billion, the highest number of any artist) he would still only have generated gross revenue of $18 million and net revenue of revenue of around $14 million, leaving something like an $8 million loss for Apple when Apple Music’s additional retailer margin is factored in. Apple would however have been able to make up the remainder on album sales, but Styles would have needed to have shifted a good number of albums. (Adele’s ‘25’, the biggest selling download album in the US in 2015 drove around $15 million in label revenue.) So for now, it takes selling albums to make the economics of streaming exclusives add up.

apple vs tidal

Jay-Z paid $56 million for Aspiro’s 512,000 subscribers, $110 per subscriber. Assuming he’d want a similar per subscriber price, that would put Tidal’s price tag at around $440 million. That’s no small amount of money for around 5% of the global subscriber market. Or to put it another way, Apple could another 23 Drake exclusives for that money which most likely would have a bigger impact on subscriber growth. Indeed, on all growth measures Apple Music has outperformed Tidal over the last 12 months, adding 12.5 million new subscribers to Tidal’s 3.1 million, growing by an average of 1.4 million subscribers a month compared to 0.3 million for Tidal. Apple even has the edge in % growth terms (352% compared to 328%).

So why is Apple in the market for Tidal (albeit reportedly)? Probably more than anything it is about taking an irritatingly threatening competitor out of the market. Tidal has been stealing Beat’s core customer base from right under its nose. It’s no coincidence that Apple Music’s exclusives strategy has had a strong urban bias. Apple wants its Beats customers back, just like it wants its iTunes customers back from Spotify.

Even if Apple does buy Tidal, don’t expect the exclusives wars to go away. Indeed, Spotify just acquired its own exclusives supremo in the shape of Troy Carter, and Apple clearly has its mind set on continuing to spend heavily. So the next few years of streaming will be  defined by streaming services getting closer to artists (with Connect becoming much more important for Apple) which in turn will see the distinctions between what constitutes a streaming service and a record label blur all the more.

As science fiction write William Gibson wrote: the future is already here, it’s just not evenly distributed yet…

 

Soundcloud, Amazon, Tidal: Streaming’s Other Runners

Apple, Spotify and YouTube have all been grabbing the streaming headlines of late, albeit for different reasons. While these companies will continue to set the pace over the next couple of years (again, for different reasons) there is much more to the streaming market than these three. Here’s what three of the other main streaming contenders have been up to in recent weeks:

Click here to read the full post on the MIDiA blog

After The Download: When Apple Turns Off The iTunes Store

 

When new formats race to the fore it is easy to make the mistake of taking an eye off the legacy formats. This is risky because they usually still account for very large portions of existing revenue. Now that the marketplace has finally accepted that streaming does in fact cannibalize download sales (indeed 27% of subscribers say they have stopped buying downloads) the attention has, understandably, simply shifted to figuring out how quickly streaming revenue will grow. At a macro level this is fine, in fact it even works at a big label and publisher level. But it is far more challenging for smaller labels and publishers, and also for artists and songwriters. Each of these constituencies still depends heavily on download sales. Of course the big labels and publishers do too, but their repertoire portfolios are so large that they can take the macro view. For the rest though, because the average royalty income per album per streaming user is just $0.21, download sales remain crucial to cash flow. So, what happens when the download dies?

The demise of legacy formats normally follows this pattern:

  1. An accelerated initial decline as early adopters abandon the technology in favour of the shiny new thing
  2. A steadier, slower, long term decline as the mainstream migrates away, leaving only the laggards
  3. A sudden death when the sales channel no longer supports the product (think black and white TVs, cassette decks, VHS recorders etc.)

The CD is clearly following this trend but phase 3 will be long in coming because it is so easy for Amazon to continue stocking product, especially super high end box sets etc. Meanwhile discount retailers, petrol stations, convenience stores etc. will continue to find space for super low end cheap catalogue CDs. For downloads though, there is likely to be a near-sudden halt within the next 5 years. Although Amazon has made solid inroads into the music download business, Apple remains by far the dominant player. Thus the music industry is in effect dependent on the strategic whims on one partner for one of its most important revenue streams.

Subscriptions Are Key To Apple’s Services Narrative

Apple has historically been in the music business for one reason, to help sell more devices. That’s why Steve Jobs was happy to accept a 65% label revenue share model that ensured it was nigh on impossible to run a digital music business as a profit making venture i.e. he wanted to lock the market into a commercial model that neutered the competitive marketplace. We’re still feeling the effects of that now, with that 65% benchmark being the reference point against which streaming rates have been set.

No new news there. But what is new, is that Apple is trying to pivot its business towards a services based model. Apple is building a Wall Street narrative around monetizing its existing user base. It needs that narrative because device sales are slowing. Until it gets another hit device that can grow another new-ish marketplace (VR anyone?) Apple needs to focus on driving extra revenue from its base of device users. This has much to do with why Apple chose to enter the streaming market now as did any other factor. While the download business generated solid headline revenue it did not have the benefit of being predictable, on going spend in the way that subscriptions are.

So music is now more important to Apple because it is the entry point for its services based business model. Eventually music will lose importance to video, and potentially games too if Apple can build a subscription business around that. But for now Apple will be looking to migrate as many of its iTunes customers as possible to subscriptions, whatever it might actually be saying to record labels!

download collapse

Turning Off The iTunes Store

And this is where the download collapse comes in. Last year downloads declined by 16% in nominal terms. This year they are tracking to decline by between 25% and 30%. If we trend that forwards there will only be a modest download business of around $600 million by 2019, down from a high of $3.9 billion in 2012. For Apple, if it continues to grow its subscription business at its current rate, hitting 20 million subscribers by end 2016 and around 28 by end 2017 etc, by 2020 its download business would be tracking to be 10 times smaller than streaming revenue but, crucially, streaming revenue would nearly have reached the 2012 iTunes Store download revenue peak. This is the point at which Apple would chose to turn off the iTunes Store. The narrative of services based music business would be complete.

Smaller labels, publishers, artists and songwriters all better have a Plan B in place before this transpires. The download was a fantastic transition product to give the music industry its first steps into the digital era. But as we transition from transactional models to consumption based ones, its role diminishes every passing year. It has served the market well, but the end is now in sight.

 

 

Quick Take: Apple Music Comes To Android

I just published a post over on MIDiA on why Apple Music has launched on Android. You can read the post here.

I’m going to continue to blog as usual here, especially the bigger think pieces – there’s one on next-gen labels coming tomorrow, but I’ll be using the MIDiA blog for more of the news-led quick takes.

We’ve launched a weekly MIDiA newsletter too which you can sign up to by adding your email in the box on the right hand side of our blog home page here.  The newsletter comes out each Monday and includes analysis, research and data on music, online video and mobile content.  Newsletter subscribers also get a free 28 page MIDiA report ‘The State Of Digital Music’.

Apple Music By The Numbers

Back in August when Apple announced it had hit 11 million subscribers I predicted that would result in around 6 million paying subscribers.  Yesterday Tim Cook announced that Apple Music now has 6.5 million paying subscribers, which translates into a 59% conversion rate.  Or at least 59% of trialists paid for at least one month.  As I wrote back in August, Apple will lose a share of those subscribers who will cancel after one payment (i.e. the ones who’d forgotten to cancel their payment details).  Somewhere north of 1.5 million of those subscribers will likely not make it through to a second month’s payment.  Which would leave around 5 million of those as long term subscribers.

The Acquisition Funnel Needs Widening

Cook also stated that the total number of users is 15 million which means that there are 8.5 million active trialists. Given that all the 11 million trialists reported 6 weeks after launch are now either gone or are subscribers that means all of those are additional trialists which gives us a monthly trialist rate of under 3 million or a little under 100,000 a day. Which is way below the 315,000 a day Apple had during the first 6 weeks (which is to be expected) but also below the 175,000 rate I had conservatively predicted back in August.  So Apple’s funnel is not yet performing as strongly as expected.  Given that most of Apple’s advertising for Apple Music is branding focused at the moment, we could expect that rate to augment steadily over the coming year as that brand message beds in.  And it could lift significantly if Apple shifts focus to product centric marketing i.e. what it normally does. (The Apple Music ad campaign is rare for Apple in that it doesn’t involve any product imagery).

apple music infographic

10 Million Cumulative Subscribers By Year End

If Apple continues at the current rate it should get to around 10 million subscribers by year end, of which 6 million or so will be active (i.e. not churned).  Which is again below my August prediction of 8.7 million because the acquisition funnel isn’t delivering as anticipated.  In revenue terms that would deliver cumulative subscriber revenue of $220 million by the end of the year.  Apple has earned around $140 million in total so far, of which $100 has gone to rights owners.

And we shouldn’t understate the scale of Apple’s success so far, narrow funnel or not.  It took Spotify 4 and a half years to get to 6.5 million subscribers.  Granted, it was a very different world back then and much of that growth had come without the US and of course without the benefit of Apple’s integrated ecosystem.  But even those considerations accounted for, Apple has gone from zero to hero in a flash.  In August I stated ‘Apple is on track to be the number 2 streaming subscriptions provider after little more than 6 months in the game’ and that is exactly where they are now.

To Restate Or Not To Restate

Music Business Worldwide cites an insider source that Spotify is on the verge of announcing its own new numbers. It will be interesting to see the fine print of how those numbers are reported.  Spotify has seen an uptick in subscriber growth at the same time it introduced its $1 a month for 3 months promotion, which is effectively a paid extended trial.  Here’s the conundrum.  If those numbers are reported as subscribers then expect terrible churn (for subscriber numbers) but if they are reported as trialists then conversion rates will be great but total subscriber numbers will not.  Common sense would dictate Spotify reporting those numbers as subscribers (they are paying after all) but that means at some stage Spotify is going to have to restate its numbers or provide some additional guidance.  Which incidentally Apple will also eventually have to do if it reports it cumulative 10 million subscribers at year end / early 2016 rather than the active subscriber number of around 6 million.

Apple and Spotify are now locked in a metrics arms race.  Both will use every trick in their respective arsenals to make those numbers look as good as they possibly can.  Whatever the outcome of that particular little spat, today’s numbers show us that even below its best, Apple just ran the first lap of a 5,000 metre race as if it was a 100 metre sprint. Let’s see if Apple can run an entire Mo Farah race at the speed of an Usain Bolt sprint.