Why India Matters to Spotify, and Why it May Not Deliver

Warner Music and Spotify have been involved in a rather unseemly and very public spat this week over Spotify’s India launch. I’ll leave for someone else, the discussions of the potential implications of a blanket license for songwriter rights in India for an on-demand streaming service. Suffice to say, the words ‘can of worms’ come to mind. Instead, I am going to focus on why India matters so much to Spotify.

The next one billion, perhaps…

Spotify’s Daniel Ek has made much of addressing the next one billion internet users as part of Spotify’s long-term opportunity. Given the fact that China is effectively off the table for now and that sub-Saharan Africa is probably a generation away from being a major streaming market, India is the key component of that next one billion.

Europe and North America accounted for 69% of Spotify’s subscriber growth in 2018. While this was hugely positive for those regions and delivered high-value subscribers – declining ARPU notwithstanding, growth in those regions will slow down towards the end of this year. Next tier markets – Brazil, Mexico, Germany and ideally, though probably not, Japan – will pick up much of the slack. But to sustain the growth rates its shareholders require, Spotify needs other large markets to start building real momentum by 2020/2021. India and the Middle East represent the best options. However, the Middle East already has a strong incumbent – Anghami – and a potentially resurgent Deezer, newly empowered by its exclusive deal with leading local label Rotana. So, India is effectively the last bet on the table.

India is a very competitive but problematic market

India, however, is a problematic market. It has a host of well-backed incumbents – Jio Music, Saavn, and Tencent-backed Gaana – as well as solid performances from Apple and Google. Yet despite all this robust supply, the market heavily underperforms, registering only 1.7 million subscribers in 2018 with a monthly label ARPU of just $0.74. 1.7 million may sound like a solid enough base, but it represents just 0.1% of the total Indian population. There are two key reasons for such weak uptake to date:

  1. Music plays a different role in India:Bollywood and devotional are two of the most widely listened to music genres, neither of which are mainstays of subscription services, nor streaming music consumption in general.
  2. Income levels are low:the average per capita income is $553 a month, with the luxury of a music subscription far out of reach for most Indians, other than urban elites. Spotify’s $1.80 price point in India may sound cheap, but relative to average income, it is 9.3 times more expensive than $9.99 is in the US. So, Spotify would need to be priced at $0.19 to be the same relative affordability as in the US, which coincidentally is the price for its day pass.

The ARPU challenge

The realistic ambition for Spotify should be to drive five to 10 million subscribers over the next five years or so, primarily pulling from urban elites (essentially a re-run of what has been happening in Latin America). While more credible, this falls way short of denting the ‘next one billion’ opportunity. To unlock the scale opportunity, streaming has to look beyond subscriptions, and also beyond ad supported (India’s 270 million free streamers only generated a monthly ARPU of $0.006 in 2018). The scale opportunity is telco bundles. Reliance Communications’s prioritisation of Jio Music makes it the most likely player to capitalise on this in the mid-term.

Spotify needs to find a similar scale partner and somehow convince label partners to accept an ARPU of say $0.08, which would be roughly in line with US telco bundle ARPU on a Purchasing Power Parity (PPP) basis. This would unlock scale without having to tolerate the catastrophically lower ad-supported ARPU rates. But the odds of that happening anytime soon are miniscule. When, and it is a case of when, not if, that time does come, the scale of adoption could be transformative for the global market. In fact, this is exactly where MIDiA thinks the market is heading. In our just published music forecasts, we predict that by 2026 India will have the fourth largest installed base of music subscribers, anywhere in the world.

What matters most, revenue or scale?

The question is whether Spotify can be a major part of the ‘Indian adoption’. Even if it can, the ARPU will be so small that all the current concerns about Spotify’s falling ARPU will look like a storm in a teacup when compared.

Have no doubt, India can, and perhaps will, become a major player in the global streaming market, even helping reshape global music culture. It can also play a major role in Spotify’s future, but the rules of engagement will need to change to unlock that growth, and in doing so Spotify will be sacrificing ARPU. All of this means, Spotify’s investors and partners need to ask themselves, what do they want Spotify to deliver most: strong revenue growth or strong subscriber growth, because India cannot deliver both.

Soon to be the Biggest Ever YouTube Channel, T-Series May Also Be About to Reshape Global Culture

pewdiepie tseries

Some time over the next month or so a YouTube landmark will be passed: T-Series will pass PewDiePie as the most subscribed YouTube channel on the planet. As of time of writing T-Series had 75.4 million subscribers compared to PewDiePie’s 76.4 million. (PewDiePie’s lead was narrower but he has mobilised his fan base to delay the inevitable.) But do not mistake this milestone to be a narrow measure of the shifting sands of the YouTube economy. Indeed, it tells us more about the future of streaming as a whole (both music and video) than it does the current status of sweary Swedish gamers.

For those of you who somehow do not yet know who T-Seriesis, it is a leading Indian music label and movie studio – it in fact claims to be ‘the biggest – that is the world’s largest YouTube music channel and before long it will likely be able to drop the ‘music’ qualifier from that title. It is also the label that Spotify just struck a deal with as it preps its protracted launch into India.

A streaming market of contradictions

India is a problematic market for streaming monetization. It has 1.4 billion consumers but just 330 million of those have smartphones. There were 215 million free streaming users in 2018 but just 1 million paid subscribers despite leading indigenous players like Hungama and Saavn having been in market for years. Total streaming revenue was just $130 million in 2017 generating a combined annual ARPU of $0.27. And that number is heavily boosted by unrecouped Minimum Revenue Guarantees (MRGs) due to local streaming services continually failing to meet their projected subscriber numbers (though according to local accounts, perfectly happy to continue to effectively overpay for their streaming royalties). The video side of streaming is more robust with eight million subscribers generating more than three times more revenue than music streaming does. Even still, eight million subscribers is scant return against a base of 330 million smartphone users.

Streaming unlocks the potential of emerging markets

India is exactly the sort of market that streaming business models have the potential to unlock. The old world was defined by commerce, by people paying to own music or for hefty household TV subscriptions that inherently meant owning a TV set. As a direct consequence, the traditional music and TV markets skewed towards western markets with higher levels of disposable income. This was a massive missed opportunity and one that can now be fixed. As Mexico and Brazil are currently in the process of showing us, populations with strong cultural heritage and large, but lower income, populations can have massive impact. Like or loathe Reggaeton, its ability to permeate the global music marketplace is testament to the power of Latin American music fans and the artists they support, as is Colombian J Balvin’s current status as the most streamed artist on Spotify.

The growing influence of second tier markets

Streaming can monetize scale in a way the old model simply could not. What we will see over the coming decades is a steady realignment of the balance of power across the global music and video markets. Western markets – and a handful of others such as Japan – will continue dominate revenues due to a combination of higher subscription penetration and higher subscriber ARPU. But large population, 2ndtier markets will have a growing influence. The BRIC markets (Brazil, Russia, India and China) are obvious candidates but also Mexico, the Philippines, Nigeria, Egypt, Turkey and Thailand all have similar potential.

Large, engaged local audiences can shape global trends

One of the key reasons Latin American artists have become part of the global cultural zeitgeist is that Spotify has a big regional user base – 42 million MAUs as of Q3 18. Because record labels over-prioritise Spotify in terms of marketing and trend spotting, when Latin American artists started blowing up, European and North American labels started paying extra close attention and building up their own rosters of Latin American artists. Latin American users represent 22% of global Spotify MAUs but their influence is amplified by the fact that they stream a lot and they tend to stream individual tracks repeatedly. So, when they put their support behind something it blows up, edging into the global charts which then triggers a whole bunch of actions that see that track being fed into non-Latin playlists and user recommendations, which can then trigger a further escalation of playlist strategy. And so forth. This was Luis Fonsi’s path to global stardom.

Could India ‘do a Mexico’?

So the obvious question is, if T-Series had enjoyed the same sort of success on Spotify that it did on YouTube, would Guru Randhawa be topping Spotify’s global artists instead of J Balvin? Would we be finding Bhangra in every sonic nook and cranny instead of Reggaeton? The answer is – as certain as a counter factual claim can ever be – almost certainly yes. Whereas Latin American emigres are a major demographic in the US, they are less so elsewhere. Also, Latin American culture is divided between Spanish and Portuguese. The Indian diaspora however, is far more global, with large populations in the US, Canada and UK. What is more, though India has many indigenous languages, English is spoken nationally, with many artists releasing in English. Similarly, a growing number of Bollywood movies are being made in English with an eye on the global market.

So when Spotify finally launches in India, expect a series of global cultural aftershocks. Spotify is unlikely to covert that many premium subscribers – except via telco bundles – but it is likely to build a big free user base. And when that happens expect T-Series to take centre stage with Guru Randhawato be the most streamed artist globally by 2020…?

Looking for the Music in Tencent Music

The Tencent Music Entertainment (TME) F1 filingmakes for highly interesting reading, but don’t expect copious amounts of data to give you an inside track in the way that Spotify’s F1 filing did. Instead TME’s F1 bears much closer resemblance to iQyi’s F1, namely a basic level of KPIs, lots of market narrative and even more space assigned to explaining all of the risks associated with investing in a Chinese company. But, perhaps the most significant thing of all is that TME isn’t really a music company or investment opportunity, but is instead a series of social entertainment platforms, of which music – and much of it not even streaming music – is one minor part.

Risk factors – there’s a lot of them

As with iQiYi’s F1 filing, a lot of the document is taken up with outlining the risks associated with investing in a Chinese company, particularly with regard to the various ways in which the Chinese government can potentially put the business out of existence. Evidence of just how real this threat is for Tencent is very close to home. The Chinese authorities are currently refusing to authorise any new Tencent games – and have not done so since March,  while it brings in new restrictions on game playing for kids.Tencent’s shares tumbled as a result. The problem for Chinese companies providing due diligence for overseas investors is that they have to admit that they might not be compliant with all Chinese laws. With the PRC (People’s Republic of China) government not having democratic checks and balances, Chinese companies have to face the real possibility of unpredictable, unchallengeable, draconian intervention, such as is happening with games.

Two particular areas of potential difficulty that the TME F1 highlights are social currency and overseas interests:

  1. TME makes much of its money from social gifting and virtual items. TME argues this does not constitute virtual currency, so should not be subject to tight PRC regulations. The PRC government may disagree.
  2. TME is registered in the Cayman Islands and does not actually own many of its Chinese streaming services but instead has shareholdings in, and contractual relationships with, them. This is a risk-laden approach at the best of times, but is given extra spice by the fact the PRC could determine TME to be a foreign interest, which would put it in breach of a whole bunch of PRC regulations.

Other notable risk factors are:

  • UGC:TME explains: “Under PRC laws and regulations, online service providers, which provide storage space for users to upload works or links to other services or content, may be held liable for copyright infringement”. It goes on to say: “Due to the massive amount of content displayed on our platform, we may not always be able to promptly identify the content that is illegal.” There are two potential outcomes: 1) things carry on as they are 2) rights holders get itchy feet and TME needs to find someone to help it monitor and police copyright infringement.
  • ADS: TME is not offering shares for sale but instead American Depositary Shares (ADS), which in heavily simplified terms means that investors’ money is deposited in US banks in USD and then can in principle be converted into RMB shares at the prevailing currency exchange rate, which may be higher or lower than when the ADS was purchased.

What’s in a number?

Prior to this filing, Tencent had only released one audited music subscriber number – back in Q1 2016 it announced 4.3 million QQ Music subscribers. After that came a succession of press cited numbers that got a lot bigger, but nothing audited. Finally we have a whole collection of numbers to play around with (though see the PS at the end of this post for a health warning on interpreting Chinese company numbers reported in SEC documents).

TME 1

In 2016, TME was very much a music company, with music accounting for nearly half of its RMB 4.4 billion revenues. But by 2017 that picture had changed…and some…with just 29% of its revenues classified as ‘online music services’. Online music revenues grew by 47%, which is impressive enough in isolation, but is much slower growth than the rest of the Chinese paid content market. Video, which parent company Tencent is a key player in, is a major growth area. One sub strand of this is social video, where TME is also market heavyweight. Luckily for TME, it has eggs in many baskets. Social video, which largely comprises live streaming in China, contributed to TME’s social entertainment services revenue growing by 253% (i.e. five times more quickly than online music) in 2017 to reach RMB 7.8 billion – 71% of TME’s total RMB 10.9 billion.

This revenue was driven in large part by live streaming services Kugou Live and Kuwo Liveand by social karaoke app Quanmin K Ge, known as WeSing in the west. WeSing is arguably the biggest ‘music’ app many people don’t know about. Music doesn’t play the same cultural role in China as it does in western markets, thanks in part to the legacy of the oxymoronically named Cultural Revolution, which limits the potential opportunity for music services in China. Karaoke, however, is huge, and WeSing does a fantastic job of converting this demand. By putting social centre stage, TME is able to monetise social in a way that would make Facebook green with envy. As TME explains:

“We provide to our users certain subscription packages, which entitle paying subscribers a fixed amount of non-accumulating downloads per month and unlimited “ad-free” streaming of our full music content offerings with certain privilege features on our music platforms.

We sell virtual gifts to users on our online karaoke and live streaming platforms. The virtual gifts are sold to users at different specified prices as pre-determined by us.” 

Putting social centre stage

But TME’s social skills are not limited to WeSing. Social seeps from virtually every pore of its music services, with features such as likes, comments, shares, ability to create and share lyrics posters from a song, ability to sing along to songs, see local trending tracks, get VIP packages etc. TME has worked out how to bake true social behaviour into the centre of its music services in a way few western companies have (YouTube and Soundcloud are rare exceptions). Both Soundcloud and YouTube built their services without having to play by the record label rule book. Read into that what you will.

The social power of TME’s end-to-end social music offering is illustrated by this case study:

Ada Zhuang (  ). Ada started out as a talented singer on our live streaming platform. A few months later, she released her debut album on Kugou Music. Since then, Ada has released over 200 songs that have won numerous music awards. Her popularity continued to grow through concerts held across China. A single released by Ada in October 2015 has since then been played over three billon times on our platform. 

TME2

Through its acquisition of competitor services Kugo and Kuwou, TME has built a music empire, giving it a 76% music subscriber market share and leaving two key competitors: Apple Music and NetEase Cloud Music. TME pointedly makes no reference to Apple Music, despite it having 2.6 million Chinese subscribers in 2017. NetEase, however, does get a name check.

TME reported its combined (net) mobile music MAUs to be 644 million in Q2 2018, though defining its users as unique devices rather than unique users. (Interestingly, it defines its social users on an individual basis.). What is clear is that TME’s music users and social users are mirror opposites in user tally and the revenue they generate; social users are just 26% of users but account for 71% of revenues. Clearly, TME has identified there is a lot more money to be made from social experiences than streaming music. Few western companies saw this opportunity. Musical.ly, founded by Alex Zhu and Luyu Yang, did, and was predictably bought for $1 billion by Chinese company Bytedance, home to Douyin (known as TikTok in the west).

TME3

TME’s ARPU numbers hammer home the scale of success for its social segment versus its music side. In Q2 2018 TME was earning RMB 122 a month from social users, against a paid user base of 9.5 million, while its paid music base of 23.3 million was generating an ARPU of just RMB 9.

 

Interestingly, international expansion is not mentioned once in the 198,984 words of the TME F1 filing. TME explains exactly how it intends to spend the money from the IPO but international is not spelt out. Our bet though, is that TME is playing its cards close to its chest and will indeed go west.

Wildcard

TME is one of a number of Chinese tech firms listing a portion of their stock on US exchanges. Should the US economy topple into a downward trend at some stage, for example as a resulting of an escalating trade war with China, then stocks like TME could give US investors a seamless way of transferring their holdings out of US companies into Chinese ones, without having to change their portfolio mix (ie one tech stock for another) and without having to change jurisdiction. And with China sitting on $3 trillion of foreign currency reserves – with USD the largest part – China could even hasten things along by flooding US currency into the markets, triggering a tumbling exchange rate.

PS

There is an international jurisdictional loophole between the SEC in the US and the CSRC in China. Which in overly simplified terms means that Chinese companies can falsely report numbers in SEC filings,withtheSEC unable to prosecute Chinese miscreant companies and the CSRC unable to take action over the SEC filing.This has resulted in a significant number of fraudulent filings by Chinese companies reverse listing onto US exchanges via dormant US companies, with SEC filings showing numbers up to 10 times higher than their CSRC filings. The only watertight way to validate Chinese company SEC filed numbers, is to corroborate them with CSRC filings. Unfortunately, TME is not a separate entity in China so has not filed any numbers, and, as stated above, Tencent has rarely reported any numbers for its music division. This does not mean that TME’s should not inherently be taken at face value, but it does suggest extra scrutiny might be wise.

Spotify’s Tencent Risk

NOTE: a previous version of this post referred to a non-compete clause with Spotify detailed in this SEC filing. I have been advised that the scope of this clause is narrower than I had originally interpreted. I have therefore updated this post to remove reference to that clause but the essence of the post remains intact due to the potential role of the major labels which, as outlined below, could have the same effect as a non-compete clause.

On Thursday (September 20th) Spotify grabbed the headlines with its announcement that it is launching a free-to-use direct upload service for artists. While it is undoubtedly a big move, and one that will concern Soundcloud among others, it was not a surprising move. In fact, in April we predicted this would happen soon:“Spotify will take a subtler path to ‘doing a Netflix’, first by ‘doing a Soundcloud’, i.e. becoming a direct platform for artists and then switching on monetisation”. Will labels be concerned, sure, because although Spotify might not be parking its tanks on their lawn yet, it is certainly slowly reversing them in that general direction. However, they may just have a way of clipping Spotify’s wings and waiting in, er, the wings…Tencent.

Still waiting for IPO metrics

Tencent is prepping its music division (TME) for a partial US IPO but announced earlier this week that it will be reducing the amount it is seeking to raise from $4 billion to $2 billion, though still against a reported valuation of around $25 billion. Regular readers will know I have a healthy scepticism of Tencent’s music numbers. It has only ever reported one subscriber number officially – 4.7 million for QQ Music in Q1 2016, therefore it has plausible deniability over all the non-official numbers it puts out via the press. So, the fact there still isn’t an F1 filing revealing TME’s metrics is intriguing to say the least.

Go west

The likelihood is that the numbers will show a relative flattening in music subscriber growth (though other areas of its business should be robust). If so, they fit a wider narrative of Tencent nearing the limits of its potential in China. Video subs, which have grown superfast, will soon slow, messaging is saturated and the Chinese government is curtailing Tencent’s games operations. The title of our April report says it all: “Tencent Has Outgrown China: Now Comes the Next Phase of Growth”. Until last year’s change in Chinese regulations, Tencent could quite happily have spent its time strolling across the globe buying up companies to spread its global wings. But now, operating under limits of how much it can spend on overseas companies, Tencent is restricted to taking minority stakes in companies like Gaana and Spotify. But those efforts do not deliver Tencent the scale of global growth it needs. You can probably see where this is heading: to grow its music business TME will have to roll out internationally, which is quite possibly part of the story it will use to justify its $25 billion valuation.

Ring fencing Spotify’s global reach 

Should TME decide to use the $2 billion it raises via IPO as a war chest, it could then go on a global roll out to all the markets where Spotify is currently not present. Getting their first, with the backing of Tencent and of the $2bn IPO windfall would put Spotify on the back foot. Especially if, and here’s the crucial part, the major record labels took this as an opportunity to knock Spotify down a peg because of its increasingly competitive behaviour. They’ve been relying on Indian licenses already, that could prove to be a template, with Tencent the grateful beneficiary.  This would have the effect of ring-fencing Spotify’s global roll out plans. For fans of the board game Risk, the board would look something like this:

Spotify tencent risk 1

But Risk’s map doesn’t really do it justice. Using a political global map, the respective footprints would look more like this:

Spotify tencent risk 2

The major labels have proven unwilling to license Spotify for India because they weren’t happy with Spotify offering direct deals for a small number of artists. Imagine how they are going to feel with this latest move. With TME waiting patiently on the side lines, they may just see it as an opportunity to carve up the global streaming landscape into two halves, creating a cold war stalemate. Your move Spotify.

Emerging Music Markets: Streaming’s Third Wave

MIDiA has just published a new report that deep dives into how streaming is, or in some cases is not, lifting off in emerging markets. The regions we focused on were Russia, the Middle East, sub-Saharan Africa, China and India. The report ‘Emerging Music Markets: Streaming’s Third Wave’ is immediately available to MIDiA subscription clients and can also be purchased, along with its full dataset (including service- and country-level subscriber and free users numbers, as well as consumer data for India and China) on our report store here.

Here are some of the key findings and themes of the report.

emerging markets midia streaming

With streaming growth set to slow in mature western markets by 2019, the next wave of fast growth will come from a mixture of mid-tier markets such as Mexico, Brazil, Japan and Germany. The lower income mid-tier markets such as Brazil and Mexico are so populous that the urban elites have been big enough to generate paid user bases that are comparable to those of smaller European markets. The real scale opportunity, however, exists in monetising lower income groups with much cheaper propositions. Beyond that, the streaming market will need to look towards emerging markets for growth. Emerging markets in Asia and Africa present a diverse variety of opportunities, but current evidence suggests that the outlook for these markets is far from uniform.

The rule that defines emerging markets for streaming music is that there isn’t one. China has a large base of free users and a solid base of subscribers. India has large numbers of free users, but a tiny paid base. Russia and the Middle East both have a solid ratio of free-to-paid users while Africa has the lowest per capita metrics for both paid and free.

Arguably, the single most important reason for these differences is mobile data network availability and affordability. In China and India mobile data use is increasingly widespread, making streaming a compelling proposition, while in most sub-Saharan African countries coverage is patchy and expensive.

Despite their differences, these regions will be crucial to the long-term outlook for streaming growth. So, mapping their respective trajectories helps to forecast long-term global market growth for streaming. Rights holders will need to innovate out of their comfort zone if they are to truly seize the emerging markets opportunity. The fact that Nigeria’s MTN only gets a retail ARPU of around $2 a year across sub-Saharan Africa for its music products, including ringtones and downloads, hints at where ARPU expectations may have to be set.

Companies and brands mentioned in the report:Baidu Music, Gaana, Hungama, iRoking, Jio Music, Kugou, Kuwo, Mdundo, Mkito, MTN, MTN Music+, Mzliki, Netease Cloud Music, QQ Music, Quan Min K G, Saavn, Simfy Africa, Vkontakte, Vkontakte Music, Vuga, Wynk Music, Yandex, Yandex Music, Zvook

Click here to view the report on MIDiA’s report store.

Just What Is Tencent Up To With Streaming?

Tencent is building a global streaming empire. Back in December 2017 Tencent Music did a 10% equity swap deal with Spotify and now it has led a $115 million investment round for India-based streaming service Gaana. India may only be a small subscription market, with just 1.1 million paid subscribers at the end of 2016, but it one dominated by local players and has massive free streaming potential. Tencent now has major streaming stakes that give it reach across Asia, Europe and the Americas. The key missing parts are the Middle East and North Africa (Anghami is probably waiting for the phone to ring). Right now, Tencent has a streaming foothold in the world’s three largest countries:

  1. China: population 1.4 billion. 100% ownership of QQ Music, Kugou and Kuwo which together account for 70% of subscribers
  2. India: population 1.3 billion. Undisclosed ownership of top three streaming service Gaana
  3. US: 330 million. 10% ownership of leading subscription service

What Tencent is doing is building a global network of strategic positions in the streaming market that individually might not have global influence, but, collectively could be brought to bear to in an impactful way. Much like John Malone’s Liberty Media, Tencent is taking minority stakes in a strategically selected portfolio of companies. This provides it with the ability to exert some degree of influence and extract some benefit without the risk and resource required for a majority ownership. Minority stakes can also be used as beachheads for majority ownership further down the line.

In some respects, Tencent does not have a huge amount of choice in the matter. Last year the Chinese government placed restrictions on the amount Chinese companies could spend on overseas companies, in order to slow the outflow of capital from China. But, rather than let this be a hindrance Tencent is now using the policy to shape a bold internationalisation strategy. Coupled with other minority investments (12% in Snap Inc., 5% of Tesla) Tencent is positioning itself to be king maker in the future of digital media.

Yonder And Streaming’s Less Travelled Path

Back in 2012, a music service that had raised $174 million in funding closed without yet having launched to consumers. That service was Beyond Oblivion, a company that intended to transform the music market with music bundled into handsets and phone packages at no extra cost to consumers. Five and half years later, Beyond Oblivion’s founder is finally seeing his latest iteration of the bundled music service model gain traction. Yonder, his new(ish) company, has started off 2018 with a million monthly active users (MAUs) under its belt, with the majority of that growth coming in the fourth quarter of 2017. Yet Yonder is not on many people’s radar, in large part because it is building its business in markets that are off streaming’s beaten track.

yonder graphic

Yonder’s main market is Bangladesh, which makes up just over half of its MAU base, followed by Indonesia and Sri Lanka. It even has tens of thousands of users in Nepal and the Maldives and plans to roll out to markets such as Myanmar, Cambodia, Iraq and Ghana in 2018. These are not markets famed as booming digital music markets, and they’re certainly not priority markets for any of the top streaming services. So, in many respects Yonder is competing around, rather than with the likes of Spotify.

Low ARPU markets

But there is more to it than just that. These are markets with mostly large populations and very low GDP per capita and mobile ARPU. In many of these territories mobile ARPU is significantly lower than the cost of a western streaming subscription. For example, total mobile ARPU in Bangladesh is around $4 a month. This makes fitting the economics of a streaming music bundle into a tariff challenging in the extreme. The standard wholesale tariffs record labels provide streaming services in these regions struggle to fit these wafer thin margins. So, making music bundles work needs a very specific and localized approach. The same principle applies to localization, with music programming requiring a much higher degree of local specialization than many other markets.

More than one way to skin a cat

2018 will likely see a slowdown in music subscriber growth in many western markets. In the meantime, majority of the 9.99 price points will be addressed. Ad supported and discounting will be key to sustaining growth in these markets, but the scale of opportunity for digital music lies in emerging markets. 2017 was the year we really started to see Latin American markets begin to make their mark, while China established itself as a major contributor to subscribers, if not revenue. Services like Yonder are important for the music business, not just because they address new markets but also because they represent another approach. The 9.99 AYCE model will remain the core opportunity, but sticking too tightly to it will limit the scope of the wider market.

Yonder’s model is not without challenges – not least the concept of making premium music feel like it’s free to its users – but it represents one of what should hopefully become a wider selection of alternative paths to making streaming pay.

Spotify, Tencent And The Laws Of Unintended Consequences

spotify tencent midia

News has emerged that Spotify and Tencent Holdings could be swapping 10% holdings in each other’s companies ahead of Spotify’s public listing. There are some obvious implications for both enterprises, as well as some less immediately obvious, but even more interesting permutations:

  • Spotify gets a foothold in China: Tencent is the leading music subscription company in China with QQ Music, Kugou and Kuwo accounting for 14.7 million subscribers in 2016. Apple Music has got a strong head start over Spotify with 3.5 million Chinese music subscribers. Tencent, with its billing relationships, social reach (WeChat, QQ Messenger) and rights holders relationships (Tencent sub-licenses label rights) provides a potential China launch pad for Spotify. So, the obvious implication is that Spotify could use Tencent as an entry point into the market. But this is where things get complicated. Tencent is planning a $10 billion flotation of Tencent Music. How would this valuation be impacted by Tencent aiding the entry of a direct competitor – which is a leader in virtually every market it is currently in, into the market of? A joint venture could be the way to square the circle.
  • Spotify continues its narrative building: As I have long argued, Spotify needs to construct a compelling narrative for Wall Street. It needs to be able to show that it is making strong progress on many of its weak points. Getting better deals from the labels was one such move. Now it has ticked the ‘what about China’ box too.
  • Tencent gets a foothold in the US: Earlier this year the Chinese government put in place restrictions on Chinese companies investing in overseas companies, in order to slow the outflow of Chinese capital. (It slowed a potential investment by Alibaba in UMG). Swapping equity is a way to get round this restriction. It also builds on Tencent’s move extending its stake in Snap to 12%. Tencent is pushing the rules to the limit in order to become a key player in US digital consumer businesses (Spotify of course will become, in part at least, a US company when public). The intriguing question is whether Tencent will get any access to Spotify’s western billing relationships.
  • Valuation disparities: Tencent Music has around a 3rd of Spotify’s subscriber base, a fraction of its revenue and half of its market valuation. Yet a 10% swap deal is on the table. Which suggests that Spotify really, really feels that it needs that entry point into China….

If this deal pans out the way it has been slated, it will potentially save Spotify and Tencent from a resource-draining clash of Titans for when (not if) Spotify would enter the Chinese market. It also provides Spotify with a potential long-term insurance asset. When Yahoo acquired a stake in Alibaba it was very much the senior partner. But, as Yahoo’s business imploded its Alibaba stake became its core asset.

Spotify obviously won’t be thinking that way but history shows us to never say never.

UPDATED: This post has been updated to reflect that the 10% equity swap is with Tencent  Music, not Tencent Holdings Ltd

Announcing MIDiA’s Streaming Services Market Shares Report

coverAs the streaming music market matures, the bar is continually raised for the quality of data required, both in terms of granularity and accuracy. At MIDiA we have worked hard to earn a reputation for high-quality, reliable datasets that go far beyond what is available elsewhere. This gives our clients a competitive edge. We are now taking this approach a major step forward with the launch of MIDiA’s Streaming Services Market Shares report. This is our most comprehensive streaming dataset yet, and there is, quite simply, nothing else like it out there. Knowing the size of streaming revenues, or the global subscriber counts of music services is useful, but it isn’t enough. Nor even, is knowing country level streaming revenue figures. So, we built a global market shares model that breaks out subscription revenues (trade and retail), subscribers, and subscription market shares for more than 30 music services at country level, across 30 countries and regions. You want to know how much subscription revenue Spotify is generating in Canada? How many subscribers Apple Music has in Germany? How much subscription revenue QQ Music is generating China? This is the report for you. Here are some highlights:

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  • At the end of 2016 there were 132.6 million music subscribers, up from 76.8 million in 2015
  • In Q4 2016 Spotify’s subscriber market share was 35% and it had $2,766 million in retail revenue
  • Apple Music was second with 21 million subscribers at the end of 2016, a 15.6% market share and it had $912 million in retail revenue
  • In 2016 Apple was the largest driver of digital music revenue across Apple Music and iTunes
  • The US is the largest music subscription market, which Spotify leads with 38% subscriber market share
  • The UK is Europe’s largest streaming market, which Spotify also leads
  • China’s subscriber base is the second largest globally, but it ranks just 13th in revenue terms
  • Japan is the world’s third largest subscription market, in which Amazon has the largest subscriber market share
  • Brazil is Latin America’s largest music subscription market

The report contains 23 pages and 13 charts with full country detail as well as audience engagement metrics. The dataset includes four worksheets and a comprehensive methodology statement.

Streaming Services Market Shares is available right now to MIDiA premium subscribers. If you would like to learn more about how to access MIDiA’s analysis and data, email Stephen@midiaresearch.com.

The report and data is also available as a standalone purchase on MIDiA’s report store as part of our ‘Streaming Music Metrics Bundle’. This bundle additionally includes MIDiA’s ‘State of The Streaming Nation 2.1’. This is our mid-year 2017 update to the exhaustive assessment of the streaming music market first published in May. It includes data on revenue, forecasts, consumer attitudes and behaviour, YouTube, app usage and audience trends.

Examples of country graphics (data labels removed in this preview)

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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

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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