Spotify, Netflix And Instagram Make Gains In Q2 2017

Since Q4 2016 MIDiA Research has been fielding a quarterly tracker survey across the US, UK, Canada and Australia to build a proprietary dataset that provides a unique insight into how digital consumer trends are evolving quarter-upon-quarter. Through the tracker we monitor weekly active usage of apps for streaming music, streaming video, games, social and messaging. We also measure the shifts in key consumer behaviours, such as curated playlist listening, binge watching and subscriptions, in each of these sectors each quarter. We have structured the data so that clients can explore each app and behaviour by demographics, and, crucially, users can examine how much each app overlaps with others and with all the 40 different behaviours we track. We recently published a report for MIDiA’s paid subscribers analysing key trends across the first three quarters of our tracker. Here are some of key insights from the report. To find out more about how to get access to MIDiA’s Quarterly Trends report, email stephen@midiaresearch.com.

The leading apps in each of the categories tracked are largely consistent across all of the countries surveyed and they are also the big names that are familiar to all (see figure above). However, where things get interesting is in a) the variations in penetration across countries and b) how usage has evolved over successive quarters. For example:

quarterly trends midia figure 1

  • Messaging apps on the rise: Weekly Facebook usage was up slightly in the US between Q4 2016 and Q2 2017, but down in the UK. Over the same period WhatsApp was flat in the US but up slightly, along with Instagram, in the UK. WhatsApp penetration stood at just 11% in the US in Q2 2017 but 33% in the UK, while penetration in Australia and Canada laid in the middle of those two points.
  • Netflix growing but not in the UK: YouTube is still the standout video destination in terms of weekly usage across all the markets tracked. However, growth has slowed in these markets, with penetration going down slightly over the three quarters. YouTube’s loss is Netflix’s gain, with the streaming TV platform’s usage increasing each quarter. Though, again, there is an intriguing country level exception: Netflix is growing everywhere except the UK where weekly usage was flat over the period.

top streaming music apps in q2 2017, spotify, youtube, apple music, soundcloud, amazon, musical.ly

YouTube is the world’s leading streaming music app and this is true of the larger, mature markets. The continual breaking of YouTube music streaming records by the likes of Shakira and Luis Fonsi point to a renaissance in YouTube as a music streaming platform. However, the origin of those artists point to the location of YouTube’s music momentum: Latin America. Meanwhile, across the US, UK, Canada and Australia, weekly usage of YouTube as a music app was flat, and down actually in Australia. Most of the music apps we tracked had a dip in Q1 2017 but in the main held ranking and overall usage. Deezer saw a small rise while Soundcloud fell slightly. Spotify was the big winner, gaining penetration to close the gap on YouTube, and becoming the leading standalone music app. In the UK, Spotify surpassed YouTube for music among 16-19 year olds, hinting at a strong future for Spotify among Gen Z. Talking of Gen Z, lip synching apps Musical.ly and Dubsmash maintained momentum across the period, something other music messaging apps have previously failed to do this late on in their lives. These sort of apps, though niche in scale, point to what Gen Z want from their social music experiences.

These are just some of the very high-level trends, and there is much more in the report itself. If you are a MIDiA subscription client you can access the report and data right away here. If you are not yet a client and would like to learn more about how to get the report and the other benefits of being a MIDiA client email Stephen@midiaresearch.com.

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What Acquiring Beats Could Do For Apple (And Everyone Else)

Stories emerged last night that Apple is in talks to buy Beats, citing well-placed sources. If true – and if it actually goes through – the acquisition has countless potential impacts of seismic proportions, particularly if the deal includes nascent subscription service Beats Music. Apple has always been in the business of selling music for the business of selling hardware, and the potential acquisition must be considered in those terms. With download sales declining and subscriptions gaining traction, Apple has been locked in a process of soul searching, trying to work out what it can do to remain relevant in the digital music business in order to remain relevant in the device business. Beats is a ‘if you can’t beat them, buy them’ solution.

download slow down

There are a number of key considerations and potential impacts:

  • Digital music Plan A has run its course: Despite dynamic growth in Northern European markets, digital music growth nearly shuddered to a halt in 2013, slowing from 11% year-on-year growth in 2012 to just 2% last year, and that is unlikely to be much higher than 4% in 2014. The reason is quite simple: streaming subscriptions are, outside of Northern Europe, predominately converting the most valuable download buyers – who are most often iTunes buyers – into subscribers. Aficionados who bought a few digital albums a month are instead spending 9.99 a month. So instead of bringing up the average spend of music buyers it is bringing down the spending of many – I’ll be publishing some data on this in the coming weeks. Digital music needs a Plan B to reinvigorate growth
  • Apple is paradoxically holding back digital growth: Apple almost singlehandedly created the global digital music in the 2000’s but it is now actually holding back growth in the 2000’s. Streaming has taken off most quickly where Apple never got a foothold (see figure). Where Apple is firmly established streaming is a transition story, of download revenue shifting to streaming. Where it is not, streaming is green field growth. An interesting side effect of this is that because English speaking Apple has prospered most in English speaking markets, it is in these countries – US, UK, Canada, Australia, all of which are top ten music markets – where digital growth is now slowest. Apple has inadvertently passed the digital baton to the non-English language world.
  • Apple’s go-slow streaming strategy is too slow: All this translates into weakening digital relevance for Apple, which infers weakening hardware relevance. Apple has been here before, back in the heyday of Last.FM when Apple was still predominately a computer business, it tried to steal the social music revolution’s clothes with the launch of the now-defunct Ping and the just-about-still-around Genius. Yet Apple came out of that era stronger than ever. Now though, portable devices are the beating heart of Apple’s business, and with the relentless onslaught of Android it cannot afford its next music move to be another Ping. However Apple has had to go slow with streaming. Its user base is more mainstream than ever – as the growing popularity of Now compilations in its store attests – so it has to introduce new features in a way that does not overwhelm its less tech-adventurous customers. iCloud and iTunes Radio are great transition technologies to help introduce streaming to Apple users at a steady pace and to demonstrate clear relevance in the iTunes context. Unfortunately this long-term strategy for its mainstream users has done little to halt the defection of its more sophisticated and, crucially, most valuable, customers. Beats Music could be the defensive strategic option for them.
  • Subscriptions don’t have to be AYCE 9.99: 9.99 AYCE services have done a great job of monetizing the super fans, but with less than 5% penetration in major music markets, there is a clear need for something else for the more mainstream fan in top 10 music markets. Cheap priced subscriptions and telco hard bundles are both solutions to this problem. Apple should not feel compelled to jump on the 9.99 bandwagon. Digital content stores are breaking down the genre walls – as Google’s Play demonstrates so well. Apple gets much more revenue from other content genres – see this figure – so a multi-content genre subscription would be a much cleaner fit for Apple. As would a subscription that gave users a certain amount of credit to use on any iTunes products, sort of a virtual iTunes Gift Card subscription. Pricing would be blissfully simple – e.g. $10, $20, $30 etc. – and would help protect Apple from revenue cannibalization until it makes the full switch to access from ownership. $10 could include ad-free iTunes Radio, $20 and upwards could include unlimited music streaming.
  • Apple could make hard bundling work, and some: If Apple does get Beats Music, it would have an unprecedented opportunity to make bundled subscriptions work. Hardware has always been key to making digital content work, whether that be the Kindle, Xbox, Playstation, iPhone or the new generation of Content Connectors like Chromecast. Subscriptions are working now because Apple opened up a chink in its vertically integrated ecosystem armour by allowing streaming services to exist on its devices. In fact mobile access is responsible for the majority of the 9.99 model’s growth. Retailing an iPhone / Beats headphones subscription bundle would communicate clear value to users, and with the cost largely hidden in the premium price point associated with the bundle, could help consumers get over the hump of committing to monthly spending.
  • Beats would redefine Apple as a CE company: The implications on Apple’s device portfolio are intriguing tool. The simplicity of Apple’s limited product range has always been key to its success. Being able to retail a single phone when competing with the excessively vast portfolios of incumbent smartphone companies was a major differentiation point. Since those first iPhone days though Apple has multiplied its number of product SKUs. Incorporating a range of headphones would take that to another level. Whether Apple has the ability to seamlessly transform from a computer company with a small range of portable computing devices, to a fully-fledged CE company remains an intriguing open question.

There is no doubt that if Apple does buy Beats and Beats Music, that the impact on the competition will be dramatic. Spotify will be rightly worrying about the impact on its impending IPO – though expect words to the effect that this is simply a resounding validation of the model. But the competition should be welcomed. To date most digital music services have been strategically lazy, focusing their efforts on trying to sell new products to already existing digital customers, the majority of whom, in the big markets at least, are Apple customers. Now digital music companies will have to start thinking much more creatively about how they can compete around, rather than with Apple. About how they can create revenue in new consumer segments, not simply trying to extract more revenue from the preexisting ones. Some companies are doing this already but they are in the distinct minority – this should be a good time for them. If Apple does buy Beats, it will bring some much needed momentum to market that was beginning to suffer from hubris.

Listen Services Raise Their Game While Access Services Raise More Capital

Regular readers will recall my classification of the digital music market into Access services and Listen services, located at opposite ends of the Complexity Axis. Late last week two of those Listen services upped their respective games, with MusicQubed launching a new service with Vodafone New Zealand and Nokia Mix Radio introducing a host of new features.

Both services are focused squarely on delivering elegantly simple music experiences for as little effort as possible from the listener.  All you can eat Access services have done a great job of engaging the higher end aficionado and will continue to be the most appropriate business model and value proposition for the more engaged, higher spending music fan.  They do little for the lower spending mass market consumer however, which is where Listen services come in.

Interestingly MusicQubed and Nokia’s announcements came in the exact same week that news began to surface of Spotify securing an extra $250 million in finance, taking Spotify’s total investment tally to over half a billion.  In fact Deezer and Spotify alone account for approximately two thirds of all of the investment in digital music services in the last three years, amassing $0.6 billion between them from 2011 to 2013 alone.  Both companies have reported impressive subscriber counts and have made subscriptions work at scale in a way that the stalwart incumbents Rhapsody and Napster never did.  But building the Access business is clearly one that requires a large and steady influx of working capital.  The industry has got to hope that the investment to date helps build the foundations of long term sustainability and not simply supercharge a few services for a quick sale without an eye fixed firmly on the long game.

Concerns aside, it is great to see more investment pouring into the space, even if it is too concentrated at the moment. It is even more encouraging though to see more companies recognising the need to engage the less hip, but much larger installed base of mass market fans who are currently getting left behind by the digital music bandwagon.  It is to be hoped that these are the foundational signs of a more mature digital marketplace that can take the digital transition onto the next stage.

Lady Gaga, O2 Tracks and the Reinvention of the Pre-Release Sale Cycle

Back in the glory days of music sales, long before the web had done away with scarcity, albums and singles could hit the top of the charts on pre-sales alone.  Those days are long gone, but exclusive pre-release listening initiatives are beginning to reinvent the pre-release sale cycle.  There have been a number of diverse efforts of late including Daft Punk’s ‘Random Access Memories’ being streamed exclusively on iTunes a week prior to release and Jay-Z’s Samsung ‘Magna Carta Holy Grail’ hard bundle.   This week sees the arrival of another high profile artist effort: Lady Gaga’s ‘Artpop’ is going to be available one week ahead of release exclusively in the UK on mobile music service O2 Tracks.  Done right, pre-release digital previews could be a crucial shot in the arm for music sales.

The debate around whether streaming cannibalizes downloads is going to run for a few years yet, and we’ll probably only have enough data to draw definitive conclusions when streaming’s ascent and downloading’s descent are irrevocably set.  Until then, the challenge is how best to leverage the capabilities of existing digital platforms to drive sales of both downloads and good old fashioned CDs and LPs.  Previewing on an all your can eat streaming service will always both drive and cannibalize sales, just in the same way that radio has always done so.  But build the preview experience into the structure of a music store and the chances of conversion are much higher.  Daft Punk’s iTunes preview was a run away success because it was in the heart of the globe’s biggest music retailer (though of course the impact of the uber effective marketing campaign cannot be discounted).

Powered by UK music start up MusicQubed, O2 Tracks is far from a download store (it delivers users a small selection of handpicked playlists for £1 a week) but it is nonetheless a proven driver of music sales.  MusicQubed reports that O2 Tracks users frequently click to purchase tracks in the app, with stores such as iTunes providing the fulfillment. Thus O2 Tracks is an opportunity to drive hype (O2 are investing heavily in marketing the preview project) and to drive sales.

Lady Gaga is truly a digital era artist, with music sales that are strong but overshadowed by super high social engagement metrics such as Facebook Likes and YouTube views (see this chart for more). So while Lady Gaga’s management will be most interested in the strong marketing support from O2 and will in part measure success in terms of social footprint, her label Polydor will of course be paying much closer attention to conversions to sales.  O2 Tracks should deliver on both counts.

As more pre-release digital initiatives are run we will get a better sense of what works best, and where.  As that data builds I expect a clear case to emerge of a more structured and consistent approach to pre-release marketing.  A crucial ingredient will be exclusive extra content, not just the album itself (the O2 Tracks ‘Artpop’ preview includes an eight minute interview with Lady Gaga). This is the sort of content that delivers genuine added value to core fans of any given artist and that helps build even more reason for fans to listen to pre-release album previews.  The days of albums regularly topping the charts on pre-sales alone may be a thing of the past, but the pre-release sales cycle is waking up to a whole new lease of life in the digital age.

 

Why Twitter #music Should Only Be Considered a Small First Step

So finally Twitter leveraged its We Are Hunted acquisition and today launched the much expected, if not necessarily much anticipated, Twitter #music.  I say ‘not necessarily much anticipated’ not so much because Twitter isn’t a big deal in the digital music ecosystem (it is) but more because few expected Twitter to do anything particularly groundbreaking here.

Making Twitter’s Music Experience 3 Dimensional

Twitter #music is a neat integration of Twitter music content, such as artists’ Twitter accounts and tweets, integrated with iTunes previews streams and (for Rdio and Spotify users) full audio playback.  All of which undoubtedly brings genuine additional value and turns the Twitter music experience from something pretty superficial and two dimensional into a three dimensional music experience.  But in doing so (some nice UI and discovery algorithms aside) Twitter is essentially just doing a Facebook.  It is leveraging its audience’s behavior as a navigational front end for existing music services.

This is of course a good thing, pulling together the disparate social, graphic and audio elements of the digital music landscape into a cohesive whole.  But it is also so much less than what Twitter, Facebook and Google+ could and should do.

What Twitter, Facebook and Google+ Could and Should Do

Between them Twitter, Facebook and Google+ have a cumulative 2 billion registered users and 1.5 billion cumulative active users.  In short, just about every online and mobile music fan.  These three social powerhouses between them also provide homes to the majority of artists online. This sort of power, influence and reach is staggering. And yet so far all that the three have seen fit to do is plug into other music services.

Now that might be the most sensible core plank of their respective digital music strategies, but there is also so much more that they could do that would complement, and add to the core digital music services currently in market.

For example:

  • Google+ could create a standard ‘plug and play’ portfolio of creative tools such as remix, karaoke and live jamming apps that artists and fans could plug into hangouts and profiles
  • Twitter could allow fans to follow the journey of a song from its original tweet right through to how it got to them
  • Facebook could create a virtual jukebox app that would use Gracenote database look-ups to create service-agnostic playlist and digital collection data from users streamed music that would auto-port to any other music service via Facebook

These are all of course tactics, not strategies, but collectively they add up to something much bigger.  The strategy of the social powerhouses has to be: bring new, unique value that genuinely moves the needle.  Simply creating another suite of discovery tools is not enough. Twitter #music adds audio to the visual music discovery journey and in doing do runs the risk of making much of the discovery journey the destination.  Which is great from a user perspective, but much less so for artists and labels unless some robust additional commercial models are added.  The harsh reality is that if you give a social user too much value in the social context, the opportunity for converting engagement into transaction is reduced.

The digital music market needs social’s big three to start ramping up their respective music games. Twitter #music is a cute first step, but not the end game.