Global Recorded Market Music Market Shares 2016

MIDiA and Music Business Worldwide have been tracking record label and publisher financial releases throughout 2016. In addition MIDIA has conducted market sizing work on the publishing sector and research for the Worldwide Independent Network’s (WIN) indie label market share project. Pulling all of these inputs together, along with reports from country trade bodies and PROs, MIDiA has created a recorded music market share model to provide a unique view of where the revenue flows in the global business. To ensure as representative a picture as possible all local currency data has been converted into US dollars at the currency conversion rates for the respective quarters. This removes the distortion effect that occurs when data historical data is retrospectively converted at today’s conversion rates.

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(MIDiA Research subscription clients can access the full 15 page excel spreadsheet with all of the underpinning data right now by clicking here.)

The Recorded Music Market In 2016

2016 was a big year for the global recorded music business, with record labels and publishers reporting growth almost across the board. Unsurprisingly, streaming was the driver of growth, increasing its share of label revenue from 23% in 2015 to 34% in 2016. However, the experience was far from uniform across the various corporate groups:

  • Universal: Universal is the world’s leading music group and that status remains firmly the case for 2016. Universal Music’s global record label revenue share was 28.9%, far ahead of the nearest rival Sony Music which had a 22.4% share. However, despite registering a 2.4% growth in USD terms (1.8% in euros), UMG’s share feel slightly from 30.2% in 2015. As with all labels, UMG had a big streaming year, seeing revenue increase by 56%, though this was just below the total market growth of 57%.  Universal Music Publishing’s market share was largely flat at 16.7% for 2016. Note: Although the Universal market share number reported here is smaller than numbers previously reported elsewhere it is grounded in widely accepted industry numbers. The IFPI reported global revenues of $14.95 billion for 2015 while Vivendi reported UMG recorded music revenues of €4.11 billion, which translated to $4.54 billion, which is a 30.2% market share for 2015. Also please note that a previous post had incorrectly reported a 32% decline in physical revenue for UMG in Q4 2016. 
  • Warner: Warner Music had the best major label performance in local currency terms, growing its revenue by 11% and its market share from 16.8% to 17.4%. On the streaming side Warner actually lost a little ground, seeing its market share fall from 19.3% in 2015 to 18.4% despite registering an impressive 51% annual growth in streaming revenue. What helped Warner’s total market share was the smallest local currency fall in physical revenue (just -1%) and the strongest local market currency growth in ‘other’ revenue, up 7%. Warner Chappell had a good year, growing revenue by 9% year-on-year and increasing its market share from 9.6% in 2015 to 10% in 2016.
  • Sony: Sony registered a US dollar growth of 13% in 2016, the highest of all the majors, increasing its market share from 21.3% in 2015 to 22.4% in 2016. However, Sony was helped markedly by the growing strength of the Yen against the dollar. In Yen terms SME’s revenue grew by just 0.9% in 2016. Streaming revenue was up 41.8% in Yen terms and 57% in dollar terms. SME’s streaming market share was flat year-on-year. Sony Music Publishing (including ATV) revenue fell by 1% resulting in market share falling from 24.3% in 2015 to 23% in 2016.
  • Independents: Independent labels saw revenue increase by 6% but that was not enough to prevent market share fall slightly from 31.6% in 2015 to 31.3% in 2016. However, these numbers reflect share according to distribution rather than ownership of copyright. Because so much independent label catalogue is distributed either directly via major labels or via distributors wholly owned by the majors, the actual market share is significantly higher. Watch out for WIN’s forthcoming 2017 indie market share report for a clearer picture of the indie sector’s contribution. On the publishing side independents had a strong year, seeing revenue grow by 6%, and market share grow from 49.4% in 2015 to 50.1% in 2016. Note that the independent numbers include revenue from leading labels in Japan (the world’s 2nd biggest music market globally) and South Korea (another top 10 market) where the western major labels are minor players.

(MIDiA Research subscription clients can access the full 15 page excel spreadsheet with all of the underpinning data right now by clicking here.)

Four Companies That Could Buy Spotify

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For much of 2016 it looked nailed on that Spotify would IPO in 2017 and that the recorded music industry would move onto its next chapter, for better or for worse. The terms of Spotify’s $1 billion debt raise (which mean that Spotify pays an extra 1% on its 5% annual interest payments every six months beyond its previously agreed IPO date) suggest that Spotify was thinking the same way too. But now, word emerges that Spotify is looking to renegotiate terms with its lenders and there are whispers that Spotify might not even IPO. It would be a major strategic pivot if Spotify was to abort its IPO efforts and it begs the question: what next?

The World Has Changed

When Daniel Ek and Martin Lorentzon were drawing up the Spotify business plan in the 2000’s, the music and tech worlds were dramatically different from what they are now. The ‘Potential Exits’ powerpoint slide in Ek’s investor pitch deck would have listed companies such as Nokia, Microsoft, Sony and HTC. Over the subsequent decade, those companies have fallen on harder times (though Microsoft is now experiencing a turnaround) and all of them have moved away from digital music, which is why an IPO seemed like a much better option for being able to get a large enough return on investment for Spotify’s investors.

The only problem is that the IPO market has changed too. IPOs were once the best way for tech companies to raise capital but with the current VC bubble (and its recycled cash in the form of exited-founders reinvesting as Angels) equity and debt investment is much easier to come by. In 1997, there were 9,113 public companies in the U.S. At the end of 2016, there were fewer than 6,000. 2016 was the slowest year for IPOs since 2009. And of course, Deezer aborted its IPO in 2015. Snapchat’s forthcoming IPO will be a Spotify bellwether. If it does well it will set up Spotify, but if Facebook’s continued aggressive feature-cloning on Instagram continues, it could underperform, which could change the entire environment for tech IPOs in 2017. The fact that only 15.4% of Snapchat’s stock is being listed may also push its price down. No fault of Spotify of course, but it is Spotify that could pay the price.

$8 Billion Valuation Narrows Options

Because Spotify has had to load itself with so much debt and equity investment it has needed to hike its valuation to ensure investors and founders still have meaningful enough equity for an exit. Spotify’s revenues will be near $3 billion for 2016 but its $8 billion valuation is half the value of the entire recorded music market in 2015 and more than double the value of the entire streaming music market that year. However, benchmarked against comparable companies, the valuation has clearer reference points. For example, Supercell had revenues of $2.1 billion and was bought by Tencent for $8.6 billion in 2016. King had revenues of $2.6 billion and was bought for $5.9 billion by Activision Blizzard, also in 2016.

The complication is that both of those companies own the rights to their content, while Spotify merely rents its content. Which means that in a worst case scenario Spotify could find itself as an empty vessel if it had a catastrophic fall out with its rights holder partners. King and Supercell would both still have their games catalogue whatever happened with their partners.

Western Companies Are Not Likely Buyers

So, in the event that Spotify does not IPO, it either needs to raise more capital until it can get to profitability (which could be 3+ years away) or it needs someone to meet its $8 billion asking price. Of the current crop of tech majors, Apple, Google and Amazon are all deeply vested in their own streaming plays (Apple Music, YouTube and Prime) so the odds of one of those becoming a buyer is, while not impossible, unlikely and for what it’s worth, ill advised. Though there could be a case for Apple buying Spotify for accounting purposes as buying a European company would be a way to use some of its offshore domiciled $231.5 billion cash reserves. Reserves that the Trump administration is, at some stage, likely to make efforts to repatriate to the US in one way or another. Facebook is the wild card, but it’s unlikely to want to saddle itself with such a cost-inefficient way of engaging users with music. A distribution partnership with Vevo or launching its own music video offering are much better fits.

Go East: Four Potential Suitors For Spotify

So much for Western companies. Cast your gaze eastwards though and suddenly a whole crop of potential suitors comes into focus:

imgres-2Tencent: With a market cap of more than $200 billion and a bulging roster of consumer propositions (including WeChat) and 3 music services, Tencent is arguably the most viable eastern suitor for Spotify. The fact that the company recently reported inflated subscriber numbers for QQ Music (which were in fact a repetition of the same inflated numbers given to Mashable in July last year) hints at Tencent’s eagerness to court the western media and to be judged on similar terms. A Spotify acquisition, especially an expensive one, would be both a major statement of intent and an immediate entry point into the west. It would also transform Spotify into a truly global player.

imgres-4Alibaba:
Another Chinese giant with a market cap north of $200 billion (although it has lost value in recent years), Alibaba has a strong retail focus but has been diversifying in recent years. Acquisitions include the South China Morning Post, Guangzhou Football Club and the Roewe RX5 ‘internet car’. Spotify would be a less obvious fit for Alibaba but could be a platform for building reach and presence in the west.

imgres-1Dalian Wanda: With assets of over $90 billion, revenue of more than $40 billion, a heavy focus on media and an insatiable appetite for acquisitions, Dalian Wanda is a strong contender. The company has built a global cinema empire in its AMC Theatres division, most recently picking up a Scandinavian cinema chain for a little under a billion dollars late January. Dalian Wanda’s strong US presence and long experience in that market, along with its bold global vision make its fit at least as good as Tencent’s. The fact that it is currently mulling a €6 billion acquisition of the German bank Postbank indicates it can buy big.

imgresBaidu: Baidu’s $10 billion revenues make it a markedly smaller player than Dalian Wanda but its $66 billion market cap and strong music focus (e.g. Baidu Music) make Spotify a good strategic fit. Spotify could help Baidu to both counter the domestic threat of Apple Music and to build out to the west, which could act as a platform for building out Baidu’s other brands.

imgres-3Other runners: A host of telcos could be contenders, including the $78 billion SoftBank and India’s Reliance Communications. However, most telcos will surely realise that emerging markets will soon hit the same music bundle speed bumps that are cropping up in western markets. One other outsider is the $29 billion 21st Century Fox. Perhaps less of a wildcard than it might at first appear, considering that News Corp was a major shareholder in the now defunct Beyond Oblivion. And of course, don’t rule out Liberty Global.

An IPO, albeit a delayed one, still remains the most likely outcome for Spotify, but if it proves unfeasible there is a healthy collection of potential buyers or at the very least, companies that could buy into Spotify to give it enough runway to get towards profitability.

Streaming Music Pricing: Inelastic Stretching

Pricing has long been an issue for streaming music subscriptions, with the $/€/£ 9.99 price point above what most people spend on music each month. Streaming services have navigated around the issue with a combination of tactics such as telco bundles and aggressive price discounts (e.g. $1 for 3 months). However, these tactics place long term pressure on the 9.99 price point as they create a consumer perception that streaming music should be cheaper than it is. There is no doubt that discounts are doing a great job of converting users and of easing otherwise reluctant consumers into the 9.99 pricing, but the next phase of the streaming market requires a more sustainable approach to pricing strategy, coupled with some serious product innovation.

To explore this issue in detail, MIDiA has published its latest music report: Streaming Music Pricing: Inelastic StretchingIn it we use proprietary MIDiA data to assess how much of the 9.99 opportunity has been tapped, how much further opportunity exists and what level of demand exists for different price points.

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These are some of the key takeaways from the report:

  • 2017 will be a stellar streaming year: A combination of enough growth being left in the market and the continued success of pricing discounts should see subscriber numbers grow at a slightly faster rate in 2017 than they did in 2016, hitting 146.6 million. This is up 44.3 million from the 106.3 million hit in 2016. (That 2016 figure is 5.9 million more than our provisional estimate published back in the start of January, as the result of receiving a couple of slightly stronger than expected numbers. However, the increase is not due to the very high subscriber numbers reported elsewhere for some Chinese services. We consider these numbers to be high and we place our estimate closer to half of those.) By 2018, subscriber growth will begin to lessen and by 2019 we’ll be in market maturation phase. Around 2/3 of the readily addressable opportunity for 9.99 has already been tapped and this remainder is what will drive the 2017 growth. New tactics will be required for the rest of the cycle.
  • Beyond 9.99: Emerging markets, new partnerships and discounts will all be important growth tactics, but pricing will also be key. Many readers will be familiar with my longstanding enthusiasm for mid tier streaming pricing. Unfortunately, mid-tier pricing by stealth (e.g. price discounts, student offers) coupled with an overly resplendent free marketplace (YouTube, Vevo, Spotify free, etc.) have combined to suck most of the oxygen out of the mid tier sector. Nonetheless, there is a major need for something to cater for the lower end of the market. One of the key sections in the report reveals that streaming pricing is inelastic and the change in demand is smaller than the change in pricing. Even dropping the main price to $6.99 would only result in reducing the size of the streaming market.
  • Unbundling: So how do we square the circle? By using super low prices (e.g. 2.99; 3.99) to launch laser focused niche apps aimed at specific demographics and genres. This can be done both by standalone specialists (e.g. the Overflow, FreqsTV) and by the big incumbents taking a leaf out of Facebook’s app strategy and creating standalone, unbundled apps. In order for them to work, they cannot simply look like a thin slice of Spotify or Apple Music. They have to be as different from their parent apps as Instagram and Whatsapp are from Facebook. That means new user experiences, new functionality, different approaches to programming/ curation and standalone branding. To work, mid tier products have to look like something unique, not a compromised, watered down version of the full fat product. Mid tier services risk looking like low-fat, gluten-free, sugar-free, organic, diet, hand knitted soya milk. While there is a market for it, it shouldn’t come as a surprise that the market is in fact tiny.

So, a good 2017 looks on the cards for streaming, one which will confirm the maturity of the streaming sector as a whole. But the next stage of the market will require product and pricing innovation, at both the high end and the low end. Now is the time to start putting the pieces in place for 2018 and beyond.

The report from which this insight is taken (Streaming Music Pricing: Inelastic Stretching) is immediately available to MIDiA report subscribers. To find out how to become a MIDiA subscriber email info@midiaresearch.com.  If you just want to buy the report and the supporting data then visit our report store here.

Quick Take: A Big Deal Benefits Both Sprint And Tidal

News just emerged that SoftBank owned Sprint has acquired a 30% stake in Tidal, reportedly for $200 million against a valuation of $600 million. The valuation seems on the high side, but a big ticket investment works well for both parties.

According to MIDiA’s latest survey data from December 2016, just 2.7% of consumers in the US, UK, Australia and Canada use Tidal weekly (and that’s probably over reporting). Subscriber wise Tidal had 1 million subscribers at the end of 2016, just 1% of the global subscription market. (Although Tidal has published numbers suggesting it is closer to 4 million, those numbers are not commercially active subscribers but instead ‘users’ and trialists). Tidal is a small player in the global streaming subscription market. So why would Sprint / SoftBank a) want to invest in a small player and b) pay so much?

Making A Small Partnership Bigger

As we discussed in our December MIDiA Research report Next Steps For Telco Music: The Revenue Or User Dilemma telco music bundles are at a turning point. Telco music bundles were highly important in the early stages of streaming subscriptions, helping kick start the market. But their share of total music subscribers has fallen from a high of 32% in 2013 to just 14% in 2016. The original thinking behind telco bundles was differentiation, but when every telco has got a music bundle there’s no differentiation anymore. Additionally, if you are a top tier telco and you haven’t got Apple or Spotify, then partnering with one of the rest risks brand damage by appearing to be stuck with an also-ran. By making a high profile investment in Tidal, Sprint has thus transformed its forthcoming bundle from this scenario into something it can build real differentiation around. Also Tidal has built its proposition around exclusivity and that is being put front and centre of this partnership.

Buy Big To Look Big

Meanwhile, SoftBank has the benefit of a high priced acquisition. Such deals are typically viewed more favourably by investors than smaller ones as it is a statement of intent. Often companies can quickly make their investment back in increased market capitalization because of an uplift to the share price. This is the strategy that kept Yahoo afloat for the last 15 years.

Tidal has struggled to make a dent in the streaming market and has seen more clear water opening up between it and the market leaders. It also has shallower pockets than Spotify, Apple or Amazon. This deal gives Tidal access to Sprint’s customer base, free marketing (well free to Tidal at least) and a war chest to take on the streaming incumbents. Tidal is not about to suddenly become the global streaming leader but it can now, with a fair wind, become a serious player in the US.

 

Why Netflix Can Turn A Profit But Spotify Cannot (Yet)

Having just celebrated its 10th (streaming) birthday, Netflix followed up with a strong earnings release, announcing 5.8 million net new paid subscribers in Q4, sending its share price up by 9%. This wraps up a stellar year for Netflix, one in which it doubled down on original programming and delivered acclaimed hits such as Stranger Things and The OA, shows that don’t fit the traditional TV mould. In fact, Stranger Things was turned down by 15 TV networks before finding a home at Netflix and The OA’s oscillating episode lengths (from 1 hour 11 mins to 31 mins) would have played havoc with a linear TV schedule (not even considering its mind bending plot).

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Netflix closed 2016 with 89.1 million subscribers and the temptation to benchmark against Spotify’s equally strong year is too strong to resist. Spotify (which celebrated its decade in June 2016) closed the year with around 43 million subscribers, 48% the size of Netflix. But a closer look at the numbers tells another growth story.

Read the full post on the MIDiA blog by clicking here.

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.

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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.

Experience Should Be Everything In 2017

 

2017 is going to be a big year for streaming. Spotify will likely IPO, paid subscribers will pass the 100 million mark in Q1, playlists will boom. 2017 will build upon an upbeat 2016 in which the major labels saw streaming drive total revenue growth. This stirred the interest of big financial institutions, companies that had previously avoided the music industry like the plague. These institutions are now seriously assessing whether the market is finally ready to pay attention to. The implication of all of this is that if Spotify’s IPO is successful, expect a flow of investment into a new wave of streaming services. But if these new services are to have any chance of success they will need to rewrite the rules by putting context and experience at the centre of everything they do.

Why User Experience Often Ends Up On The Back Seat

Putting experience first might sound like truism. Of course, everyone puts user experience first right? Wrong. You may be hard pushed to find many companies that do not say that they put user experience first, but finding companies that genuinely walk the talk is a far harder task. Just in the same way that every tech company worth its salt will say they are innovation companies, only a minority do genuine, dial-moving, innovation. Prioritising user experience is one of those semi-ethereal concepts that may be hard to argue against in principle, but that is much more difficult to actually build a company around. Why? Because the real world gets in the way. In the case of music services ‘the real world’ translates into (in no specific order): catering to rights holders’ requirements, investing in rolling out to new territories, paying out 81% of revenue to rights holders on a cash flow basis, spending on marketing etc.

The distinct advantage that the next generation of streaming services will have is that they will sit on the shoulders of the streaming incumbents’ innovation. Instead of having to learn how to fix stream buffering, drive compelling curation, make streaming on mobile work and define rights holder licenses for freemium, they can take the current state of play as the starting point. They are starting the race half way through and with completely fresh legs. They come into the market without the same tech priorities of the incumbents and also without any of their institutional baggage (baggage that, whether they like it or not, shapes world views and competitive vision).

Streaming Music Is Not Keeping Digital Pace

During the last 5 years, users’ digital experiences have transformed, driven by apps like Snapchat, Instagram and Musical.ly. Video has been at the heart of most of the successful apps, as has interactivity. Music services though have struggled, not only with how to make video work, but also with how to give their offerings a less 2 dimensional feel. They have lagged behind in the bigger race. For all of the undoubted innovation in discovery, recommendation, personalization and programming, the underlying streaming experience has changed remarkably little. We are still fundamentally stuck in the music-collection-as-excel-spreadsheet paradigm. Underneath it all is the same static audio file that resided on the CD and the download. Granted, there have been some major improvements in design (such as high resolution artist images, full screen layouts and strong use of white space). Now though, is the time to apply these design ethics to streaming User Interface (UI) and User Experience (UX).

Successful (non-music) apps are multidimensional, highly visual and often massively social. These are the UX and UI bars against which streaming services should benchmark themselves, not how other streaming services are doing. Of course, a key challenge is that music in not inherently a lean forward, visual experience. Most people want much of their listening time to be lean back, without interruptions. Nonetheless, Vevo and YouTube have shown us that there is massive appetite, at truly global scale, for lean forward, highly social, visual music experiences.

Fixing A Plane Mid-Flight

The streaming incumbents could all do this, but they will be at distinct disadvantage compared to potentially well-funded new entrants. It is no easy task to refit a plane mid-flight. Also, Spotify, Deezer and Napster are built on tech stacks with origins more than a decade old. All have made massive changes to those original tech stacks (Spotify in particular, shifting from a monolithic structure to a modular one) but in essence, all these companies were first built as desktop software providers in an era when Microsoft and Nokia were still technology leaders. They have adapted to become app companies but that change did not come naturally and took a huge amount of organizational discipline and resource. This next market phase will require exactly the same sort of discipline, but more effort and at a time when competition is fiercer and costs are higher.

Streaming Services Need To Know Who They Are Really Competing With

The streaming services might think that they are competing with each other but in reality they are competing in the digital economy as a whole. Their competitors are Snapchat, Instagram and Buzz Feed. Right now, music listening accounts for 36% of consumers’ digital media time but that share is under real threat. Over the course of the millennium, music has relied increasingly on growth in lean back environments and contexts. The rise of listening on the go via MP3 players and then smartphones created more time slots that music could fill, while media multitasking has been another major driver of listening. All of this works well when whatever else is going on does not require the listener to be using their ears. The rise of video is, paradoxically, creating more competition for the user’s ear. Even though we are seeing the 2nd coming of silent cinema with social video captioning, there are many more calls to action for our eyes and ears. Even a Facebook feed 24 months ago would have been something that could in the large be safely viewed in silence. Now it is full of auto playing videos, willing the user to unmute. As soon as s/he does so the music has to stop. On video-native platforms like Snapchat the view is even starker for music. Killing time in the Starbucks queue is now as likely to involve watching a viral video as it is listening to a song.

Thus streaming music has to create a user experience renaissance, not just to keep up with contemporary digital experiences but in order to ensure it does not lose any more share of digital consumers’ consumption time. This is the new problem to fix. The Spotify generation fixed buffering and mobile streaming, the Apple Music generation fixed discovery, the next generation will fix UX. Just as Apple Music and Google Play Music All Access were able to skip the first lap of the race, launching with what Spotify and co took years to develop, so the next generation of streaming services, when they come, will take all of the recent innovation playlists, curation and user data analysis as the blank canvas. Which in turn will force the incumbents to up their game fast. Until then, the streaming incumbents have an opportunity to get ahead else get left behind.

MIDiA’s 2016 Predictions – Here’s How We Did

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Part of our job at MIDiA Research is to help our clients ‘look round the corner’ and see what disruptions and innovations are likely to impact their businesses. In short, our job is to help understand what the future holds. This is why in 2015 we published our ‘2016 Predictions’ report in which we made a number of big calls on the coming year in digital content. Here’s how we did:

Macro Trends

  1. Mobile messaging apps will surpass 6 billion. VERDICT: Correct. (There are now more than 6.5 billion)
  2. Video will eat the world. Whatever media business you are in, in 2016 you will be a video company too. VERDICT: Correct. (2016 was the year video took centre stage)
  3. Some or all of Amazon, Apple, Facebook and Google will start to aggregate TV channel apps and SVOD apps to join the digital TV dots. VERDICT: Correct. (Amazon and Apple both made their first TV app aggregation moves in 2016)

Music

  1. Digital will finally be more than 50% of revenue. VERDICT: Correct. (Q2 major label results showed digital as 54% of recorded music revenue)
  2. Streaming holdouts will trickle not flood. VERDICT: Correct. (Indeed, remarkably few artists held back albums. Exclusives became the new black instead)
  3. Spotify will still be the leading subscription service. VERDICT: Correct. (At the end of September Spotify had 40 million subscribers compared to just under 18 million for Apple Music)

Mobile

  1. Android app revenue will surpass iOS. VERDICT: Wrong. (Apple’s App Store still has almost twice the revenue of Play Store. In our defence on this one this was as a result of Android under performing and Apple over performing. Android increased OS market share but still did not overtake app store revenue which means that Play ARPU reduced while Apple App Store ARPU increased.)
  2. Adblocker disruption will accelerate for publishers. VERDICT: Correct. (Adblock plus now grew big enough to open it’s own adexchange, and publishers can do little but get on board)
  3. Big freemium games will lose steam. VERDICT: Correct. (Fewer apps in the top free and top grossing app charts now compared to January)

Video

  1. More unbundled SVOD services will launch. VERDICT: Correct. (2016 saw a succession of new video services)
  2. Mobile video will blur at the edges. VERDICT: Correct. (Messaging apps have made video central to the user experience with the Snapchat illustrative stories feature now being replicated on Instagram)
  3. Interactive ads will gain traction on TV channel apps. VERDICT: Wrong. (Although still be tested on selected Fox Networks authenticated channel apps, they have not moved into the mainstream…yet )

We’ll be publishing our 2017 Predictions report in the next few weeks. To learn how to get a copy of the report and of our 2017 Predictions report and also our 2016 Predictions report email us at info AT midiaresearch DOT COM.

Streaming Music Health Check Deep Dive: Trial Hopping

At MIDiA we have just published our latest streaming report: ‘Streaming Music Health Check: Streaming’s Watershed Moment’. In it we combine the latest streaming revenue data, subscriber numbers and consumer data to create the definitive assessment of where the streaming music market is now at. The report and accompanying dataset is available to MIDiA Research clients here. For more on how to become a MIDiA client to get access to this report email us at info AT midiaresearch DOT COM

The full details of the report and key findings are listed below, but here’s a small excerpt from the report exploring the issue of trial hopping.

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Free trials are a crucial means of converting streaming users to paid subscriptions, especially when deployed with auto opt-in billing. Although often close to half of these opted in users cancel after their first payment (ie immediately after they realize they have been billed), trials are a proven conversion tactic. That is, until users game the system by hopping from one free trial to another by simply signing up with multiple different email accounts. In the case of Apple Music (which has a 3-month free trial), this means that a user can get a full year’s worth of music by simply changing email address (and iTunes account) three times.

Although this phenomenon is fairly niche across the total population, more than a quarter of respondents that identify themselves as music subscribers do this according to MIDiA’s latest consumer survey data (fielded in September). This means that in a worst-case scenario, between a fifth and a quarter of music subscribers are in fact freeloading trialists hopping from one trial to another.

Nearly a fifth of subscribers also use free trials to get access to exclusive albums. Combine this with email hopping, and Apple and Tidal may find their exclusives strategies are less effective at winning over Spotify subscribers than they had hoped.

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Key Findings (data points have been removed from this preview but are included in the full report):

  • By September 2016, Spotify had X million subscribers while Apple had X million
  • Competition is hotting up with announcements from Amazon, Pandora and Vevo
  • Each of the three major labels experienced strong streaming year-on-year revenue growth in Q2 2016: Sony (X%), Universal (X%) and Warner (X%)
  • In Q2 2016, major label download revenue fell by $X million quarter-on-quarter
  • Subscribers rose from X million in Q2 2015 to X million in Q2 2016 with Spotify and Apple driving the growth
  • X% of all streams were mobile, rising to X% for Napster
  • X% of all streams come from playlists, however, just X% come from push playlists
  • X% of UK subscribers say that playlists are replacing albums, while X% are using curated playlists more than 6 months ago
  • Just X% of Swedes spend more than $10 on music, reflecting that subscriptions have capped spending of super fans
  • X% of subscribers have changed subscription service, falling to just X% in Sweden thanks to Spotify loyalists
  • X% of UK subscribers sign up to multiple streaming trials with different email addresses, while X% use free trials to get access to exclusive albums

Companies mentioned in this report: Alphabet, Amazon, Anghami, Apple, Beatport, Deezer, Google, iHeart, KKBox, Last.FM, MelOn, MP3.com, Napster, Orange, Pandora, QQ Music, Rdio, Sony Music, SoundCloud, Spotify, Tidal, Universal Music, Vevo, Warner Music, YouTube

Report Details

Pages: 16
Words: 3,985
Figures: 8

For more on how to become a MIDiA client to get access to this report email us at info AT midiaresearch DOT COM

Quick Take: Amazon Music Unlimited Comes To The UK

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Amazon announced the anticipated launch of Amazon Music Unlimited in the UK today. For my full take on Amazon Music Unlimited see my previous post here.

Make no mistake, Amazon are taking this launch seriously, with a coordinated PR campaign and press release quotes not only from Amazon’s head of streaming music Steve Boom but also from Jeff Bezos himself. So why the big deal? Music is a low revenue, low margin business for Amazon, just as it is for Google and Apple. But that’s not the point. Music always plays a special role for tech companies, sometimes because the CEO is passionate about music, but normally because it is the service off which other things can be hung. Amazon, like Apple, is starting the transition towards becoming a services company. While Amazon has made much more progress on video than Apple has, it has made much less progress than Netflix has. Music is the wide appeal proposition that can be used to get people onto the first rung of the services ladder. Just like the CD got people onto the first rung of Amazon’s ladder back in the 90’s.

TO READ THIS POST IN FULL VISIT THE MIDIA BLOG