Can Spotify Ever Meet Investors’ Expectations?

Spotify just posted another solid set of results, adding four million subscribers and beating profit and revenue estimates, yet its share price fell. What’s going on? Spotify is on track for where it should be, slightly below, but on track. Before Spotify went public MIDiA laid out three growth scenarios (low, mid, high). Our mid forecast put Spotify at 87.8 million subscribers for Q3 2018, it reported 87 million. So, Spotify is pretty much exactly where it should be. It’s not exceeding expectations, nor missing them, but is plotting a strong, solid course, all the while improving operational metrics such as churn and profitability. Yet still, this is not enough for investors. The reason is simple: misaligned expectations.

Investors want more

Spotify has pretty much had this problem all year, delivering good, steady growth that is good enough for the music industry, but isn’t good enough for investors. Record labels measured Spotify’s success relative to the performance of their revenues, which were coming out of a tailspin. Investors have a higher bar for success. They want faster growth, profitability (never really a label priority – it was Spotify’s problem to fix) and market disruption. Spotify is building its business at a decent rate that meets / exceeds music industry expectations, but not investor expectations. It is also laying the foundations for future self-sufficiency (artists direct, podcast etc.) but investors want more, now.

Tech stocks are the benchmark

The problem with going public as music company is that your investors are not music specialists; most aren’t even media specialists. Consequently, they don’t have the same situational industry expertise that music industry specialists have. They don’t get bogged down with the minutiae of collection society reciprocal agreements, mechanical rights, label marketing strategies, publisher concerns or artist contracts. They can’t. Music is too small a part of an institutional investor’s portfolio to commit the time required to truly understand what is a very complex industry. So instead they look at the big picture and benchmark against Netflix and other tech stocks.

I remember a comment Pandora’s founder Tim Westergren made to me on a panel last year, to the effect that Spotify better be careful what it wished for by going public. Tim learned first-hand that investors didn’t have the appetite to understand the nuances that shaped his business and eventually he paid the ultimate price, foisted out of his own company.

Game changer or industry ally?

In music industry terms Spotify is doing a great job, in tech stock terms, less so. Either it has to start performing even more strongly – no easy task in a maturing market – or it has to start talking up the disruption angle. Tech investors like backing game changers, betting big on something that is going to change the world. In the way that Facebook, Google, Netflix, Amazon (and for a while, Snapchat) did. Thus far Daniel Ek has trodden a difficult middle ground, remaining the firm ally of the music industry but also promising disruptive change. If the stock continues to underperform, he and his exec team might just be forced to start talking up disruption. At that stage it will be gamble time, because Spotify will be swapping allegiances that could make or break the business.

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.

Is YouTube Serious About Music Subscriptions This Time Round?

In 2014 YouTube launched its inaugural music subscription service YouTube Music Keyin beta. The following year YouTube announced it was closing it ahead of the launch of YouTube Red, a multi-format subscription video on demand (SVOD) offering, of which music was going to be sub-component. Soon after Music Key’s launch I announced on stage at a Mixcloud Curates event that it would close within two years: and

I’m gonna put my cards on the table and say it [YouTube Music Key] won’t exist in 18-24 months after

Now YouTube is backfor another round at the table with the launch of YouTube Music.

In 2014 my Nostradamusmoment was less about being a psychic octopusthan it was simply a case of joining the strategic dots. YouTube is all about advertising. Advertisers pay most to reach the best consumers, who are also the ones most likely to pay for a subscription service, which is ad free. YouTube’s ad business is high margin and large scale. Its music subscription business is low margin and low scale. Hence, the more successful YouTube’s music subscription business is, the more harm it does to its core business and operating margins. The same principles apply today as they did four years ago.

So why bother at all? Because it has to keep the labels on side. Although the labels scored a lobbying own goal with their Facebook music deal, they are still applying pressure on YouTube for its safe harbour framework and the ‘value gap’. So if YouTube does not play ball on premium, it puts its core ad business at risk. And music is still the largest single source of YouTube’s ad revenue. Total YouTube ad revenue was $9.6 billion in 2017 – that is a revenue stream that parent company Alphabet cannot put at risk.

youtube spotify.png

When YouTube launched Music Key it used those negotiations to get better features for the free YouTube music offering, including full album playlists, which went live the day after the deal was announced and are still there now, even though Music Key is not. YouTube is no slouch when it comes to doing deals. This time however, YouTube Music will last longer. Here’s why:

  • This isn’t actually year zero:Google already has around five million Play Music subscribers and around the same number of YouTube Red subscribers. Red subscribers will become YouTube Premium subscribers, Play Music subscribers will get access to YouTube Music. So, inasmuch as YouTube is launching a cool new app with lots of new features, this is not Google entering the streaming fray, it is simply upping its game.
  • Spotify is making up ground:YouTube Music is not about to become the global leader in music subscriptions, for all the above stated reasons and more, but it can’t stand on the side lines either. Data from MIDiA’s Quarterly Brand Tracker shows that while YouTube is still the leading streaming music app in weekly active user (WAU) terms, Spotify is making up ground. Crucially, Spotify is now more widely used (for music) among 16–19 year olds. And Spotify is betting big on ad-supported, largely because it has finally persuaded the labels and publishers to amend its deals to allow it to, evidenced by the fact that Q1 2018 ad-supported gross margin increased dramatically from -18% to 13% in Q1 2017. YouTube Music is in part a defensive play to ensure it has an enriched offering for thoseconsumers, both now as free users, and for when they want to pay.
  • YouTube is the best featured music service: One of the great ironies of the recorded music industry’s relationship with YouTube is that because it doesn’t have to negotiate deals in the way other services to, it now has the best featured music service. Streaming and social have risen in tandem, but only YouTube has fully embraced this with comments, likes / dislikes, mash ups, user cover versions, parodies, unofficial remixes etc. And all of these features are front and centre in the new service. Spotify and co can’t get that sort of content because the labels can’t license it. Moreover, labels don’t like users being able to thumb down their songs or comment negatively on them. This launch enables YouTube to shout from the roof top about what it has and, by inference, what Spotify does not.
  • Testing:YouTube Music is being rolled out in the same markets as YouTube Red was (US, Australia, New Zealand, Mexico and South Korea). This slightly eclectic mix of markets represent a test base; a wide range of varied markets that will provide diverse user data to enable YouTube to model what global adoption will look like.
  • Upping the ad load: YouTube’s global head of music Lyor Cohen has nailed his colours firmly to the subscription mast. Although Cohen may not be up high in the Alphabet hierarchy he is a strong voice in YouTube’s music business. It also serves Alphabet well to have this particular voice with that sort of message at the forefront. Cohen has gone on record stating that YouTube will up its ad load to force more users to paid, and it is happening, but it is not just a music thing. Ad loads are up across the board on YouTube. Either way, this element was patently missing back in the days of Music Key.

YouTube Music may not be the start of Alphabet’s streaming game, but it is certainly its biggest play yet. And while it will remain focused on protecting its core business, it will likely explore ways to drive ad revenue within its ‘ad free’ premium offerings. Sponsorship and product placement will be one tactic; using MirriAd’s dynamic product placement ad tech could be another. YouTube is unlikely to become the leading music subscription service soon, but there is no denying that it has clearly upped its game.

The data in this chart and some of the analysis will form part of MIDiA’s forthcoming second edition of its landmark ‘State of the YouTube Music Nation’ report. If you are not already a MIDiA client and would like to know how to get access to this report and data, email stephen@midiaresearch.com

Sweden Might Just Have Shown Us What the Future of Music Revenues Will Look Like

Earlier this week the IFPI released its Global Music Report – an essential tool for anyone with a serious interest in the global recorded music business. One interesting trend to emerge was the slowdown in Swedish streaming growth and its knock-on effect on overall recorded music revenues. Sweden has long been the leading indicator for where streaming is likely to head, providing a picture of just how vibrant a sophisticated streaming market can be. But now, with the market reaching saturation, it also gives us some clues as to what the long-term revenue outlook for the global music market could be.

sweden growth

According to the IFPI, Swedish streaming revenues reached $141.3 million in 2017, up from $125.7 million in 2016, with subscriptions accounting for 96% of the total. That was an increase of just $9.3 million, or 7% year-on-year growth, down from 10% in 2016 and 23% in 2015. This is a typical trajectory for a market when it has progressed to the top end of the growth curve. With synchronisationand performance revenues collectively growing by just $1.5 million in 2017 and downloads and physical both continuing their long-term decline, streaming is not only the beating heart of Swedish music revenues, it is the only driver of growth. Consequently, overall Swedish recorded music revenues grew by just 4% in 2017, compared to 6% in 2016 and 10% in 2015. As streaming matures, total market growth slows.

So what can we extrapolate from Sweden onto the global market? Firstly, there are a number of unique market characteristics to be considered:

  • Sweden is the home of Spotify, so adoption over indexes
  • Incumbent telco Telia provided a lot of early stage growth for Spotify
  • iTunes never really got going in Sweden, so the legacy download market was a much smaller part of the market than it is globally
  • Physical music sales are further along in their decline (now just 10% of all revenues)

These factors considered imply that Sweden is an indicator of an optimum state streaming market; others may not get there or will not get there so quickly. This could mean that legacy formats decline more quickly in comparison, making total revenue growth slower. However, given that downloads are a bigger chunk of revenues in most markets, these factors should cancel each other out. Therefore, an annual growth of 4% in total music revenues is a decent benchmark for long-term revenue growth.

The question is, what happens to the remnants of declining legacy format revenue? Do those CD and download buyers disappear out of the market, or does some of their revenue switch over to ensure that growth continues further? The likelihood is that Apple will see much of its longer-term growth come from converting higher value iTunes customers into subscribers, but there is a clear case for expanding the market beyond 9.99. The current 10% price hike experiment Spotify is running in Norway is one route. But, a suite of higher tier products is a better solution, as are super-cheap low-end products (e.g. $0.25 a week for Today’s Top Hits) and, of course, boosting ad-supported revenue to steal audience from radio. That latter point is probably the best long-term option for pushing real continual recorded music industry growth.

IFPI Reports $17.3 Billion for Recorded Music in 2017  

Today the IFPI released its estimates for global recorded music revenues in 2017. That figure was $17.3 billion representing an 8.9% growth on the $15.7 billion it reported last year. The numbers are bang in line with the numbers MIDiA reported last week ($17.4 billion / 8.5% growth – see here for more) and reflect a year of fantastic growth. The headlines are:

  • Streaming is the fuel in the engine: Streaming revenues were up 37% to hit $6. Billion (this however underrepresents the value of the market as the IFPI groups Pandora under ‘mobile personalization and other’ wiping out the best part of a billion dollars of streaming revenue). MIDiA’s broader definition of streaming puts 2017 revenues at $7.4 billion. Whichever definition you go with, the narrative is clear: streaming is dragging the entire recorded music industry back into growth (all other sales formats are in decline). The recorded music industry is on track to become a streaming industry in all but name.
  • Legacy format decline is slowing:Physical and download sales fell at a slower rate in 2017 than they did in 2016. This, in turn enabled streaming growth to have a bigger impact on overall revenue growth. The legacy formats will decline steadily now until the channel stops stocking them. The first big step will be when Apple turns off the iTunes Music Store. This is something we predicted back in 2015, forecasting that it would happen by 2020. That bet is still looking good.
  • UMG still leads the pack: As major label revenues are a matter of public record via company reports we can calculate 2017 market shares against IFPI 2017 total. UMG comes in at 29.8%, Sony 22.2%, WMG 18.0%, Indies 27.7% and artists direct 2.7%. These numbers are all within a 10thof a percentage point of the results MIDiA published last week. As we reported then, the key takeaways are that UMG still leads the pack, WMG has grown faster than the other majors while artists direct were the single biggest growth driver in 2017. (Note it appears that artists direct now appear in the IFPI numbers though the $100 million difference between IFPI’s and MIDiA’s numbers mean that has come off either the artist direct or indie numbers)

All in all, a stellar year for recorded music revenues, with plenty of growth yet to come, especially as emerging markets start to deliver at scale.

Spotify D(PO)-Day

downloadArguably the most anticipated day in the history of digital music is upon us. By the end of it we will have the first hint at whether Spotify is going to fall at the Snap Inc. or Facebook end of the spectrum of promising tech IPO, or DPO in the case of Spotify. Of course, we’ll need a few quarters’ worth of earnings in place before firmer conclusions can be drawn as to the strength of Spotify as a publicly traded company, but the first 24 hours will lay down some markers. However, it is the mid and long-term market factors that will give us the best sense of where Spotify can get to. Here are a few pieces of pertinent market context that can help us understand where Spotify is heading:

  • Streaming is just getting going: Downloads are yesterday’s legacy market, streaming is the future. But streaming has a long way yet to go. To date, downloads have generated around $35 billion in revenue for labels since the market started. That compares to around $15 billion for subscriptions. Apple accounted for around $23 billion of that download revenue, Spotify accounted for around $5 billion of that subscription revenue.
  • Spotify retains leadership: While the streaming market is competitive, Spotify has retained around 36% subscriber market share. However fast the market has grown, Spotify has either matched or beaten it. Apple is growing fast too but is adding fewer net new subscribers per quarter than Spotify is. Fast forward 12 months from now, Spotify will still be the number one player. Fast forward 24 months, it will probably still be.
  • Tech majors want the same thing: Of all the big streaming services, only Spotify is truly independent. Apple Music – Apple, Amazon Prime Music – Amazon, YouTube – Google, QQ Music – Tencent, Deezer – Access Industries, MelON – Kakao Corp, and now, Facebook) all have parent companies that have ulterior business objectives with music streaming. None of them have to seriously worry about streaming generating an operating profit. This means that there is little pressure in the marketplace to drive down label rights costs. All of this means that Spotify is the only main streaming service that is trying to make the model commercially sustainable.
  • Spotify can’t be Netflix yet: As much as the whole world appears to be saying Spotify needs to do a Netflix (and it probably does) it just can’t, not yet at least. In TV, rights are so fragmented that Netflix can have Disney and Fox pull their content and it still be a fast growing business. If UMG pulled its content from Spotify, the latter would be dead in the water. So, 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 etc. In the near-term Spotify will happily have record labels sign artists that bubble up on the platform. But over time, expect Spotify to start competing for some signings.
  • Unpicking the distribution lock: The major record labels represent around 80% of recorded music revenues globally on a distribution basis, but just 61% on a copyright ownership basis. They get the extra market share through the distribution they provide indies, either directly or via divisions like Sony’s The Orchard or WMG’s ADA. The 80% share gives the majors the equivalent of a UN Security Council veto. Nothing gets through without their approval, which acts as a brake on Spotify’s ambitions. But, if Spotify was to persuade large numbers of those indies distributing through majors to deal direct, then some of that major power will be unpicked, which, combined with increased revenue, subscribers and market share, would strengthen Spotify’s hand.

Right now, Spotify has soft power (playlist curation, user-level data, subscriber relationships etc.). Spotify’s long-term future will depend on it building out its hard power and bringing it to bear in a way that brings positives both for it and for its industry partners. That will be a tightrope act of the highest order.

If you want the inside track on Spotify’s metrics, get access to MIDiA’s latest report:

Spotify by the Numbers: Trials, Churn and Margin which is available to purchase on MIDiA’s report store and to MIDiA clients via our subscription service.

Join Us At ‘Radio Is Streaming’s Next Frontier’

I’m very pleased to announce that MIDiA is hosting a special industry event on Wednesday 7th February at Gibson Brands in central London, in partnership with 7digital. The event ‘Radio Is Streaming’s Next Frontier’ is going to explore how in 2018, streaming music is going to start impacting radio just like it has spent the last few years replacing downloads. Streaming spent the first phase of its life being the future of retail, it will spend the next phase becoming the future of radio.

In this free-to-attend event we will present some of our latest research, including exclusive data, ranging from big picture trends through to tactical data, such as exactly how much each streaming service is affecting each radio station.

In addition to my research presentation there will be panel discussion from industry experts:

Is Streaming and Radio a Zero Sum Game?

Moderator: Zach Fuller

Panellists:

  • Jeff Smith: head of Music, Radio2 and Radio6
  • Pete Downton: deputy CEO, 7digital
  • Chris Baughen: VP Content and Formats, Deezer

After all this there will be drinks and networking. The event was publicised to MIDiA clients and newsletter subscribers first so there are only a few places left. So, RSVP your slot here now!

Hope to see you there, and watch out for a sneak peak of some of the research soon.

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MIDiA Is Hiring

2017 was a big year for MIDiA, during which we expanded our team, coverage and revenues. We also added many fantastic new companies as clients and launched our suite of cloud data tools: Fuse.

But we have even bigger plans for 2018. To kick the year off, we are hiring for three new posts in our London office. These are:

  • Senior Analyst, Video
  • Lead Developer
  • Global Account Executive

Visit our careers page to find out more about any of these roles

What’s In A Number: Can Streaming Really Be Worth $28 Billion?

Goldman Sachs just made some headlines with its assessment that Universal Music is worth $23.5 billion and that the paid streaming market will be worth $28 billion in 2030 (up from $3.5 billion in 2016 and close to double the size of the entire recorded music business in 2016). For a little bit of perspective, the entire recorded music business generated $27.4 billion at its peak in 1996. Goldman Sachs’ numbers provide us with a salutary reminder of the risk that comes with taking a short-sighted view when building forecasts, or, to put it another way, predicting tomorrow based on what happened today.

Regular readers will know that I have been a music industry analyst since the end of the 1990s, witnessing enough industry cycles and getting close enough to business to build a deep understanding of the industry and its potential. As anyone involved in the business knows, the recorded music industry is more complex and more idiosyncratic than most other industries. Predicting its future is complicated by three factors:

  • Market concentration: Three companies (UMG, SME and WMG) control the majority of revenues, and four companies (Alphabet, Amazon, Apple and Spotify) control the majority of the streaming market. Such concentration of power makes for an unpredictable market that can be reshaped by the decision of one company. For example, if HBO decided it was going to move out of streaming for good, Netflix would still be a viable business. Spotify though, would not if Universal made the same decision.
  • Scarcity is gone: When Napster launched in May 1999 it threw scarcity out of the window. Until then, music had been a scarce commodity. Scarcity was the foundation upon which the glory days of the business was built. Unless you bought a CD, you had no other way of getting a high quality copy of the music. Nearly 20 years on from Napster, P2P may have faded but YouTube and Soundcloud have met the now-permanent demand for free music. Even if Safe Harbour legislation gets tightened up and YouTube scaled down, on demand free music will remain. The illegal sector will sprout a YouTube replacement in an instant. $27.4 billion in 1996 was a scarcity high-water mark.
  • $9.99 is not a mass market price point: 9.99 is more than most people spend on music. In fact, it is what the top 10% of music buyers spend in the US and in the UK. Once the first two waves of adopters (early adopters and early followers) have been converted to subscriptions, growth will slow unless pricing changes. We are already seeing this happening in mature markets. More than 90% of the opportunity has been tapped in Sweden, while across the US, UK, Canada and Australia paid streaming growth has slowed over the last three quarters. So much of the subscriber growth Apple and Spotify have been reporting is coming from other, often emerging, markets. Eventually the 9.99 (or local currency and purchasing power parity equivalent) opportunity will be tapped there too. In 2016, 106 million subscribers drove $3.5 billion of growth, which translated into an annual ARPU of $32.79. Taking this as our anchor point (and ignore the fact streaming ARPU has actually been declining) then Goldman Sachs’ $28 billion would require 853 million paid subscribers. If we factor in emerging markets having much lower ARPU and driving much of the growth, the figure would be closer to one billion paid subscribers. Even with the most radical price point innovation it takes quite a leap of faith to support one billion subscribers.
  • The world changes: It is very easy to think of tomorrow as being a bigger, shinier version of today. But things change, fast. Streaming is the driver now, but if it still is by 2030 then that will be a serious failure of innovation. When I first saw the Goldman Sachs numbers they reminded me of a similar report put out back in 1999 by another financial institution when the music business was last in vogue among that sector. It was a 130 page report called the Music and The Internet: A Celestial Jukebox and it predicted that online CD sales and downloads would be the future of the music market, because that was what the emerging market was then. It too had uber bullish predictions, claiming that the European music business alone would be worth $12 billion by 2010. It in fact reached $7.7 billion and in 2016 was $6.9 billion. With no little irony, the company that wrote the report was—Lehman Brothers. Look where they are now.

Conflicts of Interest

There is one final important factor to consider regarding both Lehman Brothers and Goldman Sachs. In fact, it is probably the most important thing of all: conflicts of interest.

Lehman Brothers made money from buying and selling shares in the companies they wrote about. Goldman Sachs is the same. On its disclosures page there are no fewer than six items listed by Goldman Sachs’  for UMG’s parent company Vivendi. These include owning a substantial volume of Vivendi shares and providing investment banking services to the company. So, if Vivendi’s share price goes up as a result of Goldman Sachs’ report, Goldman Sachs’ Vivendi investment gains value. If Vivendi sells a stake in UMG at a price influenced by Goldman Sachs new valuation, Goldman Sachs will earn a bigger transaction fee if it provides the banking services. A Goldman Sachs hedge fund also has shares in Spotify while another division is helping Spotify prepare for its IPO. So, if Spotify’s IPO/direct listing is boosted by Goldman Sachs’ report, Goldman Sachs’ Spotify investment gains value and it earns a bigger fee for the listing.

No financial institution with a vested interest (unless its interest is betting against a company – which also happens­) is going to provide a cautious or skeptical view of the streaming market. It would go against its own interests to do so. But everyone likes big numbers, so big numbers do the rounds.

For the sake of utter transparency, MIDiA Research has among its research subscription client base both UMG and Spotify, along with the other majors, indies, the other streaming services, tech companies and telcos. In fact, anyone and virtually everyone of note in the streaming business is a MIDiA subscription client. But, unlike an investment bank, they pay to access our research because we tell them what they need to hear not what they want to hear. That can make the client-analyst relationship uncomfortable and tricky to navigate at times but I wouldn’t have it any other way. Nineteen years ago, I wouldn’t have put my name to research like Lehman Brothers’— nor would I do so today.

Amazon Is Now The 3rd Biggest Music Subscription Service

At MIDiA we have long argued that Amazon is the dark horse of streaming music. That horse is not looking so dark anymore. We’ve been tracking weekly usage of streaming music apps on a quarterly basis since 2016 and we’ve seen Amazon growing strongly quarter upon quarter. To the extent that Amazon Music is now the 2nd most widely used streaming music app, 2nd only to Spotify which benefits from a large installed base of free users to boost its numbers. So, in terms of pure subscription services, Amazon has the largest installed base of weekly active users.

But it’s not just in terms of active users that Amazon is making such headway. It is racking up subscribers too. Based on conversations with rights holders and other industry executives we can confirm that Amazon is now the 3rd largest subscription service. Amazon has around 16 million music subscribers (ie users of Amazon Prime Music and also Amazon Music Unlimited subscribers). This puts it significantly ahead of 4th and 5th placed players QQ Music and Deezer and gives it a global market share of 12%.

subscriber market share

But Amazon’s achievement is even more impressive than it first appears. Amazon’s music streaming adoption is concentrated among 4 of its Amazon Prime markets: US, Japan, Germany and UK. In these markets 35% of Amazon Prime subscribers are Amazon Prime Music or Amazon Prime Music Unlimited users. Most music subscription services think about their addressable market in terms such as total smartphone users with data plans, or in Apple’s case in terms of iTunes account holders. In both those scenarios subscribers have to be converted into paying users. But all Amazon has to do is persuade its 40 million odd Prime subscribers to start using its music app. Many of you will have seen blanket Amazon Prime Music advertising recently. Think about it. All that those ads have to do is persuade existing Prime subscribers to start using the music app for free, no new payment, no new commitment. It is as easy a sell as you could wish for. So, expect that 16 million number to grow strongly over the coming months. And of course, Amazon has another tool in its kit: the Echo. Having sold an extra 3.3 million Amazon Echos on Prime day (Tuesday 12th) Amazon now has around 13 million Echos in consumers’ hands.

The CD Factor

Amazon has one further ace up its sleeve: CDs. In Japan and Germany, the world’s 2nd and 4th largest recorded music markets, physical music sales are the majority of revenues, with streaming still getting going. As those market develop, the physical-to-digital transition will leap frog downloads, skipping straight to streaming. What better way to do that than having an established billing and subscription relationship with CD buyers. Enter stage left, Amazon. Amazon already has a very strong Prime Music base in Germany and could well become the leading subscription service there within 12 – 18 months.

Amazon is a secretive company and is unlikely to either confirm or deny these numbers, but we are confident they are an accurate reflection of its standing in the market. Amazon can now discard its dark horse guise and be revealed for what it is: one of the top streaming music players. Game on!