Tag Archives: Amazon Music Unlimited

Amazon Music: From Dark Horse to Thoroughbred

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Neatly ahead of Spotify’s Q4 earnings, Amazon has taken the rare step of announcing subscriber metrics for Amazon Music (inclusive of Prime Music and Music Unlimited). Amazon Music closed 2019 with 55 million ‘customers’ across free and paid. Based on our Q2 2019 numbers for Amazon and the fact that Amazon’s free tier was only rolled out in late 2019 across a few markets, MIDiA estimates Amazon Music’s actual subscriber number to be 50 million. This implies a subscriber growth of 16 million on 2018. Make no mistake, this is a really strong performance. From a bit-part player in 2015 and 2016, Amazon Music is now firmly established in streaming’s leading pack and looks set to overtake Apple Music in 2020. What’s more, unlike Apple and Spotify, Amazon’s wider business is not a top-tier player in dozens of countries, so Amazon Music’s geographic footprint is uneven – making its global figure even more impressive. Indeed, underneath this headline figure Amazon is the number two player in some of the world’s biggest music markets. Amazon is now in the big league.

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Since Q4 2016, Spotify has averaged 34.8% global music subscriber market share, meaning that despite fierce competition it has managed to stay ahead of the pack, actually increasing share slightly from 34.2% to 35.3%. Amazon’s success is in some respects even more impressive. In Q4 2015 Amazon Music’s subscriber base was just 18% of Spotify’s. By Q4 2019 (assuming Spotify hit the 124 million that MIDiA predicted for Q4 2019) Amazon’s 55 million subscribers represented 40% of Spotify’s – more than doubling its relative scale.

However, the DSP that should be paying most attention is Apple Music. Over the same period Amazon Music went from 49% of Apple’s subscriber base to 82%. At this rate Amazon could trump Apple for second place in 2020. It has already done so in a number of major music markets, including Germany, the UK and Japan – three of the world’s top four recorded music markets.

Extending the market

Amazon is often competing around, rather than with, Spotify and Apple. The combination of Prime Music and Echo / Alexa means that Amazon is extending the addressable market for streaming by unlocking older, higher-income households that do not fit the young, mobile-first demographic mold that the streaming market generally trades upon. Ellie Goulding’s Amazon exclusive ‘River’ claiming the UK Christmas number one spot illustrates that this under-served segment is far from a niche. Of course, Amazon is now also competing for the younger, mobile-centric consumer – Music Unlimited grew by more than 50% in 2019 – but, along with its new ad-supported and HD tiers, Amazon is pursuing a segmented strategy that is pushing beyond its older Prime Music beachhead.

Amazon Music’s success trades heavily on Amazon’s overall brand reach and existing customer relationships, so its global brand reach will always be less evenly distributed than Apple and Spotify’s. However, throughout 2018 and 2019 Amazon has been assertively building its reach in non-core markets through music and video. Traditionally Amazon has been a retailer first and a content brand second. Now, in newer markets across the globe, Amazon is building a reputation as a digital content provider first and retailer second. Though Amazon is clearly going to remain a retailer first globally, streaming is proving to be a powerful tool for establishing the company in markets that would have previously taken years and hundreds of millions of dollars to set up as fully functioning e-commerce markets.

While rightsholders will have well-grounded concerns about Amazon’s corporate objectives of using content to help sell consumer products, what is now undeniable is that Amazon Music and Video are both top-tier content services. Back in 2017 we suggested that the dark horse of Amazon was emerging from the shadows; now it is clear to see it is a thoroughbred in its own right.

Amazon’s Ad Supported Strategy Goes Way Beyond Music

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Amazon is reportedly close to launching an ad supported streaming music offering. Spotify’s stock price took an instant tumble. But the real story here is much bigger than the knee-jerk reactions of Spotify investors. What we are seeing here is Amazon upping the ante on a bold and ambitious ad revenue strategy that is helping to reformat the tech major landscape. The long-term implications of this may be that it is Facebook that should be worrying, not Spotify.

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In 2018 Amazon generated $10.1 billion in advertising revenue, which represented 4.3% of Amazon’s total revenue base. While this is still a minor revenue stream for Amazon, it is growing at a fast rate, more than doubling in 2018 while all other Amazon revenue collectively grew by just 29%. Amazon’s ad business is growing faster than the core revenue base, to the extent that advertising accounted for 10% of all of Amazon’s growth in 2018.

Amazon is creating new places to sell advertising

The majority of Amazon’s 2018 ad revenue came from selling inventory on its main platform. This entails having retailers advertise directly to consumers on Amazon, so that Amazon gets to charge its merchants for the privilege of finding consumers to sell to, the final transaction of which it then also takes a cut of. In short, Amazon gets a share of the upside (i.e. the transaction) and of the downside (i.e. ad money spent on consumers who do not buy). This compressed, redefined purchase funnel is part of a wider digital marketing trend and underlines one of MIDiA’s Four Marketing Principles.

But as smart a business segment as that might be to Amazon, it inherently skews towards the transactional end of marketing, and is less focused on big brand marketing, which is where the big ad dollar deals lie. TV and radio are two of the traditional homes of brand marketing and that is where Amazon has its sights set, or rather on digital successors for both:

  • Video: Amazon’s key video property Prime Video is ad free. However, it has been using sports as a vehicle for building out its ad sales capabilities and has so far sold ads against the NFL’s Thursday Night Football. It also appears to be poised to roll this out much further. However, Amazon’s key move was the January launch of an entire ad-supported video platform, IMDb Freedive. Amazon has full intentions to become a major player in the video ad business.
  • Music: Thus far, Amazon’s music business has been built around bundles (Prime Music) and subscriptions (Music Unlimited). Should it go the ad-supported route, Amazon will be replicating its video strategy to create a means for building new audiences and new revenue.

It’s all about the ad revenue

Right now, Amazon is a small player in the global digital ad business, with just 6% of all tech major ad revenue. However, it is growing fast and has Facebook in its sights. Facebook’s $50 billion of ad revenue in 2018 will feel like an eminently achievable target for a company that grew from $2.9 billion to $10.1 billion in just two years.

To get there, Amazon is committing to a bold, multi-platform audience building strategy. Whereas Spotify builds audiences to deliver them music (and then monetise), Amazon is now building audiences in order to sell advertising. That may feel like a subtle nuance, but it is a critical strategic difference. In Spotify’s and Netflix’s content-first models, content strategy rules and business models can flex to support the content and the ecosystems needed to support that content. In an ad-first model, the focus is firmly on the revenue model, with content a means to an end rather than the end. (Of course, Amazon is also pursuing the content-first approach with its premium products.)

Amazon is becoming the company to watch

So, while Spotify investors were right to get twitchy at the Amazon rumours, it is Facebook investors who should be paying the closest attention. Amazon’s intent is much bigger than competing with Spotify. It is to overtake Facebook as the second biggest global ad business. None of this means that Spotify won’t find some of its ad supported business becoming collateral damage in Amazon’s meta strategy – a meta strategy that is fast singling Amazon out as the boldest of the tech majors, while its peers either ape its approach (Apple) or consolidate around core competences (Google and Facebook). Amazon is fast becoming THE company to watch on global digital stage.

Mid-Year 2018 Streaming Market Shares

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Music subscribers grew by 16% in the first half of 2018 to reach 229.5 million, up from 198.6 million at the end of 2017. Year-on-year the global subscriber base increased by 38%, adding 62.8 million subscribers. This represents strong but sustained, rather than strongly accelerating, growth: 60.8 million net new subscribers were added between H1 2016 and H1 2017. This indicates that subscriber growth remains on the faster-growth midpoint of the S-curve. MIDiA maintains its viewpoint that this growth phase will last through the remainder of 2018 and likely until mid-2019.

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This will be the stage at which the early-follower segments will be tapped out in developed markets. Thereafter, growth will be driven by mid-tier streaming markets such as Japan, Germany, Brazil, Mexico, and Russia. These markets have the potential to drive strong subscriber growth, but, in the case of the latter three, will require aggressive pursuit of mid- tier products – including cut-price prepay telco bundles, as seen in Brazil. Without this approach, the opportunity will be constrained to the affluent, urban elites that have post-pay data plans and credit cards. These sorts of products though, will of course deliver lower ARPU in already lower ARPU markets. All of this means: expect revenue to grow more slowly than subscribers from mid 2019.

The key service-level trends were:

  • Spotify:Spotify once again maintained global market share of 36%, the same as in Q4 2017, with 83 million subscribers. Spotify has either gained or maintained market share every six months since Q4 2016. Spotify added more subscribers than any other service in H1 2018 – 11.9, which was 39% of all net new subscribers across the globe in the period.
  • Apple Music:Apple added two points of market share, up to 19%, and up three points year-on-year, with 43.5 million subscribers. Apple Music added the second highest number of subscribers – 9.2 million, with the US being the key growth market.
  • Amazon:Across Prime Music and Music Unlimited Amazon added just under half a point of market share, stable at 12%. Amazon experienced the most growth within its Unlimited tier, adding 3.3 million to reach 9.5 million in H2 2018. In total Amazon had 27.9 million subscribers at the end of the period.
  • Others:There were mixed fortunes among the rest of the pack. In Japan, Line Music experienced solid quarterly growth to reach one million subscribers, while in South Korea MelOn had a dip in Q1 but recovered in Q2 to finish slightly above its Q4 2017 figure. Elsewhere, Pandora had a solid six months, adding 0.5 million subscribers, while Google performed strongly on a global basis

The mid-term report card for the music subscriptions market in 2018 is strong, sustained growth with a similar second half of the year to come.

Announcing MIDiA’s Streaming Services Market Shares Report

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

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

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

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

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

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

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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.

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Amazon: Reverse Pricing, And The Rise Of Zero UI

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Amazon’s announcement of its AYCE streaming service Amazon Music Unlimited should not come as a surprise to anyone whose been keeping even half an eye on the digital music market. Amazon are the sleeping giant / dark horse (select your preferred descriptive cliché) of digital music. With 60 million Prime Memberships it has a bigger addressable base of subscribers than Spotify, and its 300 million credit card linked customer accounts surpasses most but falls well short of Apple’s 800 million. Nonetheless, Amazon is the last major force to play its streaming hand. However, what the two really interesting things about Amazon Music Unlimited are its ‘reverse pricing’ strategy and the move towards Zero UI music experiences.

Sleeping Or Coma?

Being the sleeping giant of a space can work both ways. It normally implies major resources, a large legacy audience waiting to be tapped, and years of brand equity and trust. Amazon certainly ticks all those boxes, and some. But it can also mean that you’ve left it too late, allowing new entrants steal away your customers with new product offerings. HMV, Tower Records and Fnac were all sleeping giants but they all moved too late and too cautiously to be able to prevent Amazon, and then Apple, and then Spotify from stealing their customers. Things should though, be different for Amazon and streaming. Although streaming is growing fast we are still short of 100 million subscribers globally and in most markets subscriber penetration is below 10%. Even more importantly, the majority of adoption is being driven by music aficionados (those consumers that spend above average time and money with music). The next opportunity is the engaged end of the mainstream. This is where Amazon plays best.

Targeting The Mainstream Music Fan  

Amazon’s streaming strategy to date has revolved around a limited catalogue, curated streaming service bundled into Amazon Prime. Although it has struggled for visibility by being 3rd in the Prime pecking order (behind free shipping and video) it nonetheless deserves much credit for genuinely trying to do something different in the increasingly homogenous streaming marketplace. It is a lean back, curated experience for the music fan that is neither passive nor aficionado. This group is nearly double the size of the high spender group (see our MIDiA subscriber reports on music segmentation for much more detail). What makes this group even more interesting is that none of the other big streaming services are going after it. Why? Because they spend less than $10 a month.

So on the surface Amazon’s new $7.99 is a smart move, pushing a price point into the market that unlocks the next tier of users. The move is less radical than it first appears though, as this price is only available for Amazon Prime subscribers (all others have to pay $9.99). Also Spotify and Deezer’s aggressive price discounting ($1 for 3 months) have both created effective price deflation. That aside, there is however no doubt that Amazon’s $7.99 price point will have a major impact on consumer perceptions of pricing and will in the longer run help bring the main $9.99 price point down to $7.99 (something Apple tried and failed to do when it launched Apple Music).

Amazon’s Reverse Pricing Strategy

But Amazon’s pricing strategy is way smarter than just that, here’s why. Note the name of the service: Amazon Music Unlimited. Not Amazon Music. It echoes Google’s Google Play Music All Access. Each service’s naming convention ensures that it does not give the impression of being the core music offering for each company. In Amazon’s case this is its music sales business (CDs and downloads) and its pre-existing Prime bundled streaming service. The great thing about having a $7.99 / $9.99 product in the market is that it suddenly creates very clear perceived monetary value for its Prime-bundled service. How could consumers understand the value of something that didn’t have a price point anywhere? Now it is abundantly clear that it is $7.99 / $9.99 worth of value. This is Amazon’s Reverse Pricing Strategy: price a decoy product high to make a core product appeal more valuable. Now, a seasoned music exec might argue, ‘ah, yes, but it’s not unlimited on demand, so it’s not worth that’. But if an Amazon user gets full satisfaction from a curated, limited catalogue streaming service then the AYCE distinction doesn’t matter. It’s like telling some one that unless they eat until they are sick at an all you can eat buffet that they are not getting their money’s worth. Let’s just hope that Amazon’s reverse pricing strategy is not accidental…

Music’s Zero UI Era

Finally, onto Alexa and Amazon Echo. For just $3.99 a month Echo owners can get the full Amazon Music Unlimited service, controlling the entire experience via the Alexa voice controlled assistant. Although initially it will prove challenging to do anything other than the more rudimentary elements of using the service with the Echo, voice control is going to come of age over the next five years. Three of the big four tech companies have a voice play (Apple has Siri, Alphabet has Google Assistant and Amazon has Alexa). Also Microsoft has Cortana. Voice will play an increasingly important role in our digital lives and will help move smartphones towards post-app experiences, with app functionality increasingly built into the OS of devices and called upon via voice.

Amazon has pushed the dial for music and voice, it might even have got a little ahead of itself. But more and more of music consumption will be voice and gesture driven and Amazon is setting the pace for the voice side of the ‘Zero UI’ equation. To be clear, Zero UI does not mean Zero functionality nor Zero UX. In fact, functionality has to be even better in a Zero UI context, as it has to be able to deliver user benefits without visual reference points. But what it does mean, is that there is less friction between the listener and the music. The music becomes the experience.

Regardless of whether this ‘sleeping giant’ has timed its entry into the AYCE market right or not, its lasting legacy could well be making the first truly bold step towards music’s Zero UI era.