Why Amazon Music is primed for success

Amazon Music today announced that it was extending the number of songs available on its Prime Music tier from two million to one hundred million. It is kind of a big deal, but not that big a deal when you consider the actual value of these additional 98 million tracks. With around 2.5 million new songs being uploaded to streaming services every single month, the simple truth is that most people will not listen to most of the catalogue. Prime Music already had a good chunk of the most valuable tracks, now it has all of them, alongside tens of millions of streaming detritus. And yet, the catalogue increase is actually really important, but because of what it represents rather than what it actually is.

A dark horse no longer

Back in the mid-2010s, MIDiA first identified Amazon as being the dark horse of streaming music, but these days there is no doubting Amazon Music’s thoroughbred pedigree. It has the third-largest subscriber count of any Western streaming service and will likely pass Apple Music in second place sometime within the next twelve months, quite possibly sooner. But what makes Amazon Music so important to the music industry is not just its size but its audience segmentation. Which is a good part of the reason it just unlocked those extra 98 million tracks for Prime Music users.

Prime Music has come a long way

When Amazon launched Prime Music, it was not exactly with exuberant support from music rightsholders. So much so that Universal Music did not license it until 15 months later (making Amazon the only global scale streaming service that was able to successfully launch without all three majors on board). At the time, Prime Music looked risky to rightsholders: just as subscriptions were beginning to get traction, along comes a service that gives consumers a music subscription experience, free at point of access. So, rightsholders insisted on a limited catalogue size to ensure that it did not risk cannibalising potential 9.99 subscriptions. Over the years, rightsholders unlocked extra slices of catalogue, but today’s announcement is the genuine step change. 

A segment-based approach

So what changed? The market did. Now, as subscriptions reach maturing in most of the world’s bigger music markets, rightsholders are shifting focus from full frontal growth to a more segmented approach that can unlock growth pockets in otherwise mature markets. This is no easy task when they provide broadly similar licenses and the same catalogue to all streaming partners. But Amazon has managed to make a silk purse out of sow’s ear, launching a stack of different streaming products and deploying them strategically across different markets. If you need convincing, take a look at its product availability list. While most streaming services have built their audiences around mobile-centric millennials, Amazon has managed to build an audience that looks very different. 34% Prime Music users listen to music on a smart speaker compared to 14% overall consumers, while 22% are aged 55+ compared to 9% Spotify users. 

Competing around everyone else

Rather than just competing with the other streaming services, Amazon Music has competed around them. In doing so, it has expanded the addressable market for streaming, helping mature markets still grow strongly (while YouTube Music has been having a similar effect at the opposite end of the age spectrum, converting younger subscribers at scale). It is in this later stage of streaming growth that the more segmented partners, like Amazon and YouTube, become so important to music rightsholders. Unlocking 98 million more tracks, reflects both this elevated importance and an understanding among rightsholders that enhancing Prime Music will grow the market around Spotify and co., not at the expense of them. 

Another super power

On top of all this, Amazon Music has another super power at its disposal: emerging markets. These regions have long been identified as the driver of future growth, but they have also struggled to deliver in many cases. Markets like India and China number their free streaming users in the hundreds of millions, but paid users in the tens of millions (in China’s case) and single millions in India. Ad-supported revenue massively lags subscription revenue, even in Western markets, but in lower per capita GDP markets, ad spend is even smaller. Prime Music is proving to be a happy middle ground in markets like Brazil and India, striking the balance between scale and ARPU. With premium subscriptions needing time to find their audiences, Amazon looks set to become an ever more important partner in some of the key emerging and mid-tier markets.

When Amazon first launched Prime Music, the value proposition: pay for free shipping and get a music service for ‘free’, or as Amazon puts it, as a perk of membership. Now though, Prime is becoming much more than just free shipping, it is an ever-expanding household subscription in which entertainment now plays a central role (the recently announced Amazon Music Live / Thursday Night Football line-up is a case in point). As we enter a global recession, where consumers will likely cut back on buying things, a free shipping subscription could look like an unaffordable luxury. But a music and video service that has the benefit of free shipping suddenly looks like a value-for-money proposition. Prime may not be recession proof, but music and video certainly reduce its exposure to risk. The value equation in Prime Music is beginning to shift, as is Amazon’s role in the global music business. From dark horse to top-tier player in half a decade is no mean feat. 

Music Subscriber Market Shares Q1 2020

WWDC would have been a perfect opportunity for Apple to announce another streaming milestone for Apple Music. It didn’t but the good news is that MIDiA already have a figure for Apple Music, as part of our latest music subscriber market shares. Whether Apple’s lack of announcement was because it didn’t have a good news story to tell or because it is waiting for a bigger number to pull out of the hat at a later date, well, we’ll have to wait and see.

Music Subscriber Market Shares 2020 MIDiA Research June 20

Overall there were 400 million music subscribers in Q1 2020, up 30% from Q1 2019, with 93 million net new subscribers added. This compares to the 77 million added one year earlier. The eagle eyed of you may be struggling to rationalise why streaming revenue growth slowed in 2019 while subscriber growth accelerated. The simple answer is ARPU. The combination of family plans, promotional trials and progressively more global growth coming from lower ARPU, emerging markets means that the long-term outlook for streaming is that subscriber growth will increasingly outpace revenue growth.

Spotify remains the standout leader in terms of subscribers with 32% market share. Spotify’s market share has remained between 32% and 34% every quarter since 2015. This is some achievement given how much more competitive the market has become in that time, and the stellar growth of Amazon. Spotify’s growth is both an extension of the wider market and a driver of it.

Despite Apple Music’s strong showing in second with 18%, this market share is down from 21% in Q1 2019 and contrasts with Amazon Music which finished Q1 2020 with 14% share, up from 13% one year earlier. Apple Music is making ground in absolute terms, Amazon is making ground in both absolute and relative terms.

Tencent Music Entertainment takes fourth spot with 11%, all the more impressive given that this number almost entirely refers to China and that it is accelerating growth, adding 14 million subscribers by Q2 2020 compared to 6 million on the year earlier.

Google is fifth with a more modest 6% but this represents a turnaround, with YouTube Music finally making Google a genuine contender in the subscription space. In Q1 2018, Google’s market share was just 3%. Google is outperforming the overall market.

What is particularly interesting about the state of the global market now compared to a couple of years ago is that we are starting to see some genuine segmentation taking place, which is a real achievement given that most of the services have to operate with the same catalogue and pricing:

  • YouTube Music is resonating with Gen Z and younger Millennials
  • Amazon Music is bringing older audiences to subscriptions
  • Spotify and Apple Music are the mainstream options
  • Deezer is enjoying success in emerging markets – Brazil especially – with pre-pay mobile bundles

The global subscriber market is in rude health in Q1 2020, significantly more so than the revenue and ARPU side of the equation.

These figures are the very top level findings from MIDiA’s Subscriber Market Shares model which includes quarterly data for 25 music services across 36 markets. This year we have added splits for MENA, Russia and Ireland. As well as a whole new dataset: Ad supported market shares, with splits for Sub-Saharan Africa. This data will be available for MIDiA clients in the coming weeks. If you are not yet a MIDiA client and would like to learn more about this dataset, email stephen@midiaresearch.com

The COVID Bounce: How COVID-19 is Reshaping Entertainment Demand

The economic disruption and social dislocation caused by the COVID-19 pandemic is not evenly distributed. Some business face catastrophe, while others thrive. Across the entertainment industries the same is true, ranging from a temporary collapse of the live business through to a surge in gaming activity. As we explain in our free-to-download COVID-19 Impact report, the extra time people have as a result of self-isolation has boosted some forms of entertainment more than others – with games, video and news the biggest winners so far.

midia research - the covid bounceTo further illustrate these trends, MIDiA compiled selected Google search term data across the main entertainment categories. The chart below maps the change in popularity of these search terms between the start of January 2020 up to March 27th. Google Trends data does not show the absolute number of searches but instead an index of popularity. These are the key findings:

  • Video streaming: All leading video subscription services saw a strong COVID-19-driven spike, especially Disney+ which managed to coincide its UK launch with the first day of national home schooling.
  • Music streaming: Little more than a modest uptick for the leading music services, following a long steady fall – reflecting a mature market sector unlike video, which has been catalysed by major new service launches.
  • Video demand: With the mid- to long-term prospect of a lot more time on their hands, consumers have been strongly increasing searches for TV shows, movies and games to watch and play. The fact that ‘shows for kids to watch’ is following a later but steeper curve reflects the growing realisation by locked-down families that they have to stop the kids going stir crazy while they try to work from home.
  • Music demand: Demand for music has been much more mixed, including a pronounced downturn in streams in Italy. Part of the reason is that music is something people can already do at any time in any place. So, the initial instinct of consumers was to fill their newfound time with entertainment they couldn’t otherwise do at work/school. As the abnormal normalises music streaming will pick up, as the recent increase in searches for music and playlist terms suggests. Podcasts, however, look like they will take longer to get a COVID bounce.
  • Games: Games activity and revenues have already benefited strongly from the new behaviour patterns, as illustrated by the fast and strong increase in search terms. However, the recent slowdown in search growth suggests that the increase in gaming demand may slow.
  • News: The increased searches correlate strongly with the growth of the pandemic, but the clear dip at the end provides the first evidence of crisis-fatigue.
  • Sports: The closure of all major sports leagues and events has left a gaping hole in TV schedules and the lives of sports fans. The sudden drop in search terms shows that sports fans have quickly filled their lives with other entertainment and have little interest in keeping up with news of sports closures.
  • Leaders: Finally, Boris Johnson has seen his search popularity grow steadily with the pandemic, while Donald Trump’s has dipped.

Amazon Music: From Dark Horse to Thoroughbred

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.

amazon music 55 million users 50 millionn subscribers midia research

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.

Music Subscriber Market Shares H1 2019

Music Subscriber Market Shares 2019 MIDiA Research

The global streaming market continues to grow at pace. At the end of June 2019 there were 304.9 million music subscribers globally. That was up 34 million on the end of 2018, while the June 2018 to June 2019 growth was 69 million – exactly the same rate of additions as one year earlier.

Spotify remained the clear market leader with 108 million subscribers, giving it a global market share of 35.6%, EXACTLY the same share it had at the end of 2018 AND at the end of 2017. In what is becoming an increasingly competitive market, Spotify has continued to grow at the same rate as the overall market.

Meanwhile both Apple and Amazon have grown market share, though Apple is showing signs of slowing. At the end of 2017 Amazon (across all of its subscription tiers) had 11.4% global market share, pushing that up to 12.6% by end June 2019 with 38.3 million subscribers. Apple went from 17.3% to 18% over the same period – hitting 54.7 million subscribers, but while Amazon added share every quarter, Apple peaked at 18.2% in Q1 2019 before dropping slightly back to 18% in Q2 2019. Though at the same time, Apple increased market share in its priority market – the US, going from 31% in Q4 2018 to 31.7% in Q2 2019 with 28.9 million subscribers.

Google has been another big gainer, particularly in recent quarters following the launch of YouTube Music, going from just 3% in Q4 2017 to 5.3% in Q2 2019. Google had a well-earned reputation for being an under-performer in the music subscriptions market, a company that did not appear to actually want to succeed. Now, however, Google appears to be far more committed to subscriptions, pushing both YouTube Premium and YouTube Music hard, with a total of 16.9 music subscriptions in Q2 2019, compared to just 5.9 million at the end of 2017.

With the big four all gaining market share, the simple arithmetic is that smaller players have lost it. The share accounted for by all other services fell from 32.8% end-2017 to 28.4% mid-2019. This of course does not mean that all of these services lost subscribers; indeed, most grew, just not by as much as the bigger players. Of the other services, most are large single-market players such as Tencent (31 million – China), Pandora (7.1 million – US) MelOn (5.3 million – South Korea) with Deezer now the only other global player of scale (8.5 million).

In summary, 2019 was a year of growth and consolidation, with the global picture dominated by the big four players and Spotify retaining market share despite all three of its main competitors making up ground. 2020 is likely to be a similar year, though with a few key differences:

  • Key western markets like the US and UK will likely slow from Q4 2019 through to 2020. Meanwhile, emerging markets will pick up pace
  • This could shift market share to some regional players. For example, in Q3 Tencent’s subscriber growth accelerated at an unprecedented rate to hit 35.4 million subscribers. Tencent could be entering the hockey stick growth phase, and at just 2.6% paid penetration there is a LOT of potential growth ahead of it
  • Bytedance could create a new emerging market dynamic with its forthcoming streaming service. Currently constrained to India and Indonesia, Western rights holders may remain cautious about licensing it into Western markets. The unintended consequence is that the staid western streaming market could by end 2020 be looking enviously upon a more diverse and innovative Asian streaming market

These figures and findings are taken from MIDiA’s forthcoming Music Subscriber Market Shares, which includes quarterly data from Q4 2015 to Q2 2019 for 23 streaming services across 30 different markets. The data will be available on MIDiA’s Fuse platform later this week and the report will follow shortly thereafter.

If you are not yet a MIDiA client and would like to know how to get access to this report and dataset, email stephen@midiaresearch.com