Music subscriber market shares Q2 2021

MIDiA’s annual music subscriber market shares report is now available here (see below for more details of the report). Here are some of the key findings.

The global base of music subscribers continues to grow strongly with 523.9 million music subscribers at the end of Q2 2021, which was up by 109.5 million (26.4%) from one year earlier. Crucially, this was faster growth than the prior year. There is a difference between revenue and subscribers – with ARPU deflators, such as the rise of multi-user plans and the growth of lower-spending emerging markets – but growth in monetised users represents the foundation stone of the digital service provider (DSP) streaming market. So, accelerating growth at this relatively late stage of the streaming market’s evolution is clearly positive.

Spotify remains the DSP with the highest market share (31%), but this was down from 33% in Q2 2020 and 34% in Q2 2019. With Apple Music being a distant second with 15% market share, and Spotify adding more subscribers in the 12 months leading up to Q2 2021 than any other single DSP, there is no risk of Spotify losing its leading position anytime soon – but the erosion of its share is steady and persistent. Amazon Music once again out-performed Spotify in terms of growth (25% compared to 20%), but the standout success story among Western DSPs was YouTube Music, for the second successive year. Google was once the laggard of the space, but the launch of YouTube Music has transformed its fortunes, growing by more than 50% in the 12 months leading up to Q2 2021. YouTube Music was the only Western DSP to increase global market share during this the period. YouTube Music particularly resonates among Gen Z and younger Millennials, which should have alarm bells ringing for Spotify, as their core base of Millennial subscribers from the 2010s in the West are now beginning to age.

But the biggest subscriber growth came from emerging markets. Between them, Tencent Music Entertainment (TME) and NetEase Cloud Music added 35.7 million subscribers in the 12 months leading up to Q2 2021. Together, they accounted for 18% of global market shares, despite being available only in China. Yandex, in Russia, was the other big gainer, doubling its subscriber base to reach 2% of global market share.

Combined, Yandex, TME and NetEase account for 20% of subscriber market share, but they drive 37% of all subscriber growth in the 12 months leading up to Q2 2021.

The strong growth in subscribers holds an extra meaning going into 2022. The surge in non-DSP streaming in 2021 means that the streaming market is no longer dependent on the revenue contribution of maturing Western subscriber markets (nor indeed ARPU-diluting emerging markets). With non-DSP streaming revenue looking set to have contributed between a quarter and a third of streaming revenue increase in 2021, streaming revenues look set for strong growth, even if subscriber growth lessens. That is what you call a diversified market.

A little more detail on the subscriber market shares report:

The report has 23 pages and 13 figures featuring country level subscriber numbers, revenues and demographics by DSP. The accompanying data set has quarterly subscriber numbers and annual revenue figures from Q4 2015 to Q2 2016 by DSP by country, with 33 markets and 27 DSPs. The report and dataset is available to MIDiA subscribers hereand also available for individual purchase via the same link.

Email stephen@midiaresearch.com for more details.

Major label revenue surged in 2021, but what does that mean?

2021 was an anomalous year for the recorded music market. Two of the majors did an IPO, the pandemic continued to disrupt the marketplace, and major label revenues grew at unprecedented rates. If the fourth quarter majors’ earnings follow similar seasonality patterns to previous years, collective major label recorded music revenue will be up by 29% in 2021, reaching $19.6 billion (a more bearish estimate is $19.3 billion). By way of comparison, 2020 growth was 6%, and 2019 was 10%. To put it another way, major label revenue increased by $787 million in 2020, and in 2021 it was up by $4.4 billion. 2021 was a red-letter year for the major labels, but was it a one-off or an industry pivot point?

To get to the answer, we first need to contextualise major label revenue growth within the wider market. 

Streaming 

Predictably, streaming was the core driver of major label revenue growth in 2021, accounting for 67% of the revenue, and up by 31% to reach $12.8 billion. That level of annual streaming growth has not been seen since 2016. 2020 streaming growth was 18%. But streaming’s leading player, Spotify, did see that kind of growth. Spotify’s full year 2021 revenues look set to hit €9.6 billion (which would be up by 22% from 2020), and if we only consider premium growth (i.e., the part that is not boosted by podcast revenue), then growth was just 19%. And it is not as if Spotify is losing much ground in the global streaming market – its subscriber growth was largely in line with the global market average (excluding China). So, the majors grew streaming faster, somewhere beyond Spotify.

The total market

The major labels’ total revenue growth also follows a different trajectory to other parts of the market, The year-to-date performance of just one of the top four recorded music markets matches the majors’ trend (bear in mind that these four markets were 62% of global label revenues in 2020, so they shape global growth trends):

  • US: 27.1% growth (H1) – RIAA
  • Japan: -1.0% (Jan-Nov) – RIAJ 
  • UK: 8.7% (FY) – ERA
  • Germany: 12.4% (H1) – BVMI

(It will be interesting to see how the IFPI allocates the revenue. There may well be quite a gap between their global total and the sum total of all the individual countries if this is indeed largely attributable to one off payments rather than reflecting organic, country level revenue.)

All of this means that the additional major label growth is likely reflective of factors such as:

  • Large, one-off payments from the likes of ByteDance, Twitch and Facebook
  • Licensing income from the same parties
  • Increased contribution from other markets
  • Market share increase from catalogue acquisitions 
  • Revenue growth from major-distributed independents
  • Organic market share growth

While all of these factors will be at play, it is the first two factors that are likely the most consequential. MIDiA estimates that these new non-DSP streaming income sources accounted for between $0.8 and $1.2 billion in 2021. Even at the lower end of the estimates, that revenue alone would have driven the same amount of growth in 2021 as all major label revenue growth combined in 2020. 

There is a clear narrative that post-digital service provider (DSP) revenue is now becoming a central growth driver for the recorded music business. Clearly a very beneficial narrative to have had during an IPO year, especially if the trend was accentuated by one-off payments and settlements – which would help explain the divergence between major label growth and local market growth. 

There are two key potential scenarios:

  1. Upfront payments for post-DSP streaming partners exceed organic mid-term revenue, resulting in slower growth rates in 2022 and 2023
  2. Post-DSP streaming partners meet / exceed expectations, making 2021 and 2022 look much like the late 2000s and early 2010s did for DSP streaming, with minimum guarantees being more often than not 

So, by 2023 we should be able to tell whether 2021 was a spike or a pivot point. If I was a betting man, I would probably put money on the outlook being closer to 2 than to 1.

Did July 1st 2019 mark the end of Spotify’s music creator dream?

On July 1st 2019, Spotify announced that it was closing its system that allowed artists to upload their music directly to Spotify. The move came in the wake of fierce opposition from record labels who had let Spotify know, in no uncertain terms, that they were not going to let it compete directly against them. They were not about to let their partner disintermediate them. When Spotify launched its artists direct tool, moves had been made on the heels of its 2017 Cloud DAW and collaboration tool, Soundtrap, and formed part of a clear strategy of becoming a music creator powerhouse. Even after the label enforced volte-face, Spotify additionally acquired music skills marketplace, SoundBetter, in September 2019. But now, with news emerging that Spotify has just sold SoundBetter back to its founders, it is beginning to look like the strategy was already dead in the water before the original deal.

The future of what music companies will be

Spotify’s music creator strategy was both bold and sound. It was making a bet that the music companies of the future would not simply be on the business of recording and releasing signed artists, but would instead participate in the creation of music further up the chain – just like they currently participate in distribution further up the chain. The assumption remains valid and, indeed, there is much to see in the market today to point to a future where the distinctions are blurring between what is a label, distribution platform, creator tool or streaming service. BandLab is most of those things (with 30 million people signed up to its platform), while AVID (maker of ProTools) launched distribution last year, as did Canadian creator tools company LANDR. The value chain shifts are happening. But not only that, 2020 started the unprecedented process of large institutional investment into creator tools companies, such as Native Instruments, Splice, Output and iZoptope. The creator tools space is white hot. So why is Spotify backing away?

Podcasts get the attention

The answer probably lies in focus. When the labels pushed back against Spotify’s artist ambitions, Spotify had to find a new big bet, which was – of course – podcasts. Since that point, Spotify has focused its investments, with a raft of acquisitions of both companies and talent. It even rebranded its creator strategy to encompass podcasters. The sale of SoundBetter is a clear implication that podcasters are now the centre piece of Spotify’s creator strategy.

A return could still be on the cards

Spotify can still be, and may yet be, a powerhouse for music creators. But, for now, podcasts are where the energies are focused. Besides, the sheer volume of creator tools M+A activity is such that Spotify may well feel that it would not be able to get good value for money if it was to go on an acquisition spree. Perhaps Spotify will return to the space 3-7 years from now. That will be when the current private equity owners have finished building up their acquisitions and start looking to sell them, enhanced and transformed for the new market dynamics. It will also be when Spotify may feel powerful enough to take on the labels again.

Whatever the longer-term future may hold, right now SoundBetter returns to the market as the sort of tool that encapsulates what the next wave of creation is all about, and it may feel that it can now finally deliver on its initial promise.

Can Spotify break out of its lane?

After years of relative stability, music consumption is shifting, with the DSP streaming model beginning to lose some ground as illustrated by the major labels growing streaming revenue by 33% in Q2 2021 while Spotify was up by just 23%. It is never wise to read long-term market trends into one quarter’s worth of results, but there was already enough preceding evidence to suggest we are entering a genuine market shift. The question is whether Spotify and the other Western DSPs are going to find themselves left behind by a fast-changing market, or can they innovate to keep up the pace?

Social music is streaming’s new growth driver, generating around $1.5 billion in 2020 and growing fast in 2021. It represents a natural evolution of social media rather than an evolution of streaming. Audio is just another tool for social expression, along with video, pictures and words. MIDiA has long argued that Western streaming focuses too heavily on monetizing consumption, at the expense of fandom. While social video does not fix the fandom problem, it does cater to some of the key elements of fandom: self-expression, identity and community. Which means that, in some respects, Spotify and the other DSPs only have themselves to blame for having kept fandom out of their propositions. In doing so, they created a vacuum that TikTok and Instagram eagerly filled.

The data in the above chart comes from MIDiA’s latest music consumer survey report which is available now to MIDiA clients and is also available for purchase here.

Rights holder licensing met market demand

Spotify and the other DSPs are the dominant, core component of recorded music and they will remain so for the foreseeable future. But whereas a couple of years ago it looked like they might be the entire story, now music consumption is moving beyond, well, consumption. Finally, we are seeing music becoming an enabler of other experiences. Historically this was restricted to non-scalable, ad hoc sync deals. Now rights holders have established licensing frameworks that are flexible, dynamic and scalable enough to enable a whole new generation of experiences with music either in a central or supporting role.

DSPs occupy one of streaming’s lanes

The implication of this is that Spotify and the other DSPs now risk looking like they are stuck in just one lane of the streaming market. What looked like a highway is now just a single lane – and Spotify, Apple and Amazon do not have the assets to build propositions that can get them out of it. Being part of this social music revolution requires both massively social communities and video. They could all build that, of course, but with little guarantee of success. YouTube is a different case, having launched Shorts in a belated bid to ward off TikTok’s audience theft – but at least it is now running that race, and Alphabet reported 15 billion daily global views for Q2.

An increasingly segmented market

Spotify and other DSPs now find themselves not being part of streaming’s new growth story and, YouTube excepted, with no clear path to becoming part of it. To be clear, Spotify will continue to be the world’s largest subscription revenue generator and the DSP subscription model will continue to be the biggest source of revenue, at least for the foreseeable future. But revenue growth will increasingly come from elsewhere. In many respects this simply reflects the maturation of the music streaming market. Consider video streaming. Netflix added just 1.5 million subscribers in Q2 2021 while YouTube grew by 84% and TikTok went from strength to strength. Netflix occupies just one lane in a multifaceted streaming market. The same is now becoming true of the DSPs.

Time to do a Facebook?

So, what can Spotify and the other DSPs do about it? If Spotify really wants to ‘own’ audio, then it will have to do what Facebook did to ‘own’ social: create a portfolio of standalone sister apps. Facebook would have become the Yahoo of social media if it hadn’t bought / launched Instagram, WhatsApp and Messenger. The signs are already there for Spotify. Even ignoring the slowdown in monthly active user (MAU) growth in Q2 2021, podcast users stopped meaningfully growing as a share of overall MAUs in Q4 2020. It turns out that trying to compete with yourself in your own app is hard to do. The time may have come for a standalone podcast / audiobook app (by the way, I’m just taking it as read that Spotify is going to take audiobooks a whole lot more seriously). If Spotify does launch a podcast app, then the case suddenly becomes a lot clearer for other audio-related apps, all of which could include subscription tiers, such as social short video, karaoke, and artist channels.

The more probable outlook however is for specialisation, with segments going deep and vertical rather than wide and horizontal. While Spotify, and other DSPs, might have success in one or more side bets, it will be the specialists who lead in streaming’s other lanes. Whatever the final market mix looks like as a result of this change, the streaming market is going to be more diverse and innovative for it.

The record labels are weaning themselves off their Spotify dependency

The major labels had a spectacular streaming quarter, registering 33% growth on Q2 2020 to reach $3.1 billion. Spotify had a less impressive quarter, growing revenues by just 23%. After being the industry’s byword for streaming for so long, Spotify’s dominant role is beginning to lessen. This is less a reflection of Spotify’s performance (though that wasn’t great in Q2) but more to do with the growing diversification of the global streaming market. 

Spotify remains the dominant player in the music subscription sector, with 32% global subscriber market share, but streaming is becoming about much more than just subscriptions. WMG’s Steve Cooper recently reported that such ‘emerging platforms’ “were running at roughly $235 million on an annualized basis” (incidentally, this aligns with MIDiA’s estimate that the global figure for 2020 was $1.5 billion). 

The music subscription market’s Achille’s heel (outside of China) has long been the lack of differentiation. The record labels showed scant interest in changing this, but instead focused on licensing entirely new music experiences outside of the subscription market. As a consequence, the likes of Peloton, TikTok and Facebook have all become key streaming partners for record labels – a very pronounced shift from how the label licensing world looked a few years ago.

The impact on streaming revenues is clear. In Q4 2016, Spotify accounted for 38% of all record label streaming revenue. By Q2 2021 this had fallen to 31%.

Looking at headline revenue alone, though, underplays the accelerating impact of streaming’s new players. Because Spotify already has such a large, established revenue base, quarterly dilution is typically steady rather than dramatic. Things look very different though when looking specifically at the revenue growth, i.e., the amount of new revenue generated in a quarter compared to the prior year. On this basis, streaming’s new players are rapidly expanding share. Spotify’s share of streaming revenue growth fell from 34% in Q4 2017 to just 26% in Q2 2021. Unlike total streaming revenue, the revenue growth figure is relatively volatile, with Spotify’s share ranging from a low of 11% to a high of 60% over the period – but the underlying direction of travel is clear.

Spotify remains the record labels’ single most important partner both in terms of hard power (revenues, subscribers) and soft power (ability to break artists etc.). But the streaming world is changing, fuelled by the record labels’ focus on supporting new growth drivers. The implications for Spotify could be pronounced. With so many of Spotify’s investors backing it in a bet on distribution against rights, the less dependent labels are on it, the more leverage they will enjoy. From a financial market perspective, the last 18 months have been dominated by good news stories for music rights – from ever-accelerating music catalogue M&A transactions to record label IPOs and investments. 

Right now, the investor momentum is with rights. Should the current dilution of Spotify’s revenue share continue, Spotify will struggle to negotiate further rates reductions and will find it harder to pursue strategies that risk antagonising rights holders. Meanwhile, rights holders would be surveying an increasingly fragmented market, where no single partner has enough market share to wield undue power and influence. That is a place where rights holders have longed dreamed of getting to, but now – divide and conquer – may finally be coming to fruition.

Spotify and music listening 10 years from now

July marks ten years since Spotify’s US launch. Although the tendency among some is to consider this ‘year zero’ for streaming (thus ignoring everything that had happened in prior years both within and outside of the US) it does present a useful opportunity to reflect on what the next decade might hold for Spotify. 

Rather than focus on the business outlook, I am going to explore how Spotify and other streaming services, could change the way in which music is consumed ten years from now. But first, three quick future business scenarios for Spotify:

  1. It continues to be the global leader but with reduced market share due to the rise of regional competitors in emerging markets
  2. It loses market momentum, stock price tumbles and is acquired by another entity 
  3. It morphs into a true multi-sided entertainment and creation platform, doing for entertainment what Amazon now does for retail but with more tools and services

So, on to the future of music consumption.

To map the future, you need to know the past. These are (some of) the key ways streaming has transformed how we engage with music:

  • We listen to a larger number of artists but spend less time with individual artists
  • We listen to tracks and playlists more, and albums less
  • Music is programmed (by ourselves and by streaming services) to act as a soundtrack for our daily lives and routines
  • Genre divisions are becoming less meaningful
  • Artist brands are becoming less visible
  • Music fandom is becoming less pronounced

Music is more like the soundtrack to daytime TV than blockbuster movies

In 2015 Spotify’s Daniel Ek said that he wanted Spotify to ‘be the soundtrack of your life’. Undoubtedly, Spotify and other streaming services are achieving that but the utopian vision is more prosaic in practice. Less ‘that was the best day of the summer’ and more ‘put on some tunes while I cook’. It is a soundtrack, but less the soundtrack to a blockbuster movie and instead more like the soundtrack to daytime TV. Music has become sonic wallpaper that is a constant backdrop to our daily mundanity. (Though the pandemic, the climate crisis and stagnant labour markets can make even the mundane look aspirational for many).

Like it or loathe it, this sound tracking dynamic is likely to play a key role in what the future of music consumption looks like. But it is not all sonic dystopias; personalisation, algorithms, user data and programming also have the potential to reinvigorate music passion. Here are two key ways in which Spotify and other streaming services could transform music listening ten years from now:

  • Dynamic and biometric personalisation: The current recommendation arms race works from a comparatively small dataset, focused on users’ music preferences and behaviour. The next battle front will be the listener’s entire life. Any individual user can appear to be a dramatically different music listener depending on the context of their listening. Even the same time of day can have very different permutations; for example, looking for chilled sounds at 7pm after a manic Monday but banging beats at the same time on a Friday. If streaming services could harvest data from personal devices and the social graph, elements such as heart rate, location, activity, facial expression and sentiment could all be used to create a music feed that dynamically responds to the individual. Instead of having to actively seek out a workout or study playlist, the music feed would automatically tweak the music to the listener’s behaviour and habits. The faster the run, the more up-tempo the music; the later in the evening, the more chilled (unless it’s 9pm and you’re getting ready for a big night out). Selecting mood and activity-based playlists will look incredibly mechanical in this world. Think of it like the change from manual gear change to automatic in cars.

  • Music catalogue reimagined: Just as activity and mood-based listening will become more push and less pull, so can music catalogue. Traditionally catalogue consumption is driven by a combination of user behaviour (‘I haven’t listened to that band in a while’) and marketing pushes by labels, publishers and now music funds’ ‘song management’. But it needn’t be that way anymore. Over the years, streaming services have collected a wealth of user data. Just as Facebook introduced memories for users’ posts, so streaming services could deliver music memories, showing users what they were listening to on this day ten years ago, or what the soundtrack to your summer was way back in 2021. Clearly Spotify is already making steps in this direction with Wrapped but this would be much bigger step, routinely delivering nostalgia nuggets throughout a day, week, month, year. In many respects the result would be a democratisation of catalogue consumption. It wouldn’t simply be the rights holders with the biggest marketing budgets and smartest campaigns on TikTok (or whatever has replaced TikTok ten years from now) that get the biggest catalogue bumps. Instead, catalogue consumption across the board would boom. This could make the current 66% of all listening look like small fry in comparison. What that means for frontline releases finding space is another question entirely.

These are of course just two well-educated guesses, and their weaknesses are that they are based on what has happened so far rather than what currently unforeseen consumption shifts may happen in the future. Indeed, streaming itself may have been surpassed ten years from now. But tomorrow’s technology often looks more like today than it does tomorrow. Henry Ford’s model T Ford looked more like a horse and trap than it did the swept wing aerodynamics of 1950s cars. Change takes time. But ten years is a long time in the world of technology, so even if neither of the above come to pass, you can be sure that music listening is going to look a whole lot different than it does now.


Hi-Res audio: It’s all about a maturing market

Apple and Amazon made a splash this week by integrating Hi-Res Dolby Atmos audio into the basic tiers of their streaming services. The timing, i.e. just after Spotify started increasing prices, is – how shall we put it, interesting. It also struck a blow against the music industry’s long-held hope that Hi-Res was going to be the key to increasing subscriber ARPU. While that might be true, for now at least, the move is an inevitable consequence of two streaming market dynamics: commodification and saturation.

Music streaming contrasts sharply with video streaming. While the video marketplace is characterised by unique catalogues, a variety of pricing and diverse value propositions (including a host of niche services) music streaming services are all at their core fundamentally the same product. When the market was in its hyper-growth phase and there were enough new users to go around, it did not matter too much that the streaming services only had branding, curation and interface to differentiate themselves from each other. Now that we are approaching a slowdown in the high-revenue developed markets, more is needed. Which is where Hi-Res comes in.

Now that streaming is, as Will Page puts it, in the ‘fracking stage’ in developed markets, success becomes defined by how well you retain subscribers rather than how well you acquire them. As all the key DSPs operate on the same basic model, they need to innovate around the core proposition in order to improve stickiness and reduce churn. Spotify started the ball rolling with its podcasts pivot, but the fact that its podcasts can be consumed by free users means it is not (yet) a tool for reducing subscriber churn.

On top of this, when podcasts are mapped with other positioning pillars, Spotify’s competitive differentiation spread is relatively narrow. Because Apple and Amazon now both have Hi-Res as standard, they not only boost audio quality but value for money (VFM) as well. Bearing in mind, both companies already scored well on VFM because they have Prime Music and Apple One in their respective armouries. 

It is Amazon, though, that looks best positioned of the four leading Western streaming services. In addition to audio quality and VFM, it is building out its podcasts play (as compared to the Wondery acquisition) and it has the potential to bundle in the world’s leading audiobook company, Audible. Given that spoken-word audio consumption grew at nearly twice the rate music did during 2020, being able to play in all lanes of audio will be crucial to competing in what will become saturated streaming markets. 

Immersive audio storytelling 

Finally, Dolby Atmos is more than simply Hi-Res audio; it is an immersive format that enables the creation of spatial audio experiences. If we are truly on the verge of a spoken-word audio revolution, then immersive audio may have a central role to play. Surround sound has been a slow burner for home video, but that may be because the video experience itself has improved so much (bigger screens, HD, more shows than ever) that the audio component has been less important (though the growing soundbar market suggests that may be beginning to change). However, in audio formats there is only the audio to do the storytelling. This could mean that tools like immersive audio become central to audio storytelling, which means, you guessed it, Amazon and Apple would then have a competitive advantage in podcasts and audiobooks that Spotify would not.

Spotify pushes prices up, but do not expect dramatic effects

Spotify finally announced a significant price increase, raising prices in the UK and some of Europe, with the US set to follow suit. The increases affect Family, Duo and Student plans. The fact that streaming pricing has remained locked at $9.99 since the early 2000s is an open wound for streaming, so this news is important – but less so for actual impact than statement of intent.

Back in 2019 MIDiA showed that since its launch, Spotify’s $9.99 price point had lost 26% in real terms due to inflation while over the same period Netflix (which increased prices) saw a 63% increase. Price increases are a must, not an option. Not increasing prices while inflation raises other goods and services means that streaming pricing is deflating in real terms. In this context, Spotify’s move is encouraging, but it is not yet enough. The increases of course do not affect the main $9.99 price point, currently apply to a selection of markets and do not address the causes of ARPU deflation (promotional trials, uptake of multi-user plans, emerging markets). But let’s put all that aside for the moment and look at just what impact these changes will have:

  • Pricing: The increase is 13% for a Family plan and 20% for Student, both meaningful but below the 26% real terms deflation that was hit back in 2019. Averaged across all price points, the price increase represents a 10% uplift (in the markets where this is being done). By comparison, Netflix’s last major price hike averaged out at 11% across all price points, so it is line with that, though obviously Netflix had numerous other previous increases.
  • ARPU: ARPU (i.e. how much people are actually spending) matters more than nominal retail price points, which are subject to promotions and discounts. Spotify ARPU fell from €4.72 in 2019 to €4.31 in 2020. Let us conservatively estimate that would fall to €4.00 in 2021 without any price increases. Let us also assume that the announced price increases roll out to every single Spotify market (which of course they won’t) and let’s assume it all happened on January 1st 2021 (which of course it didn’t). On that basis, and factoring in what share of Spotify subscribers are on family and student plans, total revenue and premium ARPU would increase by 6.2%. ARPU would hit €4.25 (still below 2020) and premium revenue would hit €9.5 billion.
  • Income: Spotify would earn an extra €166 million gross margin, music rights holders would earn an extra €388 million, record labels €310 million and the majors €212 million, representing 2% of their total income. UMG would earn €95 million. Meanwhile, a recouped major label artist could expect to see a million streams generate €1,487 rather than €1,400 (assuming all the streams were premium).

All of these assumptions are based on this rollout being global and FY 2021, neither of which are the case. So the actual effect will be markedly less. The key takeaway is that this is an important first step on what needs to be a continual journey, and one followed by the other streaming services. Spotify was previous locked in a prisoner’s dilemma where no one was willing to make the first move. Spotify had the courage to jump first. What needs to happen next are (though not necessarily in this order):

  • Pricing increase to all remaining tiers, especially $9.99
  • Other streaming services follow suit
  • Tightening up of discounts and promotional trials in well-established markets

Good first step by Spotify; now let the journey begin.

Spotify Q3 2020: What price growth?

Spotify reported another strong quarter in Q3 2020, with subscriber growth up 27% year-on-year (YoY) and ad-supported user growth up 21%. Spotify continues to set the pace for the global streaming market and has demonstrated that streaming has proven resilient to lockdown. (Spotify finished the quarter with 144 million subscribers, just above MIDiA’s 143 million forecast – we maintain our end of year forecast for 154 million.) Further evidence of Spotify’s lockdown resilience is that global consumption hours surpassed pre-COVID levels and that churn levels fell. However, Spotify’s premium revenue growth continues to trail subscriber increases, which raises the question: what price is growth coming at for rightsholders and creators?

Spotify’s Q3 2020 premium revenue was €1,790 million, up 15% YoY – notably lower than the 27% subscriber growth. This is a long-term trend for Spotify, resulting in a steady erosion of premium average revenue per user (ARPU). Q3 2020 ARPU fell to €4.19, down from €4.67 in Q3 2019 and €5.76 back in Q3 2016.

There are multiple factors underpinning this shift:

Growth of emerging markets where ARPU is lower

Growth of family and duo plans

Use of promotional offers

Growth of low-priced tiers (telco bundles, student plans)

Spotify emphasised that ‘product mix’ was the core driver of lower ARPU in Q3 2020 and pointed to price increases for family plans across four Latin American markets, Australia, Belgium and Switzerland. Rightsholders and creators will be hoping that this is the start of a wider strategy. 

‘Measure us on growth’

Spotify continues to tell the markets to measure it on growth and market share rather than margin or ARPU. That serves Spotify better than rightsholders and creators. However, this may be about to change. Spotify’s big growth bet is podcasts, which it is monetising via advertising. Although Spotify had a decent quarter for ad revenue (after many weak ones) it is still just 9% of total revenue. Podcasts have the potential to be bigger than music for Spotify but it is going to take a long time to realise the potential, especially as the coming recession will likely dent the global ad market. 

A new growth story

Why this matters for music stakeholders is that Spotify may find it hard to convince investors to start backing yet another ‘measure us on growth’ story when it already has one. As streaming starts to mature in Western markets, Spotify may now be on a path to shift its music subscriptions narrative to one of turning around the ARPU decline, focusing on increasing “lifetime value”, reducing churn and improving margins. It can then make podcasts the ‘growth story’ and music the ‘margin and ARPU story’.

Music rights holders may be concerned that podcasts threaten their share of Spotify revenue, but they may also end up thanking Spotify’s podcasts strategy for indirectly resulting in a stronger focus of improving music monetisation. This in turn will mean higher per-stream rates – something that artists and songwriters in particular will appreciate.

Podcasts Q2 2020: Spotify takes an early lead

MIDiA has just published its latest Podcast report, Podcasts Q2 2020: Spotify Takes an Early LeadIn it we present data from MIDiA’s quarterly survey that presents a comprehensive view of podcast user behaviour, who podcast listeners are, how it stacks up against radio and music streaming listening and which platforms listeners are going to for their podcasts. One of the key findings of the 3,000 word report is that Spotify is now firmly established as the most widely used podcast platform. 

Spotify is now the leading destination platform for podcast users. In Q2 2020 42% of podcast listeners used Spotify, 10 points ahead of Apple in second place. This does not necessarily mean that it yet leads in terms of volume of listens, but it is the platform that the largest share of regular podcast listeners visit. Spotify was second in Q4 2019, so it is a rapid ascension for the streaming platform, leaving Apple trailing significantly. Google in third place may surprise some in the podcast sector, as it is renowned for being a small player. However, MIDiA has tweaked the wording of the question repeatedly over the last nine months, making it absolutely clear what we are referring to, and the result is always the same. This suggests either a) a large number of people use the app but have much lower listening patterns than users of other platforms, or b) Android users are somehow less clear on what podcast apps they use than iOS users. We think the latter is unlikely.

Early adopter behaviour shapes the market

Varying levels of podcast usage among users is however very likely as we are at such an early stage of market development (just 14% of consumers listen to podcasts regularly). This means that podcasts are at the ‘critical mass’ phase of adoption, where usage starts to move from early adopters towards the mainstream. As a consequence, heavy-usage early adopters, which Spotify podcast users tend to be, have particularly heavy behaviour and skew the overall numbers. This illustrates the supreme importance of measuring audience behaviour like MIDiA does, rather than relying solely on analytics – which are great for understanding volumes of listens, but less useful for understanding audiences. 

This early adopter skew also means that the content that resonates well with podcast users now will not necessarily be the right content to pull in more mainstream audiences, nor is it likely to be the right content mix for a longer-term strategy.

Podcasts are still small scale for now, but have vast potential

Podcasts are still small scale and far outweighed by radio. In fact, overall audience penetration has not shifted much during the last six months, though volumes of podcast listens have increased. So, existing podcast users are listening to new podcasts, creating new ‘day parts’ in their lockdown behaviours.

Spotify’s podcast strategy is dominating thinking in the podcast space at the moment, and with good reason considering its heavy investment. However, with the ad market softening, and Spotify relying primarily on ads to monetise podcasts, it will be some time before it can recoup its investment. Nevertheless, Spotify is betting big. It sees the opportunity in competing for radio listening to be a much bigger move than music alone. It is betting that podcasts will take radio out of radio, just like Netflix took TV out of TV.

BBC Sounds represents a podcast blueprint for radio broadcasters 

Spotify will not, however, find all radio companies bending to its will. In the UK, the BBC Sounds app illustrates how powerful a strongly integrated app and content strategy can be, with the app the second-most used podcast platform in the UK. Crucially, the vast majority of Sounds users that are also podcast users, use the app for podcasts. This contrast strongly with other broadcaster apps. For example, in the US, only a small minority of NPR’s app users that are podcasts listeners use the app for podcasts.

The experience of BBC Sounds illustrates that broadcasters can be a major force in the future of podcasts, but that they cannot rely solely on the strength of their content and programming. Without the tight technology integration that Spotify employs, broadcasters will find themselves looking more like NPR than they do the BBC.

If you are a radio broadcaster exploring how to innovate your audio and tech strategy to compete in this new marketplace, then get in touch with stephen@midiaresearch.com to see how MIDiA can help.