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Who Wants to be in the Music Streaming Subscription Market?

This year, the global music streaming subscription sector has seen a number of head -to -heads; the ‘big two’ - Spotify vs Apple Music, YouTube vs the rest of the industry and the polarised views on exclusives across the sector, but these running sideshows can’t distract from two key facts. Firstly, streaming music subscriber growth continues to impress and secondly, no one (well, no service provider) seems to be able to make money from monthly subscriptions.

On the first point, Spotify recently announced it hit 40 million paid subscribers, which is double what it had when it’s now biggest competitor, Apple Music, launched in June 2015. Apple Music has also recently announced 17 million subscribers – meaning that Spotify has added more subscribers since Apple Music launched. 

Regarding the second point, Spotify losses in 2015 were approximately $200 million, 10% of total revenue, despite its scale and strong brand. Smaller, but still high profile services Rhapsody/Napster and Tidal also saw rising losses in 2015, whilst music streaming profits/losses from Apple Music and Google Play Music are assumingly absorbed by the wider respective corporations.

Yet we are continuing to witness new service launches against this backdrop of poor financial performance, in addition to withdrawals from the industry (e.g. Rdio, Simfy, Rara, Blinkbox have exited the industry in 2015-2016, and there are more). 

Pandora has announced a new on-demand streaming music service in the USA, effectively now going head-to-head with the “big two”, with iHeartRadio hot on its heels, announcing it will launch a service in January. SoundCloud launched a subscription service earlier in 2016 and Amazon is expected to launch a more comprehensive, paid-for alternative to its Prime Music service soon.

Given the undoubtedly tough financials in an increasingly cut-throat competitive environment, it could be seen as being slightly gung-ho to launch a new service. But all have one thing in common, huge existing user bases to convert; Pandora has 78 million active monthly listeners, iHeartRadio now has 90 million registered users, adding over 10 million so far in 2016 alone. Amazon Prime has approximately 40 million members whilst SoundCloud has 175 million monthly users. 

But in a market where it is tough to differentiate, success is far from inevitable. Even with scale, margins are tight (or non-existent), largely due to the royalty structure (and most artists feel this structure fails to compensate them fairly). Increasingly popular family plans may well squeeze margins further; more users means proportionately more streams per subscription, meaning even higher royalty pay-outs, perhaps not compensating for the additional $5-or-so per subscription. 

As we enter the crucial Q4, you can’t help but think there will be further headlines, with more consumers appreciating the benefits of unlimited streaming – spending approximately $8 billion worldwide in 2016, almost 3x the level of two years ago. So you can see why new players want a piece of the ever expanding pie, but they may have to settle for revenue over profits, at least in the short term.

About the author

David Sidebottom

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Here at Futuresource Consulting we deliver specialist research and consulting services, providing market forecasts and intelligence reports. Since the 1980s we have supported a range of industry sectors, which has grown to include: CE, Broadcast, Entertainment Content, EdTech and many more.