Is Streaming the Next Big Thing? – What Consumers Want

The question if streaming is the next big thing for the music industry will be eventually answered by the music consumers. Several studies were conducted in past few years – most of them commissioned by music industry bodies – to assess the future potential of music streaming. It is essential for music streaming services and the copyright holders (labels and music publishers) if consumers are aware of streaming services, if they are using them frequently and if they are prepared to convert from Freemium to subscription models. Therefore the results of the studies are important indicators for the future development of the music industry. Although they provide different and even contradictory results – due to a different methodology – they help us nevertheless to understand music consumption behaviour in the digital age. In the following I would like to review some of the studies published in the past three years.

Is Streaming the Next Big Thing? – What consumers want

In September 2010, the market research institute Nielsen conducted a world-wide study on the digital music consumption behaviour. They interviewed 26,644 online music consumers in 53 markets on all continents. A major finding was that music consumption in the digital age is ubiquitous. Nevertheless, the consumption habits differ. The by far most popular way to consume music is watching music videos mainly on YouTube on computer. After downloading music for free (nearly 50% were involved in file-sharing and file-hosting activities in the last 3 months), pure audio-streaming of music ranked third. More than 25% stated that they streamed music on their computers in the last 3 months. Accessing music streams (music videos as well as audio-only streams) by mobile devices has becomes increasingly important too. More than 20% agreed to do so. In contrast, downloads of music files from online music stores such as iTunes are less popular (figure 1).

Figure 1: Digital music consumption habits (September 2010)

Source: Nielsen & MIDEM, 2011, The hyper-fragmented world of music: Marketing considerations and revenue maximation, p. 5.

The younger generations are unsurprisingly more active users of streaming services than the older ones. About 70% of the under 20-24 years age group and the 25-29 years old accessed YouTube and other music video platforms on computer – a third even on mobile devices. As a rule of thumb one can say that the older the respondents the less active they are in music streaming. In the age group of 60+ slightly more than 20% watched a music video online and only 2% on their mobile phones (figure 2).

Figure 2: The consumption of music videos by age groups (September 2010)

Source: Nielsen & MIDEM, 2011, The hyper-fragmented world of music: Marketing considerations and revenue maximation, p. 8.

Therefore the awareness of audio-only music streaming services among the elder people is limited. Not even the half of the age group 60+ know streaming services and a mere 5% are interested in it. In contrast, more than 70% of the twens know streaming services and more than 30% are interested in it. In this respect it is a bit surprising that the teenagers lag behind in awareness of and interest in music streaming services (figure 3).

Figure 3: Awareness of and interest in music services by gender and age group (September 2010)

Source: Nielsen & MIDEM, 2011, The hyper-fragmented world of music: Marketing considerations and revenue maximation, p. 13.

The figures also unveil a gender gap in the knowledge of and interest in music streaming services. Women know significantly less about streaming services than men and are less interested in them.

In another study – “Is Streaming Steaming Ahead?” (July 2011) – Nielsen compared the user behaviour in 5 large music markets: UK, Spain, France, Germany and the U.S. Nielsen measured active reach of music streaming services in each territory. Active reach is, therefore, the percentage of unique users streaming music on the Internet. Active reach is by far highest in Spain with 18% of the Internet population streaming music on a regular basis. Then followed France with 14% and the U.S. with 10%. It is remarkable that in the UK as well as in Germany active reach was modest with 5% of the active Internet population streaming music. It has to be mentioned that Spotify was not available in Germany in the research period (April 2010 to April 2011).

In all countries, however, the most active music streamers can be found in the age group of the 18-24 years old. In Spain more than 30% of Internet users in this age group streamed music in April 2011. In the UK active reach in the age group of the 18-24 years’ old was 20%, followed by the U.S. with 17%. In France and Germany active reach was measured for the 18-34 years’ old and it was 18% and 8% respectively.

Music streaming, thus, is the domain of the age groups under 30. Since the music habits of the youngster will shape the digital music market in the future, it is worth looking closer into the motives of music consumption of this age group. Dennis Collopy and David Bahanovich of the University of Hertfordshire conducted a longitudinal study (2008, 2009 and at last in 2012) in the UK to observe the music behaviour of young people aged under 25. In 2008, 35% of the respondents showed an interest in music streaming, whereby file-sharers had a significantly higher interest in a free streaming service (38%) than non-file-sharers (30%). 35% of the respondents even stated that they would pay for a subscription service. However, willingness to pay for an unlimited streaming service decreased to 7% in the 2009 survey. In 2012, 12% of the respondents stated that they have paid for a music streaming such as Spotify.[1] In addition, 89% agreed in 2009 to the statement: “Streaming is never as good as actually having the tracks I want so I can share them the way I want to”. The study authors, thus, concluded that ownership of music tracks plays a crucial role for young music consumers. In 2012, 79% of the respondents were still interested in “owning” music despite the access to so many streaming services.

The authors of the Nielsen-MIDEM-study “The Hyper-Fragmented World of Music” (2011: 19) came to the same conclusion: “Notably it would seem that consumers are not as willing to pay for services in which they do not obtain a product, or a semblance of permanence.” They found out that only 22% of all respondents would definitely or probably pay for a monthly subscription (p.14). It’s interesting that “out of those already using streaming services, the 21‐24 age group is the most likely (at around 22%) to pay for listening via streaming services” (p. 15). The 25-29 year-olds have a similarly high willingness to pay, but the older the respondents are the less prepared they are to pay for music streaming.

In the “Digital Music Consumer – A Global Perspective” study by the French based market research company IPSOS Media CT 7,502 Internet users aged 16-64 in the U.S., Brasil, Mexico, UK, Sweden, France, Germany, Japan and South Korea were asked among other things about their music streaming habits in November 2012. The study was commissioned by the International Federation of the Phonographic Industry and was published in February 2013.

The results highlight that in all countries less than 50% of the respondents used a music streaming service in the past 6 months. The highest share of music streamers can be found in Sweden (48%), South Korea (41%) and France (36%). In the US and UK 19% streamed music from Spotify & Co. In Germany only 12% are active music streamers and Japan lags behind with just 4%. The comparison of streaming music and paying for downloads unveil an inverse relationship between streaming and paid downloads (figure 4).

Figure 4: Percentage of Internet users streaming music and paying for music downloads

Source: IPSOS Media CT, 2013, Digital Music Consumer – A Global Perspective, p. 5.

In comparing the awareness of digital music services across all countries, YouTube is by far the best known platform. Behind iTunes and Amazon music download shops Spotify ranks #4. The brand awareness of the music video streaming platform Vevo and the French audio-only streaming service Deezer lags behind with 33% and 31% respectively. In the country of origin the brand awareness of Spotify (Sweden) and Deezer (France) is of course higher than in other territories (figure 5).

Figure 5: Brand awareness of digital music services

Source: IPSOS Media CT, 2013, Digital Music Consumer – A Global Perspective, p. 3.

The IPSOS study also asked for the main reasons for using streaming services (p. 6). The unanimous answer in all countries was that streaming services are for free. 39% of the respondents stated this for music streaming (paid/free) services. For 61% of the respondents free music consumption is the main reason to use free Internet radio services and even 70% stream music videos for free from YouTube & Co. Other reasons such as “discovering new music”, “legitimate music consumption”, “sampling music before purchasing” play also a role but they are not that important than the free music consumption motive (figure 6).

Figure 6: Main reasons for using digital music services

Source: IPSOS Media CT, 2013, Digital Music Consumer – A Global Perspective, p. 6.

Music streaming habits in the UK[2]

Since international data on music streaming behaviour is limited, it makes sense to analyse national studies on music consumption too. In 2012, the online music store eMusic and the British Association of Independent Music (AIM) published the study “Consumer Motivations: Moving from Physical to Digital” on the music consumption behaviour in the UK. In the study 1,400 digital music purchasers aged 18-64 were asked by market research agency Inside Strategy Group for their music consumption habits in December 2011. The study unveils that 80% of the UK online and mobile music consumers still buy physical products. 70% pay for music downloads and 46% stream music for free or as subscription service (p. 5). The report also states that 87% will not give up owning music for streaming. Further “68% feel that streaming from a subscription service means that they don’t have control” (p. 12). According to the eMusic-AIM-study 70% of the respondents want to stream music for free and do not want to pay for music streaming. And 64% use streaming services to discover new music before deciding to buy it (p. 14). The study confirms the assumption that ownership is still important, whereas streaming is a tool to discover new music. Although these findings support the interests of a music download shop such as eMusic, they also confirm finding of afore mentioned other studies.

Music streaming habits in Germany

PricewaterhouseCoopers (PwC) published a study on music streaming in spring 2013.[3] Therein 1,200 Germans aged 18-65 were asked about their music streaming habits. 35% of the respondents do not know any music streaming service. 14% sometimes use a streaming service. The most popular streaming service in Germany is Napster with the highest brand awareness – more than 70% know Napster, but more respondents have used LastFM (14%) and Spotify (12%) (PwC 2013: 7).

31% are willing to pay for a streaming service, whereby willingness to pay is highest in the 31-45 age bracket (p. 8). 68.1% of the respondents stated that they are not prepared to pay for Internet radio and music streaming services. 79.8% have no problem with ads in streaming music, but 27.8% would pay for an ads-free version of a streaming service (p. 10). The highest willingness to pay can be found among Sony Entertainment Network users (54%), followed by Simfy (49%) and Napster (47%) users. 41% of Spotify users are planning to subscribe to the premium service in the near future (p. 9).

The PwC music streaming study again confirms that ownership of music is important to the respondents. More than 58% want to own music in digital and/or physical formats. The share of those who want to own music is even higher in the group of music streamers. 80% of this group also want to own music (p. 10).

The most recent figures on digital music consumption in Germany, however, provides the BITKOM-“Webmonitor Online Music Sources 2013”. BITKOM[4] commissioned the market research firm Forsa to conduct 1,003 telephone interviews with Internet users aged 14 onwards from April 11-15, 2013. A large majority of respondents – 70% – never heard about music streaming services such Spotify and LastFM. In the group of female respondents even 79% have no idea what music streaming services are. The highest awareness of streaming services can be found in the 14-29 years age bracket, but with increasing age the knowledge about music streaming dwindles. In the age group 60+ only 13% know music streaming services (figure 7).

Figure 7: Awareness of music streaming services in Germany (April 2013)

Source: BITKOM Webmonitor Online Music Sources 2013.

Those who are aware of music streaming services were further asked if they have ever used such a service either for free or by subscription. 38% of respondents (116 out of 304) did so, but the large majority of 62% (189 respondents) never streamed music in any way. Thus, just 12% of all respondents (1,003) have used music streaming services – 88% never did. Twice as much men (15%) than women (7%) have ever streamed music and the most active age group in streaming music are the 14-29 years’ old. 27% of them already streamed music in the past. The 30-44 years’ old are less active – 16% have streamed music and just 7% of the 45-64 years old and 2% of the 60+ generation are active music streamers (figure 8).

Figure 8: Share of active users and subscribers of music streaming services in Germany (April 2013)

Source: BITKOM Webmonitor Online Music Sources 2013.

In the group of users of streaming services (n = 114) a small minority of 14% pay for a monthly subscription. More women (16%) than men (12%) are subscribers. The older the users the lower is the share of subscribers – except the respondents aged 45-59 with 25% paying users. In relation to all respondents (1,003) a vanishing minority of just 1.6% paid for a subscription. Even in the age group of 14-29 years old only 4.1% are subscribers to music streaming services (figure 8).

In the group of non-users of streaming services (n= 190) 39% could image to use a streaming service. This is a 7.4% share of the overall survey population. A higher share of women (42%) than men (37%) are interested in using streaming services. More than half of the younger age group might use streaming services in the future, whereas 31% of the 45-59 olds and 25% of the 60+ generation are interested to use such services in the future.

The willingness to pay of those not subscribed to a music streaming service (n = 98) is relatively modest. Just 25% could imagine to pay for music streaming, whereas men (28%) have a higher tendency to pay for streaming than women (17%). The elder respondents, however, tend more to a subscription than the younger ones. 42% of 45-59 years old and 26% of the 30-44 years old could imagine to pay for streaming, whereas only 21% of the group aged 14-29 are willing to pay for a subscription.

The results of the BITKOM study highlight that the knowledge about music streaming services in Germany is very limited. The number of active users of streaming services is also limited and a small minority of Internet users are subscribers to one of the streaming platform operating in Germany. There is, however, a market potential for music streaming in Germany if brand awareness about music streaming services can be increased and if more users of Freemium models can be converted into subscribers. On the other hand the number of non-users interested in music streaming and prepared to pay for it is modest. To sum up, there is potential for growth of the German music streaming market, but it should not be over-estimated.

The results of the BITKOM study is, therefore, less optimistic than those of the PwC study and the results seem to contradict. In the PwC study the knowledge of the Germans about music streaming services is remarkable high with a share of 65%, whereas in the BITKOM study only 30% know streaming services such as Spotify, LastFM etc. According to the PwC study 34% are willing to pay for music streaming, whereas 25% of current non-users could imagine to pay for music streaming.

However, it is tricky to compare both studies. They used a different wording in the survey questions and the PwC study was an online survey targeted at users aged 18-64. In the BITKOM study respondents aged 14+ with an Internet connection were interviewed on telephone. The methodical approach, thus, has a clear impact on the surveys’ results and has to be taken into consideration in interpreting the statistics.

Summary

Figure 9: Studies on music streaming behaviour in comparison

Despite the different and even contradictory results of the studies reviewed, we can draw, nevertheless, the following conclusions:

• The vast majority (more than 80%) of music users even in the younger generations prefer ownership in music (e.g. CDs and paid downloads) over access (streams).
• The awareness of music video streaming sites such as YouTube is significantly higher than that of audio-only streaming services such as Spotify. The awareness of streaming services among younger people is higher than in the older age groups.
• The share of active users of streaming services is still limited. It varies from 48% in Sweden, to 12% in Germany and a mere 4% in Japan.
• The willingness to pay for music subscription is low – 22 to 31%. A vast majority of users and interested non-users prefer the ad-funded Freemium over premium models.
• The number of subscribers to music streaming services is low. According to the BITKOM-study, a mere 1.6% of Internet users in Germany paid for music streaming.
• Music streaming services are mainly used to discover new music.

These results suggest that music streaming will not be the next big thing from the music consumers’ perspective. However, there is a market potential to fuel further growth in the digital music segment, but with decreasing growth rates in the near future. The revenue from music streaming, thus, will not compensate for past losses in the physical market segment. If it is true that music consumers prefer free music access over subscription, the music streaming service providers will be between the devil and the deep blue sea. Despite growing numbers of active users their willingness to pay is low. Since the music streaming services’ business model is based on subscription rather than on ad-revenue, it is essential to convert as much as active users into paying subscribers – a really hard and probably impossible job according to the current findings of music consumption behaviour in the reviewed studies. It seems that music streaming is the radio of the 21^st century that serves a different need than music downloads and physical music products.

Sources

BITKOM & Forsa, 2013, Webmonitor Online Musikquellen.

BPI, 2013, Digital Music Nation.

Collopy, Dennis and David Bahanovich, 2008, Music Experience and Behaviour in Young People. University of Hertfordshire.

Collopy, Dennis and David Bahanovich, 2009, Music Experience and Behaviour in Young People. University of Hertfordshire.

Collopy, Dennis and David Bahanovich, 2012, Music Experience and Behaviour in Young People, University of Hertfortshire.

eMusic, AIM & Insight Strategy Group, 2012, Consumer Motivations: Moving from Physical to Digital.

IPSOS Media CT & IFPI, 2013, Digital Music Consumer – A Global Perspective.

Nielsen & MIDEM, 2011, The hyper-fragmented world of music: Marketing considerations and revenue maximation.

Nielsen & MIDEM, 2011, Is Streaming Steaming Ahead?

PricewaterhouseCoopers, 2013, Media Trend Outlook. Musikstreaming: Das verheißungsvolle Potenzial der Musik on demand.

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[1] Please note that it make a difference asking for willingness to pay (in the 2008 and 2009 studies) or for real payments in the past.

[2] In the Digital Music Nation report of British Recorded Music Industry (BPI: 2013) two further studies on music streaming – the “Kantar Worldpanel Digital Music Survey” (2012) and the “YouGov SixthSense Music 2012” report – are cited. Since both studies are not accessible, I do not directly refer to them.

[3] PricewaterhouseCoopers, 2013, “Media Trend Outlook. Musikstreaming: Das verheißungsvolle Potenzial der Musik on demand“.

[4] BITKOM is the German Federal Association of Information Technology, Telecommunications and New Media, representing more than 2,000 companies.