Music streaming is on the rise. In the recent IFPI report “Recording Industry in Numbers 2014” IFPI CEO Frances Moore is cited with “Streaming is now a mainstream part of the modern music industry.” (IFPI 2015: 5) Indeed, global subscription streaming revenue increased by 39.0 per cent and ad-supported streaming revenue by 38.6 per cent in 2014. In 2014, the global music streaming market (ad-supported as well as subscription) has a volume of US $2.2bn, which is even bigger than the single track download market (US $1.9bn) (IFPI 2015: 9). Music streaming, therefore, accounts for nearly a third of the global recorded music market. However, the market share of music streaming differs between countries. Whereas in Sweden the music streaming market share is 70 per cent of the overall recorded music market, in Germany just 6.3 per cent of the recorded music revenue comes from music streaming sources. And Japan, the second largest recorded music market in world, lags behind with meagre 3.1 per cent.
In the following I would like to highlight the economic relevance of the music streaming market segment in an international comparison.
Music Streaming Revisited – the International Music Streaming Market 2014
Scandinavia is the music streaming mecca of the world. An average Internet user in Norway pays US $16.02 per year for music streaming consumption. Sweden follows with US $14.50 per Internet user and Denmark with US $9.37. In addition, Finland ranks fifth with a per internet user revenue of US $4.51. In six other countries – the US, the Netherlands, South Korea, United Kindom, New Zealand and France – the revenue from music streaming per Internet user is higher than US $2 per year. In a third group of countries, among them large recorded music markets such as Australia, Spain, Germany, Italy and Canada, the per head revenue from music streaming is lower than US $2 but higher than US$ 1. Austria leads the group of countries with a revenue lower than US $1, but higher than US $0.50. However, the largest group of countries – mainly Eastern European, Asian and South American markets – the per internet user revenue is lower than US $0.50.
Figure 1: The world’s ranking of music streaming 2014 (revenue per internet user)
In absolute figures, the US is the by far world’s largest music streaming market with a trade value of US $717.7m. Nearly two thirds of the global streaming revenue is generated in the US. Since the SoundExchange collections from webcasters and non-interactive streaming services such as Pandora and iHeartRadio are included in the category “Digital Other”, the overall revenue from music streaming might be higher. If we add the SoundExchange payouts of US $773.4m to the streaming revenue, the total streaming market in the US accounts for US $1.49bn, which adds up to a share of 41.9 per cent in the digital market segment.
UK ranks second with a market volume of US $181.6m, followed by South Korea (US $141.3m), Sweden (US $132.0m) and France (US $121.0m). Japan, which is the world’s second largest recorded music market and Germany, which ranks 3rd in the overall statistics. lag behind other large markets with US$ 82.4m and US $88.8m respectively. The music streaming revenue of Japan is just slightly higher than in Norway with a volume of US $75.3m.
However, if we focus on the market share of music streaming, we get a different picture. The most developed music streaming market is China. Nearly 75 per cent (US$ 78.5m) of all (legal) recorded music income comes from music streaming. The leading digital music providers in China are neither Apple’s iTunes nor Spotify, but China Mobile, China Telecom, IQIYI and above all Tencent with China’s most popular music streaming site QQ Music (http://y.qq.com/). In Sweden, the home base of Spotify, and in Norway, where TIDAL originates, the music streaming market accounts for 69.7 percent and 62.8 per cent respectively of the recorded music market. The fourth member in the music streaming champion’s league is South Korea with a music streaming market share of 53.2 per cent. Denmark (48.7%), Columbia (48.3%) and the Caribbean States (including Barbados, Costa Rica, Dominican Republic, El Salvator, Guatemala, Jamaica and Panama) (42.1%) and the US (41.9% including SoundExchange payouts) also have an overall market share of more than 40 per cent. Taiwan (37.3%), India (35.0%), Finland (34.8%), Peru (32.5%), Thailand (32.4%) and Singapore (30.2%) have a streaming share of more than 30 per cent. Eight countries follow with a market share between 20 and 30 per cent, among them Spain, Hong Kong and Mexico. However several large recorded music markets have smaller music streaming market share than 20 per cent: Brazil (19.3%), Italy (17.3%), France (14.4%) and UK (13.6%). In Germany music streaming is still in its infancy with an overall market share of 6.3 per cent – as well as in Austria with 5.6 per cent – both countries with a solid physical market. Japan, the world’s second largest recorded music market, has a very underdeveloped streaming market with an overall market share of just 3.5 per cent. However, Japan ranks first in the world-wide physical market – in front of the US.
Figure 2: The world’s ranking of music streaming 2014 (music streaming market share)
By comparing the overall digital market share and the share of music streaming revenue of the overall recorded music sales, we can identify 5 different market types.
Figure 3: A typology of international music streaming markets in 2014
I: High digital market share and high streaming share: China, Sweden, Norway, Denmark, South Korea, Columbia and the Caribbean States. Neither the physical market nor download sales are relevant.
II: High digital market share and medium streaming share: USA, Peru, Mexico, Ecuador, Singapore, Thailand and India. The revenue from digital download sales is still relevant, but in decline.
III: High digital market share and low music streaming share: New Zealand, Russia, Australia, Canada and Indonesia. The digital download market is still very essential.
IV: Low digital market share and medium music streaming share: Finland, the Netherlands, Spain, Slovakia, Taiwan and Chile. The physical market is still relevant as well as digital download sales.
V: Low digital market share and low music streaming share: Since 21 markets are included in this category, we should further distinguish different markets. There are countries with a digital market share higher than 30 per cent with a relatively well established streaming market (streaming market share higher than 10% but lower than 20%): UK, France, Hong Kong, Italy, Brazil, Switzerland, Greece, Ireland, Philippines and Malaysia. In other countries a low digital market share corresponds with a medium streaming share (10-20%): Czech Republic, Argentine, Hungary, Turkey, Poland, Bulgaria and Croatia. Finally, we can identify countries with a still dominant physical market (digital market share is lower than 30%) and a less developed music streaming segment (streaming share of the total recorded music market is lower than 10%): Germany, Austria, Japan, South Africa, Venezuela and Uruguay.
Figure 4: Analysis of segment V: Low digital market share and low music streaming share
Thus, we can see that the landscape of the digital music markets is highly diverse. On the one side there are markets with a still strong physical market, but on the other side also markets with streaming as main revenue source for the music industry – and different combinations of physical sales, digital download sales and streaming revenue in between. The complexity further increases if we divide the streaming market into a subscription segment (i.e. streaming revenues from Spotify, Deezer, Napster etc.) and an ad-supported segment (i.e. streaming revenues from YouTube, VEVO etc.).
Figure 5: A typology of international music streaming markets in 2014: Subscription vs. ad-supported
We can roughly distinguish markets with a revenue share of ad-supported streaming services in the digital market segment higher or lower 30 per cent. Further we can identify streaming markets with a more or less developed streaming segment – in per cent of the digital music market.
I: Highly developed streaming markets (streaming share of digital market is higher than 80%) with a less relevant ad-supported segment (lower than 30% of the digital market): Sweden, Norway, Finland, South Korea, Taiwan and Croatia. However, Croatia and Taiwan have a still relevant physical market.
II: Medium developed streaming markets (streaming share of digital market higher than 40%, but lower than 80%): USA, Denmark, Netherlands, Hong Kong, Turkey, Singapore, France, Thailand, New Zealand, Italy, Ecuador, Belgium. Some of those countries have also a still relevant physical market such as Hong Kong, France, Belgium, Italy and Turkey.
III: The streaming market segment is less developed and the streaming market share in the digital market is lower than 40 per cent: Australia, Austria, Canada, Germany, Ireland, Japan, Malaysia, Philippines, Russia, South Africa, Switzerland, Uruguay, Venezuela. However, some of those markets have well developed digital market for downloads such as Australia, Canada and Russia, whereas others are still dominated by physical market such as Austria, Germany, Japan and South Africa.
IV: China is category for itself with a highly developed streaming market that corresponds with a remarkably high share of ad-supported revenue of almost 70 per cent.
V: A medium developed streaming market (higher than 40%, but lower than 80% of the digital market) goes hand in hand with a relevant ad-supported segment of more than 30 per cent digital market share: Greece, Chile, Czech Republic, Argentine, Mexico, India, Bulgaria, Spain, Poland, Columbia, Hungary, Slovakia, Brazil, Peru and the Caribbean States. Some of those countries have a still relevant physical market such as the Czech Republic, Slovakia and Greece whereas others are more or less digitized such as India, Peru and the Carribean States.
The analysis, therefore, highlights a complex picture of the international music streaming market. The countries differ in respect of digital market share, relevance of streaming revenue and relevance of ad-supported services. Thus, it makes no sense to roll out a uniform strategy for developing the music streaming market. In countries with a highly developed digital market dominated by streaming subscription services (Scandinavian states, Caribbean States and South Korea, ad-supported services such as YouTube and the Freemium tier of Spotify & Co. are less relevant for the music streaming services’ business model. This also holds true for countries with a medium developed streaming market, but a high digital market share such as in the Netherlands, Singapore, Ecuador and New Zealand.
However, in the Chinese market as well as in those countries with a high share of ad-supported streaming revenue (Greece, Spain, Brazil, India, Mexico and Columbia) the ad-supported services are essential for healthy recorded music market. The danger of an overall sales decline is high if the ad-supported services are limited or even closed due to a still high piracy level in most of those countries.
The US is a special case. The music streaming segment that is dominated by market leader Pandora with its ad-supported service is still in development. At the same time physical and download sales are declining. In such a market Freemium is an important driver of growth. Also in countries with a still relevant physical market (Germany, Austria, Japan, UK) the music streaming segment cannot be developed solely by subscription services without a Freemium component and without a monetizing strategy of ad-supported services such as YouTube. This holds also true for countries with a well developed music streaming segment, but a still relevant physical market such as in Croatia or in countries with an essential music download market segment such as in Australia and Canada.
To sum up, since music streaming is in a different stadium of development in the international music markets, a uniform market strategy for fostering streaming revenue is not the best solution for growth. Instead, the relevance of the physical market as well as the download sales, but also the level of piracy, the relevance of ad-supported services and even the GDP per head should be taken into consideration if a decision on the need for ad-supported music streaming services and Freemium tiers of subscription services is made. The solution lies, therefore, in a market differentiation depended on the specific market characteristics in each country.