A series of blog entries tells the story of how the Scandinavian countries have become the forerunners of the music streaming economy and highlights the background of this development. In the second part of the series on Scandinavian’s way to a music streaming economy technological and business innovations that fostered music streaming are highlighted.
The Scandinavian countries are forerunners in broadband Internet penetration. From 2000 until 2006 the share of households with broadband Internet access increased from almost zero to 70 percent in Denmark and Norway, even to 80 percent in Finland and Sweden. Currently, almost all Scandinavian households have a broadband high-speed Internet access (figure 1).
Figure 1: Recorded music revenue and broadband Internet penetration in Denmark, Finland, Norway and Sweden, 1996-2017
Source: Wlömert and Papies (2019: 56).
Towards a music streaming economy – Scandinavia
Part 2: Technological and business model innovations
Figure 1 also highlights the relation between increasing broadband Internet penetration and decreasing recorded music revenues in Scandinavia. Although Wlömert and Papies (2019: 31) note that their statistical model does not allow to “pin down the causal effect in this association”, there is plausibility that broadband Internet penetration has enabled P2P file sharing, but also allows access to other online entertainment such as sports broadcasts, films, TV-shows and games. On the other hand, broadband Internet has also forstered business model innovations such as music streaming (ibid.: 33). A statistical model run by Wlömert and Papies (2019: 34) highlights that “music streaming services are associated with a reduction in piracy”, but significantly only in high-income countries such as in Scandinavia.
The authors’ findings help us to understand what happened in Scandinavia. The fast spread of broadband Internet initially enabled music downloading on P2P file sharing networks as well as access to competing online entertainment services. However, the early and wide-spread adoption of broadband Internet in Denmark, Finland, Norway and Sweden also forstered the economically sustainable emergence of music streaming services. Despite the start of the iTunes download shop in 2005/06 (light grey area in fig. 1), music downloads never became a relevant recorded music revenue source. Nevertheless unauthorized P2P file sharing is less convenient than music streaming, which became a relevant revenue source around-2010 (dark grey area in fig. 1). With high disposable household incomes in the Scandinavian countries it was a logic consequence that music consumers early adopted the premium music streaming tiers of Spotify, WiMP and TDC Play. All these services were bundled in mobile subscriptions, which is another important ingredient for the spread of a music streaming economy. This might also explain why Finland lagged behind its Scandinavian neighbours for some years, since there was no domestic music streaming service available before 2010.
The market for mobile subscriptions was already saturated in all Scandinavian countries in 2012. It was usual then to have more than just one smartphone contract. In 2017, the mobile subscription penetration ranges from 1.02 per head in Norway to 1.84 per head in Finland. On average, each Scandinavian has a least one active mobile subscription contract (figure 2).
Figure 2: Mobile subscriptions in Denmark, Finland, Norway and Sweden, 2012-2017
Source: After IFPI Global Music Report 2018.
The number of mobile subscriptions correlates with the number of active smartphones. The Scandinavians early had an affinity to mobile phones. It is no coincidence that two of the mobile phone pioneers – Finish Nokia and Swedish Ericsson – emerged in Scandinavia. Despite sale of t Nokia’s mobile and devices division to Microsoft in 2013 and Sony’s full acquisition of the mobile phone joint venture with Ericsson (Sony-Ericsson) in 2012, the Scandinavians are still heavy smartphone users. In 2015, each Scandinavian owned at least one active smartphone, with the highest per head smartphone penetration in Denmark (1.43) and the lowest in Finland (0.87) in 2017.
Figure 3: Active smartphones per head in Denmark, Finland, Norway and Sweden, 2012-2017
Source: After IFPI Global Music Report 2018.
Smartphones have become the most important access point for music consumption. In combination with wireless broadband Internet access, it’s convenient to listen to music streams literally everywhere at any time.
Conclusion
The mix of fast broadband Internet and smartphone penetration that early enabled music business model innovations (Spotify, WiMP, TDC Play) created a specific music eco-system relying on music streaming subscriptions that has cannibalized physical as well as music download sales, but also keeps ad-supported music revenue small. In the next part on Scandinavia’s music streaming economy, the change in music consumption patterns will be highlighted.
References
International Federation of the Phonographic Industry (IFPI), 2018, Global Music Report 2018. London: IFPI.
Wlömert, Nils and Dominik Papies, 2019, “International Heterogeneity in the Associations of New Business Models and Broadband Internet with Music Revenue and Piracy”, International Journal of Research in Marketing, vol. 36 (3), forthcoming.
See also:
Towards a music streaming economy – Scandinavia part 1: market analysis
Towards a music streaming economy – Scandinavia part 3: consumer behavior
Music Business Research 
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