Towards a music streaming economy – Scandinavia part 3

Part 1 of the blog series highlights that the Scandinavian countries are the world’s music streaming avant-garde due to a well-established broadband Internet infra-structure, a high smartphone penetration rate and domestic business innovations (see also part 2). The most influential Scandinavian business innovation was Sweden’s Spotify, which was launched in October 2008 at the culmination of The Pirate Bay lawsuit. However, several other services early offered music access to music in Scandinavia. In 2009, Finnish smartphone company Nokia launched the Comes-With-Music service, which allowed unlimited music access for a year on special Nokia Comes-With-Music phones. In the same year, Swedish Sony-Ericsson in collaboration with Norwegian Telenor offered the PlayNow plus service on its special edition of Sony Ericsson Walkman phones (IFPI 2009: 8). However, the mobile phone manufacturers failed to meet the music consumers’ convenience. Nokia’s music was DRM protected until 2010 and limited to special Nokia devices, whereas Sony Ericssons’ music was DRM free, but limited in time and to special devices.

In 2011 both services were, therefore, were discontinued,[1] when Spotify, WiMP and TDC Play started to dominate the digital music market. In 2009, the Danish TDC Play was the first ISP music service offering unlimited music streaming from 6.1 million tracks without any additional costs (IFPI 2010: 8). Spotify’s ad-supported unlimited streaming tier was also bundled in ISP TeliaSonora in Sweden and Finland and the premium tier could be directly paid on the broadband bill (ibid.: 9). WiMP’s subscription service also succeeded in Norway due to its bundling in Telenor’s mobile phone contracts (IFPI 2011: 9).

Consumer convenience, therefore, was the key success factor for music streaming services in Scandinavia. It was easier to access music by a streaming services than downloading music from P2P file sharing networks with the risk of malwares and viruses. Music consumption studies in Norway and Sweden highlight this shift from P2P file sharing to music streaming as outlined in the following analysis.

Towards a music streaming economy – Scandinavia part 2

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 1

It’s no accident that Spotify was launched in Sweden during the culmination of the The Pirate Bay lawsuit in 2008. Spotify was promoted as the legal alternative to P2P files haring and the Swedish music consumers were the perfect test market for such a Freemium music service. Sweden’s neighbouring country Norway was in a similar position: wealthy inhabitants, a high penetration of broadband Internet access and a passion for music. Therefore, the Swedish digital entertainment company Aspiro launched the music streaming provider WiMP (the later Tidal) in cooperation with the Norwegian telecommunication company Telenor and music retailer Platekompaniet in Norway in February 2010. Two months later WiMP also started in Denmark as the first music streaming service for PC, Mac and Android mobile.[1] However, in December 2009, the Danish telco TDC had added an unlimited streaming option to its music download service TDC Play (now YouSee Musik) in cooperation with tech company 24-7 Entertainment.[2] Thus, all three Scandinavian countries were pioneers in establishing a music streaming economy. The fourth Scandinavia country, Finland, lagged behind for some years, but in 2017 the Finnish sound recording market was as streaming-lined as its Scandinavian neighbours.

 

Figure 1: The global phonographic market in 2017 by digital market shares

Source: After IFPI Global Music Report 2018.

 

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 this blog post a comparative analysis of market figures for all Scandinavian countries are presented.

Towards a music streaming economy – an international market analysis

The music business year 2018 was shaped by the ongoing streaming boom. In April, Spotify has been listed as a stock market company and shortly thereafter the International Federation of the Phonographic Industry (IFPI) reported a 41.1 percent increase of global music streaming revenue to US $6.6bn for 2017. Music streaming has become the most relevant revenue source with a market share of 38 percent in the phonographic industry (compared to physical sales 30 percent, downloads 16 percent, performing rights 14 percent and synchronisation rights 2 percent).

In 2011, the global revenue from music streaming was comparatively low with a market share of 4.1 percent and a revenue of US $600m. However, the countries, for which IFPI provides data, have not developed uniformly as highlighted in the following analysis.

Spotify goes public – an economic background analysis

April 3^rd 2018 is a historic moment in the digitized music industry, when the Swedish music streaming company Spotify is listed at the New York Stock Exchange. Spotify’s stock exchange listing is not just a touchstone for the music streaming service’s business model, but for the entire recorded music industry that is back on a path of growth. Spotify is the darling of the big music industry players. It provides a legal business model that can be monetized by hefty advances and royalty payments. This allowed the music majors and the indie label licensing agency MERLIN to become Spotify’s shareholders in return for advance payments Spotiy could not afford. Sony Music Entertainment’s Spotify stake of 5.7 percent (Spotify 2018: 148) e.g. is worth US $500m to 1.3bn.[1] The following analysis highlights Spotify’s success story, but also outlines potential risks of going public. It also analysis who benefits from Spotify’s stock exchange listing and assesses the impact on the music streaming market.

Music Majors in the Streaming Economy: Warner Music Group

In its last annual report Warner Music Group (WMG) exhibited a total revenue of US $3.58bn – the highest since the recorded music company was sold by Time-Warner to the Investor Group in 2003. Although overall costs also increased to US $3.15bn (WMG 2017: 38-39), the operating income is remarkably high with US $222m (WMG 2017: 40) especially compared to the disastrous results of the early 2000 years with annual losses of about 1 billion US$. The main driver of the revenue growth is the music streaming boom. In the recorded music segment streaming revenue increased by US $434m to US 1.34bn in the fiscal year ending on September 30, 2017. The music publishing segment contributed a further increase of US $58m of streaming revenue (WMG 2017: 36). Thus, WMG earned almost US $500m more with music streaming in 2017 compared to 2016. The further analysis highlights how the music major’s business model has shifted to the music streaming economy.

Artists in the Music Stream – A Case Study

On 24 January 2018 the Latin superstar Enrique Iglesias filed a lawsuit against Universal International Music for “systematically underpaying streaming royalties” (complaint, Enrique Iglesias vs. Universal International Music, January 24, 2018). The lawyers of Iglesias argue that Universal Music should have paid 50 percent of the net revenue from the streaming services. Instead Iglesias was paid just a fraction of the royalties according to the rate agreed for physical and download albums. This remarkable case sheds light into the contractual practices in the recorded music industry and helps to explain, why artists contracted to record labels does not really benefit from the music streaming economy yet.

Music Business Research 2017 – in retrospective

Dear readers of music business research blog,

The music streaming boom dominated 2017. Market statistics highlight that music streaming revenue has become the most important income stream for the phonographic industry. The US figures for 2016 highlight a tremendous shift from selling music (CDs and downloads) to accessing music (by streaming services). In the US, music consumers paid for the first time more for music access by ad-supported and paid streaming services (US$ 3.9bn) than for CDs, music downloads and ringtones (US$ 3.5bn). In the UK, the massive growth of music streaming revenue also increased overall recorded music sales in 2016. Gains of £103m in the music streaming segment, thus, compensated not just for the loss of £5.8m of physical sales, but also for the £56m decrease in download sales in a year-to-year comparison, as a long-term analysis of the UK recording sales indicates. We can, thus, expect a further massive growth of music streaming revenue in 2017 also on markets with a still strong physical segment such as Germany.

The Economics of Music Streaming – Book presentation & Panel Discussion

In collaboration with the Austrian and Viennese Chamber of Commerce an additional event of the 8th Vienna Music Business Research Days 2017 wil take place in Gewerbehaus of the Austrian Chamber of Commerce (3., Rudolf Sallinger Platz 1) on September 13 from 19:00-21:00. After the book presentation “The Economics of Music” by Peter Tschmuck, Peter Jenner (Sincere Management, London), Sally Gross (University of Westminster, London), Hannes Tschürtz (ink music, Vienna) and Alexander Hirschenhauser (VTMÖ – Austrian Indie Label Association, Vienna) discuss on “The Economics of Music Streaming – Revenue Streams for Musicans and Music Producers from Spotify & Co?”

Entrance is free, please register here: Austrian Chamber of Commerce (WKO)

 

The Economics of Music Streaming – Revenue Streams for Musicans and Music Producers from Spotify & Co?
September 13, 2017
19.00-21.00
Gewerbehaus
Große Dachterrasse
Rudolf Sallinger Platz 1, 1030 Wien

 

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The Economics of Music Streaming: Spotify

2016 is the pivotal year for the music streaming industry. After years of growth, we can expect a market consolation for the new few months with mergers, acquisitions and insolvencies. Thus, the question arises which music streaming services will survive that consolidation process. I try to assess who will be the winners and losers by analysing the financials of several music streaming companies. In the first part of this series I examine the global market leader in the music streaming market, the Swedish music streaming company Spotify.