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.

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.

Music Streaming Revisited – the International Music Streaming Market 2014

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.

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? – The Labels’ Perspective

The Beggars Group chairman, Martin Mills, recently told the Guardian that “(…) 22% of the label group’s digital revenues came from streaming – and that the majority of its artists earn more now from track streams than track downloads” in 2012. Though the article does not report absolute figures, the revenue can be considered rather high with a roster including Adele, Jack White and The xx.

A member survey of the global rights agency Merlin representing more than 20,000 indie labels including Beggars Group/XL Recordings, Rough Trade, Naïve, Tommy Boy, Cooking Vinyl and Naxos unveils that “92% of respondents saw streaming and subscription revenues grow between 2011 and 2012, with a third enjoying increases of more than 100%” as recently reported by Musicweek. The same study shows that 24% of indies across the world and 30% of European indies generated more income from streaming than downloads in 2012.

These figures suggest that music streaming seems to be a promising revenue source for record labels. In the following the economic potential of music streaming and the underlying business model are analysed from the record labels’ perspective.

Is Streaming the Next Big Thing? – The Business Models of Music Streaming Services

The music streaming market is currently the most dynamic segment in the music industry. The market entry of Apple with iTunes Radio and Google with All Access underpin the relevance of music streaming. It is just a question of time when Amazon will announce the launch of its rumoured music streaming service. Google, Apple & Co., however, enter a highly contested market. In the relatively small Austrian music market, eight streaming operators offer their services to the consumers (IFPI Austria 2013: 13) – not counted are the myriads of Internet radios, video streaming platforms such as YouTube, TapeTV, Vimeo and Hulu as well as the cloud-based music services of Amazon, Apple and Google.