2017 THE YEAR OF MUSIC STREAMING
You might think I’m stating the obvious, but it was less than 2 years ago when the majority of the media, investors and even some music execs predicted the demise of music streaming. They argued, there was no way this would be sustainable…
One clear fact remains: none of the large streaming services are profitable — even Spotify with an impressive 40 million paying users.
Like any disruption, it takes time for people to get comfortable with the new medium. I still know plenty of people that don’t understand streaming but now at least they all know what Spotify, Pandora and Soundcloud are.
If we look at some stats, Nielsen reports that in 2016 more songs were streamed in 1 day (1.2 billion) than songs downloaded in an entire year (734 million) and in the US, streaming is now the primary form of music consumption.
If we look at Rogers’ Innovation Curve, it can be argued that music streaming has already entered the “early majority stage”. Consistent with the data from Nielsen, it would indicate that 2017 will see an even bigger uptake in music streaming.
The labels have seen steady revenue growth, despite the decline of physical sales and artists have found new ways to release their music (see: Chance The Rapper — “Coloring Book”)
Music streaming is looking really good right now!
Even though the future looks peachy, the fact still remains that streaming services today are still struggling with 2 things — profitability and data curation.
The data problem is less obvious or talked about. Perhaps because the complexity of the data problem isn’t quite understood. No streaming service today has accurately classified their entire data base. Put another way:
“Not one streaming service with +30M songs, knows exactly what’s in their catalogue.”
That’s a very big problem. That’s where Pandora excelled — sure they had a much smaller catalogue but they could account for every song in the system, which made their recommender so good. It took Pandora 12 years to curate about 1 million songs with their amazing Genome Project. Yet no company, not even Pandora, has found a reliable and scalable way of doing the same type of curation, for the much larger catalogue they all have available to them today.
How can recommendation ever be optimal and discovery truly personalised, if it’s not clear what music is actually on these platforms.
Solving the problem of data will vastly improve recommendation accuracy and personalised discovery which will lead to a better user experience. I believe that will also lead to more paying customers.
In his latest post, Mark Mulligan said — “Experience should be everything in 2017”. He goes on to say that “Putting context and experience at the centre of everything they do” is crucial for any streaming service going forward and dominating the market.
It’s expected there will be +6billion smartphone users by 2020, roughly 30% of them are expected to be streaming music on their devices. Yet, only 5% will be paying a premium — that’s a problem.
Programmatic audio and audio ads are now a big part of the revenue stream and if the recent white paper “Streaming State of Mind” by Spotify and GroupM is any indication — there’s a lot of money to be made from “smart” advertising, but the fact still remains that streaming services need more paying customers to be profitable after +70% of their gross revenues go to the rights holders.
In a sense, services that focus on a particular niche, like Patari, Saavn and even KKBox have a clearer opportunity to become profitable. The global players however, need to shift their focus from customer acquisition to customer retention, satisfaction and conversion — if they want to turn a profit.
“the next generation of streaming services, when they come, will take all of the recent innovation playlists, curation and user data analysis as the blank canvas. Which in turn will force the incumbents to up their game fast. Until then, the streaming incumbents have an opportunity to get ahead else get left behind” Mark Mulligan.
User Experience is the next big peace of the puzzle for anyone in the streaming space and great things will be accomplished once the data problem is solved.
I also believe there are incredibly huge opportunities in b2b licensing models for companies building tech for streaming services. There are areas in need of disruption, none more so than the music licensing market. The biggest opportunities however, lie with the startups that can create an interesting streaming proposition for consumer giants like Facebook, Uber, Snapchat and others.
Streaming isn’t going anywhere, but the current models will inevitably change and with the future being all the more certain, it wouldn’t be crazy to imagine a lot more investors coming out of the woodworks this year, looking to back the next wave of music tech startups.
