Is Streaming the future of the Music Industry?
With a big shift across the landscape, on how we consume music, film, and TV via the streaming platforms today!
The adoption of music streaming is by far the most significant change in the industry in the last ten years — and that’s a shift that is still ongoing.
Streaming services are looking for ways to expand their customer base, develop their product, grow revenues, and find a sustainable long-term business model, easier said than done though!.
The music industry has been caught up in the middle of this activity!
Streaming has already changed the way the recording industry operates and the way in which we consume, share, and experience music globally.
So How Does Music Streaming Work?
Let's take a look.
Music streaming works in a very easy way: a streaming service delivers data to a streamer in small amounts so that the user can get pre-buffered music that has been pre-buffered a few minutes or even seconds before playing your favorite album or single.
Given the user has a solid internet connection, streaming technology provides an uninterrupted listening experience, without ever actually saving the files on to the user’s chosen device.
This technology — and the streaming business overall — developed a response to the music piracy platforms from the late ’90s.
The History of the Music Streaming Market
The year is 1999, and there’s a new exciting service on the web, getting traction amongst students in America — Napster.
It allows to exchange data through peer-to-peer networks with ease, and since .mp3 files are so well-compressed, music becomes the primary content transferred through Napster.
Almost immediately, RIAA files a lawsuit, that drags on for around eight years, costing the service and its investor over 300 million in settlements!
The concept of P2P music sharing is out in the open — and the attempts of the recording industry to shut down the pirate websites.
As soon as a pirate service is shut down, new ones immediately take their place. LimeWire, BearShare, Shareaza, etc.
Is, Streaming an Answer to Piracy?
The legal approach proved to be fruitless, revenues were plummeting across the whole recording business globally — (if you like the industry buries its head in the sand).
Various legal download-to-own alternatives entered the market in the very early 2000s, with the most notable example for this was iTunes, which has been integrated into Apple’s ecosystem — but even Apple could not match the appeal of the free pirate services.
By 2008, IFPI estimations, 95% of all digital music was downloaded illegally. The music market needed a huge change, it really needed a business model that could compete with the pirates.
Thankfully, it was not that long until the answer was found in 2007 Music as Open Music Model, music streaming came to the rescue of the recording business at that time.
It is really hard to nail down what was the first streaming service.
YouTube launched in 2005, and so did Pandora’s interactive radio service. SoundCloud, the first on-demand service was to focus on music, launched back in 2007.
However, if the question is “what is the first DSP to apply the streaming model the way we know it today”, the answer is very clear indeed. Spotify was founded in 2006 and publicly launched in Europe by 2008 as the first legal streaming service.
A Complete Classification of Music Streaming Services!
The core product of the streaming market is unlimited, with seamless access to music across the world. None of the streaming catalogs are full complete — but the point is 99% of users will not ever have to look for music outside of the streaming service today.
But, as the market developed, new companies entering the market had to differentiate themselves — Spotify, which is the historical leader of the category.
Those new-born streaming platforms took on different positionings, building on top of the core offer of unlimited music access, and made the market increasingly complex moving forward.
So, to paint a full and clear picture, let us classify all the different types of streaming brands in the market today.
Spotify as the Pioneer Brand
As the first product in the category, Spotify has earned itself a status of a reference brand: if you live in Europe or the U.S., you probably think of Spotify when you hear “music streaming” — just like you think of Google when you hear “web search” for example.
This fact became a massive advantage for Spotify from a branding perspective. None of the competitors were able to catch up with Spotify, well at least when it comes to paying subscribers — but Tencent Music has long passed it in terms of monthly active users so far!
The streaming market is very complex (just like the whole music business): as of July 2018, there were over 200 DSPs that offer music streaming capabilities/services globally.
All those streaming services are put into the position of late-entrant, having to differentiate their offer from Spotify — because no one would use a streaming service [A] that would copy all the features that Spotify has.
And to be fair why would you if there’s Spotify already, doesnt make sense.
The first group is the streaming platforms that are integrated into a bigger ecosystem of services and products. All the major international streaming services fall into that category.
Apple Music, Google Play Music, Amazon Music — all those platforms are able to challenge Spotify head-on by offering a streaming service, integrated into the bigger product universe.
There are other reasons: from internal funding, talent capital to brand image that comes with the icon of a rotten apple.
However, imagine the promotional effect of having your streaming service pre-installed on every iPhone ever; including a limited version of Amazon Music into every Amazon Prime subscription; or leveraging Google Home user-base to sell premium subscriptions.
Such synergies allow Apple, Google, and Amazon to compete with Spotify directly, without differentiating their product too much.
When Spotify first entered the market, it defined what the music streaming service is.
So, if the competitor would make its product so different from Spotify, it would “fall out of the category”, meaning that it wouldn’t even be considered by the consumer as an alternative.
Those two factors are the real essence of Spotify’s advantage: all the other players on the market must find a balance between following in Spotify’s footsteps and distancing themselves from this brand — that is not an easy task!
Looking at Local Brands.
The second group in this area is the local brands that have developed as an alternative to Spotify within the local market.
The Chinese company TME streaming services, which has around 600 million users are perhaps the best example, but others can be found all over the world.
While Spotify and the ecosystem brands are ruling over Europe and the Americas, most of the markets outside of the western world have their own streaming landscapes, developed in the absence of these powerful global players.
And now, international streaming brands have turned their attention towards those developing markets. The industrial media are bombarded with news of Spotify, Amazon, YouTube Music entering new markets frequently — with a strong focus on India.
Most of those regions already have established streaming brands of their own, which means that the global services (including Spotify), are put into the catching up position, which makes sense — and the question remains if they would be able to beat the local competition.
Global players (Amazon & Google) can come in strong, wielding their subscriber bases and unmatched marketing budget.
But on the other hand, they might still struggle with the local catalog and culture-specific curation — which is a huge success factor when it comes to domestic markets.
Developing markets are likely to become the main battleground within the streaming industry over the coming years, so this is certainly an area to watch!.
The Niche Brands
The third approach in this area to try and overcome Spotify’s advantage is in differentiating the product itself and appealing to a niche audience, easier said than done though!
The core offer for most of the streaming services is unlimited access to the complete music library of the world. Even if it is not complete — the point is you can find any song you can think of across Spotify’s 40+ million tracks and growing week, by week!
But, an all-fits-all approach of global streaming services leaves BIG space for improvement, and this is where the niche streaming services come in and play their part!
The idea of niche streaming is that if you choose a specific customer segment — think fans of a particular genre of music — and build a dedicated service for them, you would be able to create a better listening experience within that niche area!
Classical music is the lowest hanging fruit, but several apps are applying the same niche approach across different music genres.
The Semi-music Streaming Services
Last, in this area, we have the digital service providers that, while used for on-demand music streaming, does not exactly fit the definition of a streaming service per se!
The most prominent examples of such brands are the historical players on the market, that were here even before Spotify came around: YouTube, Bandcamp, and Pandora.
Lest Take Youtube as an example: even though it is primarily a video-sharing website, around 47% of all music consumption in the world happens through the platform.
TikTok, was originally created for sharing short videos, not only has it become a music discovery tool for many, but it is also an influencer of global music hits.
Semi-streaming services have the most precious resource of all — the active users, who employ the platform as the source of music — which means that they can leverage that audience and try to convert it into paying subscribers.
OK, that is all for the part I, I will be back to you all with part 2 of the music streaming area next week.
This is a very interesting and complex area, one I think we continue to evolve and transform the way we consume music, but the bigger question — will the artist benefit from a bigger % well that is a question!
By Pete Moore