Joao Martins

Music streaming services are on the rise: a good thing?

May 27 2014, 05:00
While many of us just would be glad if we could get rid of mp3 all together and while we wait for Apple’s expected announcement of uncompressed music downloads on iTunes, the reality is, storing and “owning” our own music files is looking increasingly like something from the past.

It might be that the Kickstarter campaign to fund Neil Young’s high resolution PonoMusic player raised an astonishing $6,225,354 from 18,220 backers in just weeks, but the reality is that the music industry is increasingly turning towards a new business model: streaming services.

I cannot help feeling that somehow, music streaming services will eventually converge with radio and while remaining a mainstream consumption format, they are a long way to being the ideal music distribution model.

According to Spotify’s recent announcement, the Swedish company reached 10 million paying subscribers and more than 40 million active users across 56 markets worldwide. Since Spotify’s launch in 2008, users have created over 1.5 billion playlists, collectively creating or updating over 5 million playlists each day. Since 2008, Spotify alone has driven over $1 billion dollars to rights holders.

According to David Sidebottom, a Senior Market Analyst from Futuresource Consulting, the market momentum is clear. Everyone seems to be enjoying music subscription services – including many of those illegally sharing music in p2p networks (and that can only be good). Consumers are moving away from ownership towards an access model, for both music and video.

Still, according to Futuresource’ latest music business report, consumer spend on global music subscription services such as Spotify and Deezer was estimated to be just under $2 billion in 2013 and there is still significant potential for the market to grow. Music subscriptions accounted for just 10% of the total music market spend last year, equivalent to around 25% of the digital music market. This is expected to exceed $5 billion in 2017, equivalent to 30% of global music market spend. In comparison, online video subscription services such as Netflix represented almost $5 billion in consumer spending last year. In Sweden (homeland of Spotify), music streaming accounted already for around 70% of total market spend in 2013, up from around 20% in 2010.

Also according to Futuresource, the total “pay per download” e.g. track and album downloads from services such as iTunes, declined in the USA last year, is significantly down in Sweden and stabilizing in the UK. Interestingly this is also affecting the way consumers are buying audio equipment. Although most music buyers are still in the transition somewhere between buying CDs, buying digital tracks and albums – with the final step paying for a streaming subscription service such as Spotify, paid-for streaming subscriptions are increasingly driven by in-home wireless audio products, such as wireless speakers (e.g. Sonos) and integrated Hi-Fi with Airplay, Bluetooth and the like.

Futuresource says global shipments of wireless home audio products grew by over 100% in 2013 to reach 27 million units and its latest report (Living With Digital) indicates owners of such devices are 2.5 times more likely to pay for a digital music subscription compared to the overall population.

Ironically, according to the media and entertainment union SAG-AFTRA, in the US, around $2.3 million in music royalties from streaming services are unclaimed and SoundExchange, the independent organization that collects and distributes royalties for the streaming of sound recordings on digital radio, is urging members to claim the money.

When recordings are streamed on digital services like iHeartRadio or Pandora, as well as satellite radio, Internet radio and cable TV music channels, SoundExchange collects a royalty on behalf of both performers and copyright holders, as directed by U.S. Copyright Law. SAG-AFTRA and SoundExchange have combined efforts and say they’ve identified a possible $2.3 million in unclaimed royalties for the use of their members. Since 2001, SoundExchange has collected and paid out more than $2 billion in digital royalties.
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