This is part 1 of a two-part series. Read part 2 about future trends in the music streaming industry here.
Figure 1: A person streaming music on their cell phone. Source: Rawpixel.
Streaming platforms have revolutionized the music industry and the way consumers discover and listen to music. In 2018 alone, streaming contributed over $3.4 billion to the music industry with streaming profits accounted for over 75% of the overall revenue for the entire recorded music industry (Hernandez). Over 229 million people globally subscribe to a streaming service (Washenko) and it is estimated that by 2022 the number of global paid music streaming service subscribers will reach 350 million (Owsinski). Geographically speaking, in 2018 the USA saw the greatest penetration of streaming services (MIDiA). Of USA residents using a streaming platform, each listened to an average of 32 hours of music per week, and that number is only continuing to rise (Sehgal).
Clearly this is a model that is rapidly growing and becoming more competitive. Companies are having to differentiate themselves by offering unique content, focusing on the artist, or developing different price models. To better understand this landscape, we examined six of the most successful platforms for a competitive analysis to understand the existing music streaming business model.
Figure 2: Playlists generated on Spotify by mood. Source: Screenshot by Lydia Kilian.
Founded in 2006, this Swedish company has become the most popular streaming platform across the world. Spotify ranked first among music streaming platforms in 2017, with 71.1 million subscribers. This represents nearly 36% of the global market (MIDiA). Although this music streaming service has increased both its ad-supported and premium subscribers over the first quarter of 2019, investors are still skeptical of its longevity. As an MRM study states, “[Spotify’s] Q3 results suggest Spotify isn't growing quickly enough to stave off the rise of Apple Music” (MRM). Only time will tell if the company can maintain its position as the most popular music streaming platform. Spotify currently offers three subscription packages: Free Version, Spotify Premium for $9.99/month, and Spotify Family for $14.99/month.
Now the world's first $1 trillion company, Apple shows no signs of slowing down, especially in the music streaming space. Apple ranked second among music streaming platforms in 2017 with 34.3 million subscribers, or 17.3% of the global market (MIDiA). Shifting its business model from ‘one song purchasing’ to music streaming was the best thing Apple could have done to continue their growth. The company’s 2018 quarterly report showed their services—including iCloud, Apple Music, and the App Store—reached an all-time high of $10 billion in revenue. Apple’s 2019 pricing business model has 3 categories: Regular Subscription for $9.99/month, Apple Family for $14.99/month, and an Annual Plan for $99/12 months.
Tencent was founded in 2016 and focuses on music streaming in the Chinese market. In 2017, the company had 17.1 million Chinese subscribers, representing 56% of the music streaming market in China. (MIDiA). Tencent supports multiple music streaming platforms, including QQmusic, Kugou Music, Kuwo Music, Let’s Sing Karaoke, Intoo, and Moo Music.
The fee to use the platform is must lower than its competitors, at only 8 yuan (~$1.25 USD) per month (Levy). Due to the hit Karaoke App WeSing, Tencent has been able to turn a profit. According to Adam Levey:
“Users can sing karaoke and share videos or live streams with friends via Weixin (WeChat) for free. There are some paid features in WeSing that have been big revenue generators for Tencent Music. The primary source of revenue comes from virtual gifts users can send to live streamers and karaoke singers” (Levy).
With its connection to WeChat, the largest social media app in China, and the already established culture of karaoke in the market, Tencent holds a unique position in the music streaming world. For companies like Spotify to increase their revenue like Tencent, they need to find similar tactics, or market niches, in which they can expand their current business model.
SoundCloud is an ad-based music streaming service that offers a premium subscription for $6 a month and SoundCloud Pro for $12 a month (SoundCloud).
SoundCloud recently received a $170 million emergency bailout and underwent a leadership transition that has started to revitalize the business. The new chief executive, Kerry Trainor, set a new goal of increasing their revenue by $100 million (Nicolaou). SoundCloud was able to surpass this goal less than a year after the bailout. Trainor credited the explosive growth to a new strategy. Instead of trying to copy Spotify, SoundCloud focused on its original market of music creators, selling much-needed music creation tools to independent artists and podcasters for approximately $70 to $100 a year.
SoundCloud says it’s not taking any cut from the earnings artists obtain on other platforms, while it promises streamlined payments from everywhere. This model is unique in that it empowers creators with a unified platform to instantly upload and share new material, connect with fans in real-time, and receive payment for their work everywhere –both on SoundCloud and across other leading music services. (Ingham)
It has presented itself as a universal platform for artists, and in doing so, they may be in competition with traditional record labels. In an industry where artists are skeptical about label involvement, SoundCloud is attempting to offer new alternatives to traditional music distribution.
Audiomack follows a similar business model to SoundCloud, focusing more on the artists than the customers. Audiomack’s main objective is to connect fans to their favorite artists while the listener is discovering new music. Users can opt for a free version or pay $5.99 per month for ad-free listening. Audiomack does not believe in charging artists for uploads and offers artists unlimited uploads free of charge. For an artist, this may be favorable to SoundCloud, which offers a tiered service platform for artists and labels. Although it is lesser known than Soundcloud, Audiomack still maintains a steady user base.
Audiomack may not be as recognized as SoundCloud, but the company remains solid in their brand’s purpose: staying true to their main audience--the artist. Audiomack believes customers should be able to use both their platform and SoundCloud to release their music to consumers, further stating that “Audiomack is not a full-catalog streaming service with every song ever made. [They] want to be a compliment to other services you use - Spotify, Apple, Tidal, Google Play, HypeMachine, 8Tracks, etc - rather than the only music app [people] use” (Audiomack).
YouTube is the most used alternative to a premium streaming platform (Mashable). In Q2 2018, YouTube ranked first in music streaming with 31% of weekly active users. Spotify ranked second with 20%, while Amazon came in third with Prime Music and Music Unlimited collectively reaching 12% (MIDiA). In recent years, however, YouTube has been chastised by record labels and artists. According to record labels, YouTube pays a very small fraction for music use given their volume of views. In order to combat this, YouTube released YouTube Music, described as “simply a lackluster Spotify clone” (Turner, 2018). The focus of YouTube Music—the second Google owned streaming platform—is to transition Google Play Music users over to their platform. Ultimately, they hope YouTube Music can replace Google Play Music altogether and become the default music app on Android devices. To set itself apart, YouTube Music is striving to make better recommendations for listeners using a consumer’s YouTube viewing history and Google searches. YouTube provides a free ad-based model or ad-free listening with YouTube Music Premium for $9.99.
Figure 3: Trending songs on YouTube Music. Source: Screenshot by Lydia Kilian.
Conclusion
As an artist or institution that may use or have their work on a music streaming platform, it is important to understand the vast music streaming landscape and options to find the service that best fits one’s individual needs. For music streaming companies, it is essential to know what competitors are offering and new trends in this ever-changing model. In the second part of this research, we will present recommendations for a business seeking to stay competitive in this evolving industry.
About the Authors
This analysis was part of a capstone project by CMU Master of Entertainment Management Students: Valentine Banor, Abby Liu, Alyson Loutzenhiser, Emily Nees, and Katie Rousseau.
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