Spotify2According to music tech insiders music streaming in general has seen strong growth in 2016 and as it seems this recent increase in subscribers has largely been isolated to two major leaders in the streaming wars, Apple Music and Spotify, thus leaving smaller players chasing the bus and in the dust.

Spotify has just delivered 2 landmark data points—- 40 million subscribers and $5 billion paid to rights holders to date. There is no escaping the fact that Spotify’s momentum has accelerated rather than declined since the emergence of Apple Music. In a nutshell, 2016 is proving to be the year of Spotify.

The streaming music market as a whole is experiencing unprecedented growth, with the major labels collectively reporting a 52% increase in streaming revenue in 2nd quarter of 2016 compared to the same period 12 months ago. Given that total streaming revenues (including YouTube etc. but not Pandora) grew by 44% in 2015 (according to the IFPI) the picture that is emerging is one of accelerating growth. An examination of these numbers cross referenced against reported Apple Music and Spotify numbers reveals that the outlook for the rest of the pack(other music streaming services) is very diverse.

Apple MusicAt the end of 2015 there were 67.5 million subscribers, by the end of June 2016 that had increased to 83.2 million – a 23% increase from the end of 2015 and a 63% increase on Q2 2015. Spotify’s subscriber count for Q2 2016 was 37 million (including free trials) while Apple Music was just under 16 million. This gives them a combined market share of 56%, which in itself is not particularly surprising. However, when we look at what has happened to the rest of the pack that things start to get really interesting…

Will The Rest Of The Pack Get Left In The Back??

By end Q2 2015 Spotify had 20 million subscribers and Apple Music had none. This meant that the remainder of the streaming services had 31 million between them. By Q2 2016 this ‘remainder’ had shrunk to 30.5 million. Among this chasing pack there is a diverse mix of stories, with some services showing solid growth, some losing lots of paid subscribers and some disappearing all together. Meanwhile Spotify and Apple Music added 32.7 million to the global subscriber base. Thus over the same 12-month period these two players combined, became bigger then the entire rest of the market in subscriber terms with a 63% combined market share.

tidal-sLet’s not forget the continually challenged Tidal. With reported revenues of $47 million in 2015 mean that it can’t have had more than around 800,000 commercially active subscribers by year end, which means that the reported and ‘implied’ 4.2 million current subscriber count is probably closer to half that.

Streaming revenue followed a similar trend with Apple and Spotify dominating and the rest falling slightly.  Spotify paid around $1.6 billion in royalties in 2015 and is projected to pay a cumulative $6 billion by the end of this month. The amount that Spotify paid to record labels in Q2 was somewhere between $479 million and $622 million with Apple paying around $220 million.

And as with subscriber numbers go, the rest of the pack lost revenue. Unfortunately for the rest of the pack, it does look like there is only space for 2 major global players, with Apple clearly having played a key role in knocking Deezer out of 2ndplace and racing on ahead. This does not mean that there is not space for other players, because there is but that space will be small for lesser known services such as QQ Music, KKBox, Anghami and MelOn, which is why pricing and product innovation are so crucial if the recorded music business wants a vibrant streaming sector.

Music Money

Compare and contrast with the streaming video market where there is immense innovation with niche services and a diverse range of price points. Music streaming needs the same approach. Tidal may have (very successfully) differentiated on brand and content but it remains fundamentally an also-ran service. As things stand, the only really serious attempt to play by different rules is Amazon’s steadily emerging streaming strategy. Expect that dark horse to make up ground by playing by different rules and perhaps changing the game a bit. Perhaps even Pandora may be able to break the mold as newer players like Twitter and even Facebook join the race.

Be mindful, that only through differentiated strategies that serious inroads can be made and unless pricing and product innovation occurs (and the labels and publishers need to help that to happen) we may well expect the streaming race to continue to be a tale of the two horses of Apple and Spotify vying to reach the finish line.

MIDia Research, IFPI and Mark Milligan contributed to this article


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