This is part 2 in a two-part series exploring the music streaming industry. Part 1 is a competitive analysis of the music streaming industry.
The music industry faces both challenges and opportunities due to streaming technologies and must consider the long-term viability of streaming business models. New challenges emerge as consumers are listening to their music on ever-changing devices, like smart speakers. There are also varying levels of awareness and comfort of streaming platforms among different age groups. These challenges can become opportunities for businesses who understand their market and can anticipate future change. This research study explores innovations and trends expected to emerge next within the music distribution world.
Part 1 of this study provided industry research and a competitive analysis of various streaming services. Firsthand knowledge of the industry was gathered by distributing a consumer questionnaire and conducting interviews with industry veterans such as Joe Escalante of Kung Fu Records, Benjy Grinberg of Rostrum Records, and Michele Smith of Concord Music. These interviewees shared insights into how streaming is affecting their current businesses and where they see this technology heading in the future.
Part 2 of this study focused on a survey consisting of thirty-one questions was distributed to family, friends, colleagues, and peers via social media, email, and word of mouth. The survey participants included consumers from a broad range of ages, incomes, ethnicities, and interests. The survey had two goals: to analyze how age, income, streaming service price, and genre choice affect users’ platform selections as well as their potential to cancel use, and to determine the differences between music streamers and non-music streamers.
Survey Results
The survey captured 465 responses in two weeks. Females made up 70% of the survey respondents, ages 18-39 being the largest sample group and ages 50-64 being the second. The average survey demographics may affect overall results and should be noted. The majority of respondents who had not streamed any music in the last six months were between the ages of 45 and 64. Additionally, the streaming service in which they had greatest awareness was YouTube. This indicates that music streaming services may be failing to reach this older age group, revealing an untapped market for other platforms. Targeting new demographics could potentially increase service subscriptions and overall revenue.
Price Threshold of Survey Respondents Who Pay For a Music Streaming Subscription (2019).
The price threshold in which respondents paying for streaming services would eventually cancel their subscription for one single music platform was also explored and its relation to age. The survey revealed that the price threshold of $20.00+ was highest among all ages, including those between the ages of 18-24. This indicates that users put a high value on music streaming, and therefore are willing to pay more. Ultimately, streaming services may have room to increase subscription prices, and essentially their overall revenue, without a high loss of consumers.
How Survey Respondents Who Stream Music (subscription & ad-supported) Find New Music. This figure illustrates that curated playlists rank high among ways to find new music for music streamers (2019).
Survey respondents who stream music, whether it be through paid subscriptions or a free ad-supported account, stated that listening to curated playlists was the third most popular method of finding new music, with the similar artists new release sections being most popular respectively. This supports the theory that playlists are becoming the new album and people are choosing to listen to similar genre playlists in order to find various singles rather than a full album.
Industry Interviews
Six industry interviews were conducted with music executives to learn their opinion of the impact of emerging streaming services. The interviews revealed a perspective that industry impacts ranged from release strategies, song length, data feedback, and the emergence of curated playlists. These observations from the field by music executives is supported by research in the field.
Today’s artists prioritize releasing singles instead of albums. They are competing for the same audience, and “appearing regularly on social media, viral charts, and curated playlists are the main objectives of music marketing” (Grinberg, 2018). Releasing music this way is a marketing strategy aimed at driving ticket and merchandise sales, the things that account for the majority of an artist’s revenue (Pollack, 2019). In collaboration with the artist, record companies can speed up or slow down an album release based on factors such as pre-album single streams.
According to a 2015 Microsoft study, a consumer’s “average attention span has dropped from twelve seconds to eight seconds since the year 2000, or about when the mobile revolution began” (McSpadden, 2015). This phenomenon, along with the skipping function on streaming platforms, has shortened the average length of a song. The profit calculation of streams has adjusted to accommodate this. To count as one stream, a song must be listened to for a minimum of thirty seconds (Spotify for Artists - FAQ, 2019). Therefore, writers shorten preludes to discourage listeners from skipping songs before this “free window” turns over. Benjy Grinberg from Rostrum Records addressed this new monetization outlook: “A lot of songs are around two minutes and thirty seconds, which in the past consumers would regard as a bad deal, because the more minutes in an album the more utility consumers feel” (Grinberg, 2018).
Curated playlists also affect the number of streams, which tie directly into the income of the labels, writers and artists. Before the age of streaming, record companies used to first market developing artists through smaller, local radio stations (Ring, 2019). Once buzz was prevalent, labels would then negotiate the number of air plays with major stations. Similarly, labels today focus on accumulating streams through smaller independent playlists with the objective of getting on major playlists with established audiences, such as Rap Caviar. The strategy between radio airplay and playlisting is similar: build up to the larger audiences (Ring, 2019). Large audience pools attached to major playlists results in outside corporate brands purchasing more audio or video advertisements, which helps to bring in large sums of advertising revenue to Spotify, such as the $147 million they saw in 2017 (Weissbrot, 2018). However, the effectiveness of playlisting and radio airplay is still being debated. Independent record companies, such as Rostrum Records, haven’t noticed any large peaks from Spotify’s New Music Friday playlist in reference to their developing artists (Grinberg, 2018). Paul Ring, the CEO of Universal Music Group’s Bungalo Records, on the other hand, indicated that on a recent project involving a developing artist, radio airplay was helpful but didn’t convert to sales. Looking back, Ring would have rather invested the money in curated playlists for a guaranteed audience. Playlisting provides credibility and a tangible number of streams that are meaningful to users, whereas the conversion of radio airplays is just not visible (Ring, 2019).
For independent label companies, the changes brought by streaming services also reflect on the development of marketing strategies and the calculation of financial budgets (Grinberg, 2018). Record companies are now competing with other entertainment outlets to catch an audience’s divided and limited attention. The recommended strategy is to create a story around the artists and have users add them to their specific playlists to earn them repeated streams. That said, music is not the only focus for artists anymore as it is not the only way for them to connect with their fans. Subscribers can also identify with the artists they listen to through music videos or their posts on social media platforms.
In all the industry interviews conducted, all interviewees acknowledged the advantage of streaming revenue improving finances and company revenues. In 2018, revenue from streaming comprised 75% of the U.S. music industry profits, making streaming the largest revenue source in the music business (RIAA, 2018). “The availability of music access provides continuous growth in the number of paid subscribers, enlarging the pie of streaming profits” (Grinberg, 2018).
Streaming also has its downsides. The calculation of song royalties differs by territory and subscription tier of freemium or premium, making the interpretation of streaming reports more difficult than before (Grinberg, 2018). This causes tension between streaming services and record labels, and between record labels and artists, who hope accounting in streaming can be simplified in the future. Additionally, the process of discovering new artists has been complicated by excessive data. A&R used to rely solely on the music taste of trained professionals. Today, A&R is mostly performed digitally. The number of streams and social media followers are the analyzed metrics used when signing developing artists.
Looking toward the future, streaming revenues are estimated to keep rising until a user plateau is reached. There will be discussions regarding raising subscription prices to expand the revenue pie, which will continue to be distributed to the labels, writers, and artists. Nonetheless, change in the music business is a constant. It is always possible for a new technology and way of consuming music to be introduced in the future, so labels will have to stay flexible or set up digital departments to closely monitor technological advancements and determine the best way to respond to any of these technological changes (Smith, 2018).
Research Findings and Predictions
Survey data and external research revealed that specific companies have established themselves as top brands within the music streaming industry, and that the industry is still changing with some possible forecasted change. There still seems to be room for new services to enter the market and current services to be acquired by others. To fully grasp this concept, music streaming can be compared to a similar market: video streaming. Music streaming has surpassed physical plus digital sales of albums and singles, just as video streaming has surpassed cable and physical plus digital sales of movies and television shows. As video streaming currently soars above music streaming, we are now seeing many competitors in this market threaten the position of industry leaders like Netflix. Studios and media companies are realizing the value in video streaming and are beginning to take steps to control their own content rather than license it out to third parties such as Netflix, Hulu, and Amazon. It is not unlikely that companies within the music streaming industry will begin to make similar moves. Labels and publishing companies may take control of the content they own and create an exclusive platform instead of mediating through services like Spotify, Apple, and Amazon in the future.
Surveys and interviews revealed there is an area in the market that has not been aggressively sought out. The survey shows that a majority of consumers 45 years or older are not taking part in streaming music and are instead reverting to traditional platforms, whether that be due to familiarity, financial sensitivity or lack of awareness.
There is an increased use of smart speakers amongst music streamers, whether they pay for a service or not. Though it is not as popular as the use of a smartphone, laptop, or listening in a vehicle, smart speaker music listening is beginning to surpass tablets, TVs, and desktop computers. The devices that are most popular to consumers are those that listeners can have with them when traveling or while outside of the home (e.g. work, gym, school). This shows that when consumers are at home, they are finding more use out of a smart speaker to listen to music than their traditional home devices. However, one thing to note is that many newer vehicles now contain voice-assisted speakers, meaning that the percent of streamers who listen to music in the car could also be included with the percent of streamers who listen to music using a smart speaker. That said, it is clear there is an ancillary market within the music streaming industry that has a very high potential for growth amongst consumers.
The Devices Survey Respondents Who Stream Music Use (subscription & ad-supported).
Another finding is that consumers who stream music mostly find new music through the “Similar Artists” section. This shows that streamers are continuously listening to the same kind of music, rather than being introduced to other styles of music or different kinds of artists. This may make it harder for specific artists and genres to be heard, which is an issue that labels will want to pay attention to when trying to market certain music and bringing awareness to specific artists, albums, or singles especially if there is a niche.
Conclusion
This study has demonstrated that consumers are leaning towards streaming as an audio listening service rather than through traditional radio, CDs, or vinyl. Streaming is cheaper and more convenient, as consumers pay a flat fee per month to access millions of songs rather than having to physically purchase copies in-person. With that, the value of being able to stream music is significant for today’s consumer, which is why music streaming will not be going away anytime soon. Despite its penetration, it is worth noting that streaming is still a fairly new advancement with a lot of potential and room for growth. This research study demonstrated streaming is still growing and will continue to evolve and change throughout the next five to ten years at a minimum.
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.
Resources on the Music Streaming Industry:
Grinberg, B. (2018, November 16). Phone interview.
McSpadden, K. (2015, May 14). Science: You Now Have a Shorter Attention Span Than a Goldfish. Retrieved from http://time.com/3858309/attention-spans-goldfish/.
Pollack, J. (2019, February 16). Personal interview.
Pollack Media Group (2018). About Us. Retrieved from http://www.pollackmedia.com/about-us/.
Ring, P. (2019, February 23). Personal interview.
Smith, M. (2018, November 30). Phone interview.
Spotify for Artists - FAQ. (n.d.). Stats. Retrieved from https://artists.spotify.com/faq/stats#how-are-%20streams-counted.
Weissbrot, A. (2018, March 01). Spotify's F-1 Shows Programmatic Makes Up 18% of Ad Revenue. Retrieved from https://adexchanger.com/digital-audio-radio/spotifys-f-1-shows-programmatic- makes-18-ad-revenue/.