Global music subscriber market shares Q1 2021

The music industry’s growing obsession with declining ARPU will continue to colour the outlook for the global streaming market in revenue terms, but the positive driver of this equation is the rapid growth of music subscribers. There were 100 million new music subscribers in 2020, taking the total to 467 million. (In 2019 there were just 83 million net new subscribers). A further 19.5 million new subscribers in Q1 2021 pushed the number up to 487 million. While the failure of subscription revenues to keep up with the pace resulted in ARPU falling by 9% in 2020, this lens detracts from the huge momentum in paid user adoption. Subscription revenue might not be increasing as fast as some would like, but the global music subscriber base is not just growing – it is growing faster than ever.

Spotify continues its global dominance, adding 27 million net subscribers between Q1 2020 and Q1 2021, more than any other single service. However, it lost two points of market share over the period because its percentage growth rate trailed that of its leading competitors. Google was the fastest-growing music streaming service in 2020, growing by 60%, with Tencent second on 40%. Amazon continued its steady trajectory, up 27%, while Apple grew by just 12%.

Google’s YouTube Music has been the standout story of the music subscriber market for the last couple of years, resonating both in many emerging markets and with younger audiences across the globe. The early signs are that YouTube Music is becoming to Gen Z what Spotify was to Millennials half a decade ago.

Emerging markets are now central to the music subscriber market, with Latin America, Asia Pacific and Rest of World accounting for 60% of all 2020 subscriber growth. This is of course, also a key reason why global ARPU declined. Nonetheless, a number of emerging markets services now boast large subscriber bases. Beyond Tencent’s 61 million, China’s NetEase hit 18 million subscribers in Q1 2020 and Russia’s Yandex hit 8 million. (For more on streaming in emerging markets check out MIDiA’s latest free report: Local Sounds, Global Cultures.)

MIDiA will be publishing its country-level music subscriber numbers as part of the global music forecast report and dataset which will be available to clients Monday 12th July. If you are not yet a MIDiA client and would like to know how to get access to the data, email [email protected]

Hi-Res audio: It’s all about a maturing market

Apple and Amazon made a splash this week by integrating Hi-Res Dolby Atmos audio into the basic tiers of their streaming services. The timing, i.e. just after Spotify started increasing prices, is – how shall we put it, interesting. It also struck a blow against the music industry’s long-held hope that Hi-Res was going to be the key to increasing subscriber ARPU. While that might be true, for now at least, the move is an inevitable consequence of two streaming market dynamics: commodification and saturation.

Music streaming contrasts sharply with video streaming. While the video marketplace is characterised by unique catalogues, a variety of pricing and diverse value propositions (including a host of niche services) music streaming services are all at their core fundamentally the same product. When the market was in its hyper-growth phase and there were enough new users to go around, it did not matter too much that the streaming services only had branding, curation and interface to differentiate themselves from each other. Now that we are approaching a slowdown in the high-revenue developed markets, more is needed. Which is where Hi-Res comes in.

Now that streaming is, as Will Page puts it, in the ‘fracking stage’ in developed markets, success becomes defined by how well you retain subscribers rather than how well you acquire them. As all the key DSPs operate on the same basic model, they need to innovate around the core proposition in order to improve stickiness and reduce churn. Spotify started the ball rolling with its podcasts pivot, but the fact that its podcasts can be consumed by free users means it is not (yet) a tool for reducing subscriber churn.

On top of this, when podcasts are mapped with other positioning pillars, Spotify’s competitive differentiation spread is relatively narrow. Because Apple and Amazon now both have Hi-Res as standard, they not only boost audio quality but value for money (VFM) as well. Bearing in mind, both companies already scored well on VFM because they have Prime Music and Apple One in their respective armouries. 

It is Amazon, though, that looks best positioned of the four leading Western streaming services. In addition to audio quality and VFM, it is building out its podcasts play (as compared to the Wondery acquisition) and it has the potential to bundle in the world’s leading audiobook company, Audible. Given that spoken-word audio consumption grew at nearly twice the rate music did during 2020, being able to play in all lanes of audio will be crucial to competing in what will become saturated streaming markets. 

Immersive audio storytelling 

Finally, Dolby Atmos is more than simply Hi-Res audio; it is an immersive format that enables the creation of spatial audio experiences. If we are truly on the verge of a spoken-word audio revolution, then immersive audio may have a central role to play. Surround sound has been a slow burner for home video, but that may be because the video experience itself has improved so much (bigger screens, HD, more shows than ever) that the audio component has been less important (though the growing soundbar market suggests that may be beginning to change). However, in audio formats there is only the audio to do the storytelling. This could mean that tools like immersive audio become central to audio storytelling, which means, you guessed it, Amazon and Apple would then have a competitive advantage in podcasts and audiobooks that Spotify would not.

Spotify pushes prices up, but do not expect dramatic effects

Spotify finally announced a significant price increase, raising prices in the UK and some of Europe, with the US set to follow suit. The increases affect Family, Duo and Student plans. The fact that streaming pricing has remained locked at $9.99 since the early 2000s is an open wound for streaming, so this news is important – but less so for actual impact than statement of intent.

Back in 2019 MIDiA showed that since its launch, Spotify’s $9.99 price point had lost 26% in real terms due to inflation while over the same period Netflix (which increased prices) saw a 63% increase. Price increases are a must, not an option. Not increasing prices while inflation raises other goods and services means that streaming pricing is deflating in real terms. In this context, Spotify’s move is encouraging, but it is not yet enough. The increases of course do not affect the main $9.99 price point, currently apply to a selection of markets and do not address the causes of ARPU deflation (promotional trials, uptake of multi-user plans, emerging markets). But let’s put all that aside for the moment and look at just what impact these changes will have:

  • Pricing: The increase is 13% for a Family plan and 20% for Student, both meaningful but below the 26% real terms deflation that was hit back in 2019. Averaged across all price points, the price increase represents a 10% uplift (in the markets where this is being done). By comparison, Netflix’s last major price hike averaged out at 11% across all price points, so it is line with that, though obviously Netflix had numerous other previous increases.
  • ARPU: ARPU (i.e. how much people are actually spending) matters more than nominal retail price points, which are subject to promotions and discounts. Spotify ARPU fell from €4.72 in 2019 to €4.31 in 2020. Let us conservatively estimate that would fall to €4.00 in 2021 without any price increases. Let us also assume that the announced price increases roll out to every single Spotify market (which of course they won’t) and let’s assume it all happened on January 1st 2021 (which of course it didn’t). On that basis, and factoring in what share of Spotify subscribers are on family and student plans, total revenue and premium ARPU would increase by 6.2%. ARPU would hit €4.25 (still below 2020) and premium revenue would hit €9.5 billion.
  • Income: Spotify would earn an extra €166 million gross margin, music rights holders would earn an extra €388 million, record labels €310 million and the majors €212 million, representing 2% of their total income. UMG would earn €95 million. Meanwhile, a recouped major label artist could expect to see a million streams generate €1,487 rather than €1,400 (assuming all the streams were premium).

All of these assumptions are based on this rollout being global and FY 2021, neither of which are the case. So the actual effect will be markedly less. The key takeaway is that this is an important first step on what needs to be a continual journey, and one followed by the other streaming services. Spotify was previous locked in a prisoner’s dilemma where no one was willing to make the first move. Spotify had the courage to jump first. What needs to happen next are (though not necessarily in this order):

  • Pricing increase to all remaining tiers, especially $9.99
  • Other streaming services follow suit
  • Tightening up of discounts and promotional trials in well-established markets

Good first step by Spotify; now let the journey begin.

Spotify Q3 2020: What price growth?

Spotify reported another strong quarter in Q3 2020, with subscriber growth up 27% year-on-year (YoY) and ad-supported user growth up 21%. Spotify continues to set the pace for the global streaming market and has demonstrated that streaming has proven resilient to lockdown. (Spotify finished the quarter with 144 million subscribers, just above MIDiA’s 143 million forecast – we maintain our end of year forecast for 154 million.) Further evidence of Spotify’s lockdown resilience is that global consumption hours surpassed pre-COVID levels and that churn levels fell. However, Spotify’s premium revenue growth continues to trail subscriber increases, which raises the question: what price is growth coming at for rightsholders and creators?

Spotify’s Q3 2020 premium revenue was €1,790 million, up 15% YoY – notably lower than the 27% subscriber growth. This is a long-term trend for Spotify, resulting in a steady erosion of premium average revenue per user (ARPU). Q3 2020 ARPU fell to €4.19, down from €4.67 in Q3 2019 and €5.76 back in Q3 2016.

There are multiple factors underpinning this shift:

Growth of emerging markets where ARPU is lower

Growth of family and duo plans

Use of promotional offers

Growth of low-priced tiers (telco bundles, student plans)

Spotify emphasised that ‘product mix’ was the core driver of lower ARPU in Q3 2020 and pointed to price increases for family plans across four Latin American markets, Australia, Belgium and Switzerland. Rightsholders and creators will be hoping that this is the start of a wider strategy. 

‘Measure us on growth’

Spotify continues to tell the markets to measure it on growth and market share rather than margin or ARPU. That serves Spotify better than rightsholders and creators. However, this may be about to change. Spotify’s big growth bet is podcasts, which it is monetising via advertising. Although Spotify had a decent quarter for ad revenue (after many weak ones) it is still just 9% of total revenue. Podcasts have the potential to be bigger than music for Spotify but it is going to take a long time to realise the potential, especially as the coming recession will likely dent the global ad market. 

A new growth story

Why this matters for music stakeholders is that Spotify may find it hard to convince investors to start backing yet another ‘measure us on growth’ story when it already has one. As streaming starts to mature in Western markets, Spotify may now be on a path to shift its music subscriptions narrative to one of turning around the ARPU decline, focusing on increasing “lifetime value”, reducing churn and improving margins. It can then make podcasts the ‘growth story’ and music the ‘margin and ARPU story’.

Music rights holders may be concerned that podcasts threaten their share of Spotify revenue, but they may also end up thanking Spotify’s podcasts strategy for indirectly resulting in a stronger focus of improving music monetisation. This in turn will mean higher per-stream rates – something that artists and songwriters in particular will appreciate.

HomePod Mini: Apple’s pandemic-era product

Apple’s Tuesday product announcement showcased its 5G iPhones, but also included the launch of the new $99 HomePod Mini. Though it might have looked like a supporting act for the launch, its strategic importance should not be underestimated – especially in the context of how Apple competes with Amazon, the company that is arguably becoming Apple’s most important competitor among the Western Tech Majors (Apple, Alphabet, Amazon, Facebook). Amazon is emerging as a global scale hardware competitor, focused on the home rather than on personal devices.

HomePod Mini is a product for the era of pandemic

The home is becoming the new battleground for the tech majors and Amazon has a comfortable lead with more than 50% of the installed base of smart speakers, significantly ahead of Google and far ahead of Apple which currently sits at less than 10% market share. HomePod Mini is an affordable device that gives Apple the opportunity to quickly expand its role across the homes of iPhone owners, a beachhead for future content and services. HomePod Mini is also very much a pandemic-era product move; with more of us spending more time working and studying from home, we are more inclined to use specialised home devices such as smart speakers, rather than the convenient but not specialised phone. As the HomePod was always a premium, Apple afficionado device, HomePod Mini gives Apple a tool with which it can extend its footprint in the average day of its increasingly home-bound iPhone owners.

An enabler for audio strategy

Though Apple has much bigger ambitions for the home than music alone, music is the use case that is spearheading the product strategy. Apple TV continues to grow in importance for Apple, but as a screen plug-in, it lacks the capabilities of a standalone smart speaker. As Amazon has shown, smart speakers can become the digital hub around which smart home strategies can be built. HomePod Mini may also be the tool for a bolder, joined-up audio strategy for Apple. Alongside Apple Music, Apple continues to back its radio bet Apple Music 1 (previously Beats 1) and of course it is one of the leading destinations for podcasts. Apple can pull these three disparate strands together by creating in-home use cases via HomePod Mini. In this respect, Apple will need to, once again, do all of that and more – as not only has Amazon recently added podcasts to Amazon Music, but it also the home of Audible, an asset both Apple and Spotify lack.

Finally, what Apple did not announce on Tuesday was content bundles for its hardware. An Apple One / iPhone device lifetime bundle feels like an obvious move – competition authorities permitting, perhaps sometime over the coming 12 months. A $3.99 Apple Music Home Pod tier would make sense also.

The device may be mini, but the strategy is anything but.