The music industry has changed dramatically during the last twenty years. When reading Walter Isaacson’s Steve Jobs this summer, I looked behind the scenes at the creation and expansion of iTunes, Apple’s online music store that began the music industry upheaval. It’s crazy to think that iTunes was released only seventeen years ago in 2001. Apple jumped on the success of iTunes, which integrated across various Apple devices through the cloud. This model was the most prominent source of music for several years, and iTunes and Apple Music still remain popular today. However, as Maddie touched on in her presentation, another beast — Spotify — emerged on the scene in 2008. Spotify introduced the music industry to streaming, an alternative to ownership in which songs are played without having to be downloaded to the listening device. Although Spotify was originally met with some backlash from artists and record labels, it has evolved into the number one streaming service, powered by strong support from consumers. However, innovation in the music industry is not over. Spotify is continuing to evolve, new streaming services are joining the race, and laggards are moving to gain market share.
Spotify — Consumers
Just over the past few days, Spotify has rolled out some new features to improve the user experience. Yesterday, the Swedish streaming giant initiated its partnership with Google Maps, which enables users to play music on Spotify without even having to open the app. Instead, songs can be picked and played right from the Google Maps app. This type of integration is not new to Spotify, though. In 2017, it partnered with another navigation app called Waze to similarly allow users to control their music from the Waze app. On September 21, Spotify announced another partnership, this time with Ancestry (Ancestry.com). In this collaboration, users can share their Ancestry DNA test with Spotify to create a personalized playlist (“the soundtrack of their heritage) based on their cultural background. Although this system sounds like a very futuristic way to find music, it has already received much backlash. Critics have claimed that it oversimplifies cultural heritage and is just another ploy by Spotify to gather data. However, Ancestry has responded that Spotify does not save the user’s DNA test data. Finally, the streaming giant unveiled a Global Cultures initiative last Friday. In this initiative, Spotify plans to curate playlists filled with diverse songs that cross cultural boundaries. The first four playlists are titled Arab, Indian (Desi), African, and Latino, and more are planned for the future. Also as part of this initiative, Spotify is introducing a playlist titled Global X, which features trending international and multicultural songs.
Spotify — Artists
Outside of its offerings for consumers, Spotify also has to cater to artists. To do this, it has a separate application called Spotify for Artists. In late September, the streaming service began testing a new feature on its Spotify for Artists platform which allows a selected group of artists to upload their music to the platform without an outside party. In other words, Spotify is working to empower independent artists in a publication system that was originally pioneered by Soundcloud and Bandcamp. With this feature, Spotify is cutting out the middlemen — record labels and publishing services — by allowing artists to publish content for free. Therefore, Spotify is pretty much becoming a record label itself. It will be interesting to see how Spotify negotiates contracts with these independent artists and if it tries to take a slice of the revenue pie like record labels. For artists, independence means freedom from labels, outside interests, and revenue stealers. However, it also means that artists do not have the tools that come with a label, such as marketing teams, tour managers, and its network. Maybe the future of Spotify for Artists will expand to offer these features, transforming the platform from a streaming service to a record label of the future.
Even though Spotify is dominating the streaming market in the United States, a new power is emerging. Tencent Music (TME) has filed for a U.S. IPO that could value the company at more than $25 billion. Tencent Music, part of Tencent Holdings, is China’s largest music-streaming company. The streaming service has around 800 million unique monthly active users. It also doubled its revenue in 2017 by reaching about $1.66 billion. Unlike Spotify, 70% of its revenue in 2016 came from social entertainment services, such as live streaming, online karaoke, and merchandise sales. In terms of profit, Tencent Music had a profit of $199 million in 2017, which grew enormously from $2 million in 2016. Interestingly enough, Spotify owns 9% of Tencent’s shares. Both companies offer streaming services, but they serve different customers and have different revenue streams. Tencent Music has roughly 644 million online-music mobile monthly active users, 23.3 million of whom pay, whereas Spotify has 180 million monthly active users, 83 million of whom pay. Using this data, it is easy to tell that these streaming giants have different business models. It will be intriguing to watch how these two models fair as Tencent begins to enter U.S. markets.
The final major recent development in the music industry is SiriusXM’s $3.5 billion all-stock deal with Pandora, a music streaming and recommendation firm. The deal expands the offerings of SiriusXM beyond its traditional in-car model to possible streaming future. It combines Sirius XM, a paid subscription service with no advertisements with Pandora, a freemium service that is struggling to attract subscribers. Most likely, Sirius XM will use Pandora’s expertise and resources to design its own free streaming service to serve as a funnel to its subscription service. Although Sirius XM is not at all a major player in the streaming service, it does have the competitive advantage of offering more than just music to its users, with channels and shows focused on sports, news, and cultural commentary. Market analysts are predicting that Sirius XM will make another deal in the near future with Live Nation, the ticketing and concert firm. With Live Nation added to its structure, Sirius XM will be able to differentiate itself in the music industry as a source of streaming, radio, and concerts. Sirius XM may even have a place in the future of the music industry with this integration. Without Live Nation, I predict that Sirius XM will be lost in the crowd.
Over the past two decades, the music industry has experienced its fair share of disruption. However, with Spotify, Tencent, and Sirius XM leading the way, even more is on the horizon.