CMU Trends Digital

Trends: Working through the streaming stats – which matter?

By | Published on Monday 11 July 2016


A BuzzAngle research report reviewing the first half of 2016 in the US music market got lots of attention when it was published last week, with one stat standing out: that audio streams are now out-performing video streams.

Given how many more audio services there are, how much music content is only available in audio, and the fact that music is first and foremost a listen-to medium, it probably should have been that way round all along. That music video streams are so high is all about YouTube of course.

Which is one of the reasons why the audio-versus-video stat was so newsworthy. While the music industry’s high profile lobbying efforts against YouTube may not have yet achieved anything tangible with regards forcing the Google platform to alter its business model, most people now know that the music community earns less when tracks are consumed on the video site, and that artists, songwriters, labels and publishers don’t like that fact.

Though the 114 billion US audio streams reported by BuzzAngle last week include the music consumed via free-to-access audio streaming platforms, and few in the music industry are happy with the royalties those services pay either. Even if – unlike YouTube – the opt-in streaming set-ups do usually pay per-stream minimum guarantees to the labels when ad income is lacking.

Indeed, at least some record company execs are so down on YouTube because – while the Google platform continues to offer free-to-access on-demand streaming – the likes of Spotify will continue to insist that they must offer a similarly flexible freemium level. Even though, for a Spotify, freemium is just a loss-leading marketing platform via which to upsell premium.

Some label chiefs long ago lost their enthusiasm for Spotify’s freemium-sells-premium strategy. Though the fact the company continues to achieve ever more impressive premium sign-ups, despite high profile competition from Apple Music and Tidal, means there is still an argument that it’s a marketing strategy that works (albeit, possibly only when combined with some heavy discounting to entice freemium users to upgrade).

But, crucially, few in the record industry are currently convinced that ad-funded freebie streaming services are going to play a significant role in helping the sector return to long-term growth in the next few years, however much the likes of YouTube and Guvera insist there is a big pile of untapped brand money to be accessed.

For many labels, therefore, free platforms are something to reluctantly accept, as a channel to promote premium services and/or individual artists and releases, and – if nothing else – to keep consumers away from piracy.

All of which means that the distinction between video and audio streams isn’t really that important – the question is, what’s the split between free and paid-for streams.

The boom in audio streams is also partly down to the subscribers of Spotify, Apple Music, Tidal et al streaming more music overall. Most artists would like more people to be listening to more of their music more of the time, though from a commercial perspective, arguably those who pay to subscribe to a streaming service but then actually stream a modest number of tracks are the better customers in the long term.

In the short term, because the streaming services are paying those aforementioned minimum guarantees, usually on a per-stream basis, the industry does benefit from individual subscribers consuming more music, especially if they are premium subscribers where the per-stream minimum is higher.

However, for the streaming platforms, the higher the consumption the less profitable a subscriber becomes, and profitability is a big issue right now. The biggest risk factor for the recorded music market is that the services that are fuelling the industry’s return to growth are entirely loss-making. Which is obviously unsustainable. It’s therefore in everyone’s interest for Spotify et al to become profitable concerns sooner rather than later, and higher consumption per-user while per-stream minima apply makes short-term profitability harder to achieve.

Which means that the stats that really matter for the music industry today aren’t about consumption, but about paying subscribers. Consumption data determines how to slice the digital pie between different stakeholders within the music industry, but subscriber data tells us how big that pie has become.

Much has been made in recent weeks about the race between Spotify and Apple Music (and, to a slightly lesser extent, Tidal) to sign up premium subscribers. Recent bickering between the two really big players over Apple’s app store rules has made that battle all the more interesting to watch.

Though for the music industry, which services have signed up the most users in the last month isn’t really the concern. What matters is how many users have been signed up overall across all the platforms.

Because the key questions are these: How many paying users do these services need to become profitable? How many paying users does the wider music industry need to achieve growth as CD and download sales continue to slide? And are there that many potential paying users out there to be converted to premium?

Some say that the answer to the last question is “hell, no”. Others reckon that it’s the existence of services like YouTube that make that so. Others still reckon that some maths needs to be done: ie that by dropping the standard price for premium streaming to five pounds a month (or the economic equivalent) subscriptions would be attractive to the mainstream audience required for all this to add up. Others worry that even shutting down YouTube and dropping the prices won’t be enough to make this work long-term.

Though there are some optimists who point out that if current subscriber acquisition rates can be sustained for just a few more years – and with subscription streaming still an innovation to large chunks of the market, that might be possible – then that currently unknown number of paying users where things start to work long-term could in fact be achieved. And if that does occur, the music industry will then probably learn to live with the low-paying free streams and YouTube plays, just like it learned to live with file-sharing and home-taping.

Though, for those who prefer a bit of pessimism, that more rosy future is far from assured. But it is more likely to be achieved once the majority of artists and labels accept subscription streaming is now the undeniable future of the business, and they focus their efforts into persuading as many music fans as possible to sign up to a paid-for platform – any paid-for platform – while keeping their eye on the two key stats: number of premium subscribers overall, and value to the industry of the average premium subscription.