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Analyst: Streaming music may already be hitting a ceiling

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Subscription services like Rdio, Mog, Rhapsody and Spotify promise to restore stronger growth to the music industry. The model’s best hope, Spotify, has four million paying subscribers.

But what are the real prospects for the sector? Music industry analyst Mark Mulligan, presenting at Future Music Forum in Barcelona on Thursday, sounded a note of caution…

“There is a natural ceiling of adoption of the people who are willing to pay $9.99 a month for music they don’t own.

“If you look at growth from launch, Spotify is – at best – on par with where we should be. The likes of imeem were the future of the music industry once, too. The most Vodafone (UK) got to was about 600,000 customers – Spotify’s (UK) paying subscriber count is about 600,000 to 800,000.

“This market should be much more dynamic than where we are now. It’s a niche proposition. The majority of mass-market consumers are still not interested in that pricepoint.”

Mulligan said he was not discrediting the efforts of music streaming services that are currently facing off against each other. Indeed, “It took Rhapsody 11 years to get to one million users, it took Spotify nine quarters.” But Mulligan noted the difficulty they will have in taking the model mainstream beyond early unlimited-access fans:

“Spotify has to work really hard to get to where it wants to be.

“Spotify is having to acquire 1.9 million new customers a month in order to retain 400,000. It’s a huge, huge marketing problem. The average pay TV service would want to see churn rates in the low single-digit percent.

“They’re having to work so hard to keep where they are – like a duck: it may look serene under water, but underneath it’s legs are going like the clappers.

“What it shows us is that streaming clearly isn’t a for everyone.”

Subscription services would, doubtless, see this a little differently. A plethora of new devices and carriers would seem to offer them a significant opportunity to gain new customers through bundled distribution. That is significantly different today from the days when imeem was struggling and from when Vodafone was offering its music subscription service to Vodafone customers alone.

But, with many of the music services vying for the same bundling partner candidates, there may only be so much sea on which all their boats will rise.

Downloads have not given the industry “hockey-stick” digital growth, and streaming has a natural ceiling, said Mulligan, who advised conferences delegates to start offering a brand new packaged music experience including artwork, lyrics, band chats and other engagement in one format that people will pay for.

18 Responses to “Analyst: Streaming music may already be hitting a ceiling”

  1. Mike Timothy

    Carriers have been really clamping down on heavy bandwidth users so the streaming model is facing an uphill battle if they think they can reach most handhelds. I’m a music junkie and I love owning the music I listen to. Audiogalaxy offers home library streaming. All of my music resides on my external HDD and streams directly to my iphone. It’s a beautiful thing. Especially since there’s a bunch of music I own that streaming sites don’t offer not to mention I’m lucky enough to be on an unlimited plan (for now). However, everyone is different in their listening habits. To each his own…

  2. Funny, while people are trying to lower royalty rates Rumor has it Funn Networks will be paying $0.02 to $0.04 per stream and ten times more per music video than You Tube and Vevo pays.. Its gonna get interesting………………………….

  3. mitchell feldstein

    i subscribe to spotify……i find for someone like myself who is constantly studying new music and retracting old…..spotify presents a value…..i can listen to a new record hit or miss….there are certain artists whose new music i will always buy when it is released but they are only a handful…….

  4. It is an interesting conversation indeed, the sustainability of Internet Radio / streaming services. If I’m not mistaken, Apple has announced that they’ll be coming out with a Pandora-esque (or Spotify-esque) service within the next 6 months. I am trying to work with music sites and offer them ad/revenue opportunities on a value-exchange basis. Music sites should allow users to listen to any song as long as they watch a video ad and maybe interact with the ad (sweepstakes entry, join an email list). @RadioMogul I am going to reach out to you. The company is Volume11, – Thank you for the article PaidContent.

  5. Muddy Mudskipper

    The fact that Spotify continues to offer unlimited streaming for free on its desktop application seems to be a major factor in my mind. The only advantage that the subscription offers most folks is access on their phones (enhanced fidelity appeals to a fairly limited group), and I think many are willing to forgo that as long as they get the free access on their desktop/laptop. I’d be curious to see what happened it Spotify limited that access to 10 or 20 songs a month – would it spur more folks to subscribe. I suspect it would, and I believe that is the direction they will eventually go.

    • For the weaker, “me too” services, you are totally correct! Without a barrier to entry, Apple will crush it. There will have to be a total solution platform that does it all in order to stave off the Monsters of Music services on the Net; Apple, Spotify, Rdio, and the tens of dozens of others who throw up a Web site.

  6. Kris Kringle

    it may take some time, but music doesn’t need to necessarily be thought of in terms of ownership. people pay upwards of $100/month for cable TV service, yet nobody owns any of the shows at the end of the day.

    even subpar streaming services such as sirius cost $15K/month, but nobody expects to own that music either.

    i personally think the streaming services are so well done that they’re bound to catch on eventually (i’m partial to rdio myself). i used to work at a major label, so i was able to obtain the majority of my music for free. however, i started gladly paying the $10 month just because rdio was so much more convenient than itunes.

    the killer app for streaming is really mobile, so until one uses mobile for streaming the value proposition isn’t really there. but once somebody has a phone and realizes he can access an entire library without taking up a large percentage of the phone’s memory, it becomes pretty hard to pass up.

    • Marat Ryndin

      Very well said. Pretty much the same point I just made. I think most people just still either haven’t discovered these services or are a little slow to change their mindset. I’m a bit of an early adopter, so downloading / owning music is dead to me now.

  7. What about the dozens? hundreds? thousands? offering streaming content at no charge.
    I run a streaming radio station though I continue to see growth in that space.
    the biggest challenge will simply be standing out from the crowd.

  8. Altavoz Distro Co

    IMHO a streaming service as a stand alone offering faces not just a vertical asymptote on adoption, the telco are only going to offer so much bandwith before they require more fees and other players in the industry will be offering streaming as a way to get you to enter act with their artists for the kickout data that results. Clicks2Bricks Baby.

  9. Stefan Behrendt

    It would be interesting to see a breakdown of consumer music spendings per year, e.g. which percentage of consumers are spending – say up to 10$ (one cheap CD or 10 iTunes songs), then up to 20$ and so on.

    120$ for the subscription services of spotify et al translates into 120 or more songs bought on iTunes or amazon in a year. That is one every 3 days. Or it translates into 10-12 CDs (1 per month).

    Additionally, spotify does not provide family plans.

    Still, a huge benefit of the streaming services is the social component.

  10. @connectionfailure

    Well, memories are the essence of music experience, right? $120/year for this temporal experience is great. I’ve thought that these services are an amazing value proposition for hardcore music fans (like myself). But it totally makes sense that there is a ceiling for wider swaths of the population.

  11. The wealth of tunes looks appealing, but the concept of paying for the action of listening *only* while you can afford to pay *and* that service is running.
    What happens if Spotify et al. fold? You get to keep… nothin’. Too bad, so sad. All that money you paid, for months and years? It was just for the privilege of listening to it then. You haven’t got the CD. You haven’t got an mp3. You just have memories.

    • Marat Ryndin

      I don’t see this as a problem. You probably pay for cable TV and you don’t get to keep any of the shows either.

      The price of these music subscription services is very low for what you get out of them. I love having the equivalent of iTunes with every song available to play anytime, anywhere. I don’t need to keep any of it and clog up my hard drive. Statistically most people who download a lot of music don’t listen to it enough to justify it taking up a lot of space on their hard drives.