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Streaming: The Savior of the Music Industry?

Chuk Okpalugo | August 03, 2017


The last two years have proven to be a huge turning point for the music industry as internet streaming has meaningfully reversed the 15-year decline in industry revenues brought about by the internet piracy age at the turn of the century. In this post, an excerpt of our industry overview report, we’ll briefly discuss the industry growth trends. For a detailed analysis of the industry’s history and the business performance of the key players, please download the report here: EquityZen Industry Overview: Music Streaming.

Source: Global Music Report 2017, IFPI

 

The Music Streaming Wave

Since the early 2000’s digital music has been a growing category of music consumption. The high levels of piracy and rapidly declining physical CD purchases resulted in billions of lost industry revenues. As broadband speeds increased and huge music libraries became easily accessible internet streaming became the dominant way to listen to, and a pay for, digital music. There are many platforms in the market today, forming three broad categories:
  • On-Demand, e.g. Spotify, Rdio, Deezer, and Rhapsody
  • Internet Radio, e.g. Pandora, Slacker, and 8Tracks
  • User uploaded content, e.g. Youtube, Soundcloud, and Grooveshark

The effect of the internet streaming wave has been dramatic. After almost two decades of decline, digital music sales (driven by streaming) has reversed the decline of global music industry revenues and led to two years of positive growth. Total industry revenues grew 5.9% to USD 15.7 Bn in 2016 of which digital revenues accounted for more than half. Streaming was responsible for 60% of this growth, offsetting declines of digital downloads and physical purchases and now accounting for 60% of global digital revenues.

Key Players

Spotify (on-demand) and Pandora (internet) are the leading internet streaming companies today in terms of users. Apple Music, although a newcomer, is quickly scaling to join them in the top ranks and may pose a threat to their future growth. Whilst Pandora’s active user numbers are in decline, Spotify has continued to grow, adding about 12 million new paid subscribers from January to July 2017, about 4 million greater than Apple Music over a similar period. Considering that, as an internet radio service, Pandora generates far less revenue per user, Spotify looks set to maintain its position as the clear market leader.

Source: Company Information

Looking Forward: Is Streaming the Future?

As global internet penetration, connectivity, and data analysis continues to improve, one can be somewhat confident that streaming is here to stay for at least the next 5 – 10 years, as long as the business model is sustainable, that is, as long as the music labels and independent producers see enough of the streaming revenues to encourage continued investment and development of high quality musical content.

For a more detailed analysis don’t forget to check out our report here, EquityZen Industry Overview: Music Streaming.


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