Music, mobile and money

15 Jun 2015

Apple has announced an on-demand music service. Spotify leads the music streaming business, and its valuation is estimated to be $8.5 Billion. Google Music is also in this game, Microsoft has a music service and Nokia’s music service is now an independent business. When online music services make more money, artists are forced to find new business models and record labels try to restrict free downloads and the copying of music. Carriers are forced to play with the leading companies until they want to do something more unique.

Apple’s iTunes was an important turning point for Apple and the expansion of its business from computers to handheld devices. It was an important new revenue stream for it, and maybe had an important role in developing the mobile apps business too. The digital download business is not growing anymore - in the US it is about a $2.5 billion annual business, but the streaming business has grown almost 40% annually and will probably be over a $2 billion business in the US in 2015.

Streaming is already the most typical way to listen to music in the US according to MusicWatch. In the last year 27% of the music industry revenue came from streaming (source: Recording Industry Association of America) and its importance is only seen to increase. Digital downloads were 37% and CD’s and other physical items 32%. Spotify has almost 80 million subscribers, over 70% of which have a free subscription.

Dozens of carriers cooperate now with Spotify and it has become the favorite music service for telcos. TeliaSonera made also a strategic investment in Spotify. This and the fast growth have also forced mobile ecosystem companies, Apple, Google and Microsoft to take the streaming market more seriously.

At the same time, when the streaming business grows, it forces artists to change their expectations and business model. International and big market super stars can still make big money from many streams, but already second tier artists, e.g. more regional and local stars, can make local hits, but their compensations from Spotify can remain insignificant. There are a few international record labels and TV talent shows that can make global superstars, but the polarization of huge breakout stars and the rest has got more and more clear over the past years.

A part of the problem is that it seems to be difficult for record labels to make the transition to the digital era. They could be in a position to drive the download and streaming business, but they have mainly focused on slowing down the development and protecting old business models. Typically, the duration of copyright is the author's life plus at least 50 years, that also make all changes slow. Companies like Apple and Spotify now dominate the development. We can also say that carriers should have a more important role in the digital distribution business, but once again they have got the bit pipe role.

When big money now concentrates on big distributors and stars, we have quite a lot of long tail activities in music business. Maybe hundreds of million (or even billions) of people dream of publishing their own music. There are now services that help people to sell their music themselves. For example, TuneCord helps artists to get their songs to leading music services like iTunes and Spotify, but it is hard for unknown artists to make money in that way. Then we have SoundCloud that is used also by grassroot musicians to publish their music and get attention. And we have other more music-oriented services, like WeLoveYourSongs, for unsigned musicians; it now also work with crowdfunding for those musicians to find new business models.

We see that the music business now concentrates on a few digital download and streaming companies globally. For carriers and record labels it means that they must cooperate with these leading players. But it doesn’t mean that there are no opportunities for new players really break the value chains of the business. It is not easy, when the big ones dominate marketing, copyrights and sales channels. But the music business long tail is so huge that it offers opportunities. And, for example, carriers should look more at the players of the long tail and if they could find more unique and equal partners to cooperate and offer something new to their subscribers.

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