MIDiA Research – Where Does The Streaming Road Lead? A Case For A New Generation Of Streaming Business Models

MIDiA  Research  Mark  Mulligan  May  2015  

Where  Does  The  Streaming  Road  Lead?    

MIDiA Research is a unique music industry focussed syndicated research and analysis service. Our reports leverage proprietary consumer data, market forecasts and indices.

Mark Mulligan is a music industry analyst and consultant of 15 years standing, previously held senior positions at Jupiter and Forrester Research, now heads up MIDiA Research.

MIDiA Research clients pay a one-off annual fee to get online access to our research reports and data to better understand how to respond to tomorrow’s disruption.

Where  Does  The  Streaming  Road  Lead?  

1.  Change  Is  Difficult  2.  Not  All  Audiences  Are  The  Same  3.  Pricing  &  360°  Music  Products  4.  Conclusions  

Where  Does  The  Streaming  Road  Lead?  

1.   Change  Is  Difficult  2.  Not  All  Audiences  Are  The  Same  3.  Pricing  &  360°  Music  Products  4.  Conclusions  

20

10

(millions)

“I live in a strictly rural community, and people here speak of 'The Radio' in the large sense, with

an over-meaning. When they say 'The Radio'

they don’t mean a cabinet, an electrical

phenomenon, or a man in a studio; they refer to

a pervading and somewhat godlike presence

which has come into their lives and homes.”

E. B. White, 1933

“It is with a feeling of humbleness that I come to this

moment of announcing the birth of a new art so important

in its implications that it is bound to affect all society . . .

an art which shines like a torch in a troubled world . . . a

creative force we must learn to utilize for the benefit of all

mankind.”  David Sarnoff, 1939

“ “Spo@fy  is  the  last  desperate  fart  of  a  

dying  corpse.  Thom  Yorke  2013  

Cnut  

•  Artists and fans are closer than ever •  Paying for music has become a lifestyle

choice •  New label models are gaining traction •  Ownership is evolving •  Streaming models are growing •  Free dominates •  On demand dominates

A  LOT  HAS  AREADY  CHANGED  

US  adult  populaPon  –  280m  

YouTube  –  134m  

Stream  for  free  –  113m    

Buy  CDs  –  98m  

Buy  downloads  –  82m  

Subscribe  –  8m  

SubscripPons  May  Be  The  Future  But  They’re  Only  Just  Ge[ng  Going  

Source:  MIDiA  Research  Consumer  Survey  12/14  (US)  and  RIAA  

 1.6    

 2.8    

 1.5    

 5.3    

 6.4    

 5.7    

 -­‐        

 2.0    

 4.0    

 6.0    

 8.0    

2012   2013   2014  

Net  New  Music  Subscribers  

Net  New  Neclix  Subscribers  

The  MaturaPon  Effect:  Digital  SubscripPons  Have  An  Inherent  AdopPon  Ceiling  Net  New  AddiPonal  US  Subscribers  For  Neclix  And  For  Music  Subscribers  

Net  New

 Sub

scrib

ers  

Sources:  Neclix  annual  reports  and  RIAA  

(millions)  

Where  Does  The  Streaming  Road  Lead?  

1.  Change  Is  Difficult  2.   Not  All  Audiences  Are  The  Same  3.  Pricing  &  360°  Music  Products  4.  Conclusions  

$0  

$200  

$400  

$600  

$800  

$1,000  

$1,200  

$1,400  

$1,600  

$1,800  

$2,000  

0 50 100 150

Revenue  AND  Audience:  Another  Way  Of  Looking  At  Music  Services  

(millions)  

Revenu

e  

Paid  downloads  

Premium  subscripPons  

InteracPve  radio  

Music  video  

Free  subscripPons  

Audience  Source:  MIDiA  Research  9/14  

Behavioural  Music  SegmentaPon  DistribuPon  Of  Key  Music  Consumer  Segments  

Source:  MIDiA  Research  Consumer  Survey  7/14  (US,  UK,  Brazil)  n=3,000  

Aficionados  17%  

Collectors  6%  Passive  Majority  47%  

Forgooen  Fan  30%  

Money  Spent  On  Music  

Time  Spen

t  On  Music  

Line  signifies  averages  

184bn  

48%  

23%  

17%  

52%  

61%  

59%  

21%  

23%  

Of  all  consumers  

Of  total  music  spending  

Buy  downloads  (66%  buy  CDs)  

Go  to  gigs  and  concerts  regularly  

Stream  music  

Spend  less  on  downloads  than  they  used  to  

Used  to  buy  more  than  an  album  a  month  but  no  longer  do  so  

Have  a  music  subscripPon  

The  Music  Aficionado  Is  Every  ArPst  And  Label’s  Most  Valuable  Asset    Key  Aoributes  Of  Music  Aficionados  

$  133.4  

$  40.6  

$189.9  

$247.3  

$0  

$100  

$200  

$300  

$400  

Lost  Physical  Music  Spend   Lost  Music  Download  Spend  

Aficionado  Lost  Spend  

Remainder  Lost  Spend  

The  Changing  Spending  Paoerns  Of  Aficionados  Shaped  Music  Revenues  In  2014  Total  ‘Lost’  Music  Revenue  in  2014  That  Was  Music  Aficionado  ‘Lost’  Spend  

‘Lost’  Music  Reven

ue  

Data  refers  to  UK,  US,  France,  Italy,  Australia,  Sweden,  Norway  Source:  MIDiA  Research  Aficionado  Spend  Model  1/15  

86%  of  total  

59%  of  total  

(millions)  

Aficionados  were  responsible  for  of  all  ‘lost’  spending  in  2014  

72%  

584.0  

9.0   26.0  0  

100  

200  

300  

400  

500  

600  

700  

Free   <$5   >$5  

Mind  The  Pricing  Gap:  No  One  Has  Yet  Made  The  Pricing  Middle  Ground  Work  DistribuPon  Of  Music  Service  Price  Points  And  Users  (Global,  2014)  

Pricing  models    Company  reports  and  MIDiA  esPmates  

Users  

MonePzaPon  Is  Polarized  Between  High  Value  Premium  And  Low  Value  Scale  –  It  Doesn’t  Need  To  be  

Free  Users  Low  ARPU  High  scale  

Premium  Users  High  ARPU  Low  scale  

Mid  Tier  Users  Solid  ARPU  Solid  scale  

•  Cheaper  price  Pers    •  Genre  based  services  •  Paid  radio  •  Pay  As  You  Go  /  Micro  

Billing  

Behavioural  Music  SegmentaPon  DistribuPon  Of  Key  Music  Consumer  Segments  

Source:  MIDiA  Research  Consumer  Survey  7/14  (US,  UK,  Brazil)  n=3,000  

Aficionados  17%  

Collectors  6%  Passive  Majority  47%  

Forgooen  Fan  30%  

Money  Spent  On  Music  

Time  Spen

t  On  Music  

Line  signifies  averages  

A[tudinal  Music  SegmentaPon  DistribuPon  Of  Key  Music  Consumer  Segments  

Source:  MIDiA  Research  Consumer  Survey  7/14  (US,  UK,  Brazil)  n=3,000  

Passive    Buyers  2%

Aficionados  39%  

Passives  17%  Disinterested  11%  

Forgooen  Fan  30%  

Consider  music  worth  paying  for  

Consider  m

usic  im

portant  in  life  

Line  signifies  averages  

Where  Does  The  Streaming  Road  Lead?  

1.  Change  Is  Difficult  2.  Not  All  Audiences  Are  The  Same  3.   Pricing  &  360°  Music  Products  4.  Conclusions  

Premium  e.g.  SpoPfy  

Mid  e.g.  iTunes,  Pandora  One  

Free  e.g.  YouTube,  Soundcloud  

Revenu

e   Scale  

The  Music  MonePzaPon  Pyramid  

10%  

12%  

17%  

0%   10%   20%   30%   40%   50%  

Standard  price  (e.g.  $9.99)  

Low  price  (e.g.  $1  a  week  /  $5  a  month)  

PAYG/Top  Up  

Out  Of  A  Band  Bunch  Pay  As  You  Go  /  Micro  Billing  Represents  The  Largest  Opportunity  Average  Interest  Levels  In  Music  Service  Pricing  

%  of  Consumers  

Source:  Various  MIDiA  Surveys  

PAYG  is  the  payment  opPon  with  strongest  and  widest  appeal  

$0  

$50  

$100  

$150  

$200  

$250  

$300  

0   5   10   15   20   25   30   35   40   45   50  

HypothePcal  US  Monthly  Revenue  And  Customer  Base  Based  On  Consumer  Stated  Pricing  Interest  

$9.99  Delivers  The  Revenue  But  Not  The  Scale    Re

venu

e  

Customer  Base  

(millions)  

PAYG  /  Top  Up  (Assumes  $2.50  monthly  spend)  

$5  a  month  

$9.99  a  month  

Music  Aficionados  Want  More  Than  Just  The  Song  From  Their  Favourite  ArPsts  

%  of  consumer  segment  

7%  

26%  

18%  

45%  

0%   10%   20%   30%   40%   50%  

Would  pay  for  an  interacPve  album  app  with  music,  video,  photos  and  interviews  

For  me  music  is  more  than  just  the  song,  it  is  about  the  singer,  band  or  DJ  and  their  story  

Music  Aficionados  

All  consumers  

QuesPon  asks:  Which  of  the  following  statements  apply  to  you?  Note:  Music  Aficionados  are  consumers  that  spend  above  average  money  and  Pme  with  music  Source:  MIDiA  Research  Consumer  Survey  06/14  (UK,  US,  Brazil)  n  =  3,000  

PenetraPon  By  Age  Of  Super  Fans  And  Consumers  Interested  In  360°  Music  Products    

Next  GeneraPon  Music  Products  Need  To  Be  Dynamic,  InteracPve,  Social,  Curated  D.I.S.C.  –  The  Music  Format  Bill  Of  Rights  

Next  GeneraPon,  360°  Music  Products  Will  Add  Curated  Context  To  The  Music  360°  Music  Product  Concept  

SubscripPon  Services  Are  Ready-­‐Made  Placorms  For  Delivering  360°  Products  To  Super  Fans  

%  of  consumer  segment  

16%  

22%  

30%  

39%  

31%  

42%  

44%  

51%  

0%   20%   40%   60%   80%   100%  

Would  pledge  money  to  arPst  to  get  next  album  to  as  exclusive  app  2  weeks  ahead  of  main  release  

Would  buy  merchandize  and  concert  Pckets  directly  from  arPsts  within  streaming  services  

Subscribers   Aficionados   Streamers   All  consumers  

QuesPon  asks:  Some  singers  and  bands  are  concerned  that  streaming  music  services  like  YouTube,  SpoPfy  and  Deezer  pay  too  liole  money  back  to  them  compared  to  selling  CDs  or  downloads,  thus  making  it  hard  for  many  of  them  to  make  a  living.  Considering  this  please  indicate  how  much  you  agree  with  each  of  the  following  statement  Source:  MIDiA  Research  Consumer  Survey  10/14  (UK  only)  n  =  1,000  

Interest  In  AlternaPve  Forms  Of  Fan  MonePzaPon  By  Consumer  Segment    

•  $1 or $2 a month per artist, added onto main subscription

•  Super easy opt-in / opt-out •  Interactive experience with all artist’s music

plus others such as influences and influenced playlists

•  Live streams, concert footage, interviews, acoustic sessions, video, images etc.

•  Streaming artist subscriptions can monetize the revenue no man’s land between ad supported and subscriptions

ARTIST  SUBSCRIPTIONS  

Where  Does  The  Streaming  Road  Lead?  

1.  Change  Is  Difficult  2.  Not  All  Audiences  Are  The  Same  3.  Pricing  &  360°  Music  Products  4.   Conclusions  

If  there’s  a  gold  rush  you  want  to  be  selling  shovels!  

Samuel  Branan   Leland  Stanford   Levi  Strauss  

So  What  Is  The  Shovel  Today?  

The  Web  •  InformaPon  •  Services    •  Tools  

Tradi@onal  Music  Business  •  Contacts  •  MarkePng  •  DistribuPon  

Today’s  Music  Business  •  ConnecPons  •  CuraPon  •  Engagement  

Awakening    The  definiPve  account  of  the  music  industry’s  digital  journey    Available  from  Amazon,  iTunes  and  Google  Play  Store  now!  

Contact:  Mark  Mulligan  Phone:  +44  (0)  780  11  66  712  Email:  [email protected]  Web:  hop://midiaresearch.com  Blog:  hop://musicindustryblog.wordpress.com  TwiTer:  @mark_mulligan