Australia's Music Streaming Market Is Jam-Packed – But Likely Not for Long

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Sydney Opera House in Australia.

There's a rumble going on Down Under. Over the last few years, Australia has become one of the world's most competitive markets for music streaming services. A few companies could strike it rich, but the sparsely populated country could be trouble for many more.

Australia is the only country other than the United States with streaming services by three digital music leaders, Spotify, Pandora and iTunes Radio. Subscription services Deezer, Rdio, Xbox Music, Sony Music Unlimited and Google Play Music All Access are there as well. So is Internet radio service iHeartRadio, the Internet radio service created by iHeartMedia (previously Clear Channel) in the United States and launched last year by the Australian Radio Network. These foreign-born streaming services compete with homegrown services by Guvera, Songl and leading entertainment and tech retail group JB Hi Fi’s “Now” service."

That's a lot of competition for a small country. The country's population of about 23 million is smaller than Canada's and about one-third that of both France and the United Kingdom. But Australians are valuable music consumers, comprising the world's sixth-largest music market and fifth largest in digital sales, according to the IFPI.

Music streaming services -- there are currently 27, according to the Digital Content Guide, a website created by Australian rights holders -- are off to a good start in Australia, according to some executives and experts. But there are some concerns about the limitations of the market and the way services are marketing themselves -- or not marketing themselves -- to consumers.

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As is the case elsewhere, streaming is helping an Australian music market making the transition from digital downloads to streaming, says George Ash, president, Universal Music Asia Pacific. "It feels like it will be exponential growth in subscriptions and streaming. It feels like that’s where consumers are going and where music is resonating," says Ash, whose company made Australia the second market for Sinfini, its online classical music destination that features streaming playlists.

Spotify is arguably the strongest streaming service in Australia. The company claims 1 in 6 Australians, or 3.8 million people, have tried Spotify since its launch in May of 2012. The company did not disclose the number of Australians that actively use the service in a given month.

Pandora, which debuted in the country in December of 2012, reached 2 million registered users -- in both Australia and New Zealand -- in July. Pandora does not break out listener numbers for Australia. Nearly all of Pandora's 76 million monthly listeners and 250 million registered users come from the United States. In any case, Pandora likely has a lead over iHeartRadio. It claimed to have amassed over 350,000 listeners since launching in July of 2013.

In Australia, Pandora is following the template established in the United States, says Jane Huxley, managing director, Australia and New Zealand. That means partnerships for distribution, brand awareness, and community marketing to create local brand advocates. The service is available in the in-car entertainment systems of Mazda and General Motors subsidiary Holden, as well as after-market stereos. It's also made advances into the living room through partnerships with Samsung and Sony for televisions and Google Chromecast, a device that allows people to stream video content to their televisions.

There's another similarity. Pandora doesn't believe it's in competition with subscription services like Spotify. Just as in the United States, Pandora believes its main rivals in Australia are in the radio business. "We're here to steal share from terrestrial radio," says Huxley.

Jackie Krajl, founder of the digital agency DigiRascal and former iTunes Australia launch executive, sees it differently. "I think Pandora are too busy trying to be a 'Spotify killer' rather than focusing on their competitive advantage in this market, which really is Internet radio."

Krajl isn't concerned about just Pandora's messaging. She says streaming services are confusing people with "vastly different introductory offers" hoping to attract customers, and are doing a poor job communicating the benefits of access over ownership and the concept of paying to stream content. If Australian consumers understood the music subscription model as well as American consumers understand Netflix, streaming would have a different outlook in the country, she says. "None of the current streaming services are really educating the general populace."

Education is key for streaming services. In the United States, for example, the current slate of streaming services have undoubtedly benefitted from the early work of Rhapsody, Napster and Pandora to introduce the concept of paid streaming (although most Pandora listeners do not pay, it does have about 3.3 million subscribers). An educated populace takes years of public relations, marketing and word of mouth. 

The country's relatively small size could also cause problems. "Too many services, not enough people," says Krajl, who believes a lack of profitable services could lead to some services abandoning the country within 5 years. A service needs scale, Thomas Heymann, former head of Deezer Australia & New Zealand, says no local services "have that or can achieve that without a global partner, as the Australian market is simply too small."

In fact, the market is already starting to thin. The major label-backed, homegrown Songl will close its on-demand music subscription service after Sept. 25. In addition, Deezer has already closed its Australian office, leaving its Australasian activities to be driven from its affiliate in Singapore and its HQ in Paris.

To be sure, streaming revenues amount to a trickle in Australia. Like the United States, but unlike Sweden, a market with perhaps the world's highest penetration of music subscription services, Australia is characterized by strong download demand and weakening CD demand. Physical sales accounted for 37 percent of recorded music revenue in 2013, according to the IFPI. Digital revenue was 57 percent of revenue, and over 8 in 10 dollars came from downloads. Ad-supported digital services accounted for just 10 percent of digital revenues.

But as the streaming pecking order becomes more established and consumers warm to the concept of renting music, revenues will follow. "It took a good 3 to 4 years for iTunes to cut through locally and start making a meaningful impact to labels’ bottom lines," says Krajl. "We need to take a little bit of a 'wait and see' approach for the next 12 to 18 months, and see what trajectory streaming services locally can report."