Such findings give new color to labels’ recent concerns about declining revenue per user on streaming platforms -- which can be attributed to the rising popularity of family plans and telco deals, particularly in under-banked emerging markets across Asia, Latin America and Africa. What’s more, the free-to-paid streaming user conversion ratio in the U.S. is still north of 3:1, suggesting that a significant conversion opportunity exists on American soil as well.
The “major” streaming services included in MusicWatch’s study are Spotify, Apple Music, Amazon Music Unlimited, Google/YouTube Music, Pandora Plus/Premium and iHeartRadio All Access/Plus. While Napster, Tidal and Deezer are also active in the U.S., MusicWatch managing partner Russ Crupnick tells Billboard that these services “are very small” and “would only add a bit” to the 51 million figure, which tracked users aged 13 and up.
Additionally, Amazon Prime Music was excluded in calculations around self-paying subscribers, as it is automatically bundled with all Amazon Prime memberships whether or not said members want the added benefit. That said, some reports place Amazon’s total music subscribers across both Unlimited and Prime at over 20 million -- the same level as Spotify and Apple Music. Actual engagement with those offerings is another question entirely, however.
Aside from high-level streaming stats, MusicWatch’s research also features detailed demographic info for self-paying versus sharing and free-trial users, as well as top motivations for users to pay (or to avoid doing so) -- giving helpful context to some of the industry's hottest deals over the last several months. Here are the top takeaways from the study.
Spotify and Apple Music combined dominate at least 80 percent of the domestic music streaming market, while other big-tech platforms are falling surprisingly far behind.
While MusicWatch did not disclose service-specific stats to Billboard, both Spotify and Apple Music reportedly have north of 20 million paying subscribers each in the U.S., while Pandora, which is only available in the States, has over 6 million subscribers, according to its Q2 2018 earnings report.
That leaves at most around 5 million paying subscribers -- or less than 10 percent of the total subscriber base in the country -- for Google/YouTube, Amazon Music Unlimited and iHeartRadio combined. Crupnick confirms to Billboard that this conclusion is consistent with MusicWatch’s own findings.
Indeed, even the most ambitious international brands face tough competition from Spotify and Apple Music, which are themselves neck-and-neck in the streaming wars. Amazon Music is banking on sales of its suite of Echo devices to drive music subscriptions, and has been ramping up its ad campaign with the help of artists like Ariana Grande, SZA and Kane Brown. YouTube revamped its premium music offerings back in June, and while analysts in July said they were “underwhelmed” by the relaunch, label executives have been quietly impressed that the service has added millions of subscribers since the rebrand. Meanwhile, iHeartMedia is facing its own financial troubles at large: it was on the verge of filing for bankruptcy in March, and reported a $49.6 million net loss in July.
Baby boomers are underrepresented among paying subscribers, while nearly half of streamers who share accounts are under the age of 25.
Unsurprisingly, the mean income of self-paying subscribers is 10 percent higher than that of non-paying users, at $88,000 versus $80,000, respectively. But contrary to what one might think, higher income in this case is not correlated with older age. The mean age of self-paying streamers is 34 years old, while free and trial users have a mean age of 37 years old.
Most intriguing, even though baby boomers make more money than millennials on average in every U.S. state, the 45+ age groups are underrepresented among self-paying music subscribers in the country. This may be due to the enduring popularity of free listening options among older generations, like terrestrial and satellite radio and the free tiers of Pandora and YouTube.
Streamers who share paid accounts are the youngest of the three groups, with a mean age of 29 years. Gen-Z is overrepresented in this category, with 47 percent of sharers aged 13 to 24 -- presumably because older family members or peers are paying for their accounts via family plans or similar bundles.
Paying subscribers are motivated by the ability to access an unlimited, on-demand, ad-free experience. Free users aren’t paying because they don’t have enough money, already own the music they like and/or can benefit from several other free music consumption options.
According to MusicWatch’s research, among the top reasons self-payers buy a music subscription include the ability to listen to an unlimited number of songs on-demand and the removal of ads.
The one big missing piece: playlists. In investor- and industry-facing presentations, the dominant streaming services have been beefing up their curation prowess as a key differentiating factor in the streaming wars -- from Spotify’s RapCaviar and Discover Weekly, to Apple Music’s personalized mix series, to Amazon Music Unlimited’s “Song of the Day.”
But the reality is that most users don’t care about playlists when deciding whether to pay for a service, and playlists don’t provide enough immediately-apparent value to convince users on the edge. Curation and “new music discovery” nowadays are arguably just table stakes -- a fact reflected in Spotify’s recent upgrade of its free tier, which allows freemium users access to up to 15 editorial and algorithmic playlists on demand in any order.
Meanwhile, the top reasons to not pay include lack of disposable income and the proliferation of other free options such as AM/FM radio and free services like Pandora and YouTube. In part, this reflects the relatively strict price inflexibility for streaming at the moment: unless you’re on a discounted or bundled plan, Spotify and Apple Music both cost $9.99/month, with no cheaper or more expensive paid options for more limited or enhanced functionality. Pandora, iHeartRadio and Tidal are ahead in the price-flexibility race, with tiers ranging from $4.99 to $19.99 a month, but their traction in the domestic market is comparatively minimal.
Another top reason that free users don’t pay: they’re “satisfied with the music collection they have,” Crupnick tells Billboard. This suggests that a significant number of free music streamers still own and interact regularly with digital downloads as well as physical formats like CDs and vinyl. Indeed, 2017 marked the 12th straight year of growth in vinyl album sales, which were complementary to, rather than competitive with, the growth of streaming. Plus, baby boomers -- who over-index among free streamers -- may be more accustomed to the ownership rather than rental model for music.
Paid streaming subscribers are more likely than free users to own nearly every type of connected device and care about high-quality home entertainment. Paid subscribers are also more likely to own MP3 players and turntables.
MusicWatch also measured differences in device ownership and preferences between self-paying and free streamers. While the results fall in line with the types of corporate partnerships streaming services and record labels are striking across the tech landscape, they also suggest that certain physical formats are still alive and well, even if their aggregate sales are declining.
Firstly, paid streaming subscribers lean much more heavily into the sprawling Internet-of-Things (IoT) ecosystem than free users do. For instance, paying users are 62 percent more likely to own an internet-connectable TV, 127 percent more likely to use an in-car “infotainment” system and 240 percent more likely to use a smart speaker or other “personal assistant device.” They also care more about high-quality audio and home entertainment systems, being 69 percent more likely than free users to have premium headphones and 67 percent more likely to have an in-home theater or surround-sound system.
This reinforces why streaming platforms are battling harder than ever to conquer both the car and the voice assistant: both products are valuable real estate for accessing premium music consumers.
In addition, music streaming companies are cozying up more to TV studios and manufacturers in an effort to diversify on both content and distribution. For instance, Spotify’s new deal with Samsung includes the ability for Samsung Smart TV users to play Spotify on their big screens, while the music service’s bundle with Hulu gives access to the latter’s parent companies Disney, Comcast and AT&T. Meanwhile, Apple Music is reportedly considering bundling Apple Music, original TV content and news publications into a single subscription offering.
A more surprising finding is that presumably outdated devices and formats still endure among streaming consumers. According to MusicWatch, paid subscribers are 48 percent more likely than free users to own an iPod touch or other MP3 player (37 percent of paid versus 25 percent of free), and 82 percent more likely to own a turntable (20 percent of paid versus 11 percent of free). These findings reaffirm how renting music via streaming and owning music via individual purchases are not yet mutually exclusive in a significant proportion of people’s lives, at least in the U.S.
Compared to other entertainment sectors, music still has a long way to go in streaming adoption.
While the music business is growing faster than ever, it still has a long way to go in terms of market penetration compared to film, TV, gaming and other adjacent entertainment sectors. Netflix alone has 56 million paying subscribers in the U.S. as of Q2 2018 -- more than all domestic music streaming consumers combined.
Recent product and executive shifts might turn this balance on its head: for instance, former Condé Nast Entertainment president Dawn Ostroff is now one month into her role as Spotify's new chief content officer, and is likely discussing content deals with publishers and other brands outside the immediate music industry. Spotify has also been taking an aggressive stance on podcasts this summer, announcing licensing deals with both Joe Budden and the BBC within the span of two weeks in August.
All in all, as music services diversify further on content and distribution -- and as hardware companies upsell more premium music subscribers on high-quality connected devices -- streaming's revenue pie in the U.S. will only continue to grow in the coming years, even if not on the traditional music industry's own watch.