Music Streaming Platforms – HoW They Make Money

The Music Streaming Industry

The global music market generates over $19 billion in revenue with music streaming accounting for almost half of that revenue, with 255 million paid users worldwide.

Three-quarters of the online population listens to music and audio, with free streaming services the most popular means of doing so.

music streaming 2019

Breaking this down further shows how the subscription services are the dominant way of making money within the market. However, with players like Apple, Google and Amazon are heavily invested in their smart speaker/home assistant and promoting other services alongside music streaming.

how music streaming makes money
Source: 2019 Global Index Report

The Growth of Music Streaming

Music streaming services are web-based platforms that offer high-definition music on-demand.

As the music industry became digital it has faced several challenges across the industries and has seen massive changes to the business model.

From selling vinyl records to CD’s and then finally progressing to digital music. In a relatively short time, the music industry has been transformed.

Even when comparing music consumption nowadays to those of only one decade ago, it is astonishing how deeply technology has influenced the (digital) music market.

The innovative Apple iPod captured the imagination of millions, and although not the first digital player on the market, it propelled digital music sales into becoming the dominant format. However, with digital music came music piracy.

The disruptive impact of Music Streaming services like Spotify or Apple Music though won the battle against illegal distribution.

Music streaming has fundamentally shifted the model from ‘pay and own’ to ‘rent’. In other words, you get access to a massive library of music at a low monthly subscription cost or free if you are willing to put up with advertisements.

The prediction is that by 2022, streaming revenue will be larger than the entire recorded-music market was worth in 2018 – source: Midia Research. That means $33.5bn of streaming revenues in 2022, a figure that the company predicts will grow to $45.5bn in 2026.

Which Companies Offer Music Streaming?

There are currently 33 active streaming platforms available, with a range of different features and characteristics available.

Some of the main music streaming platforms include:

  • Amazon.com
  • Apple Inc.
  • Deezer
  • Gamma Gaana bollywood, hindi, regional, and international music.
  • Google Play – music streaming.
  • iHeartMedia – internet radio.
  • Inmusik – a Blockchain-powered music ecosystem.
  • jango.com – internet radio.
  • Netease Music
  • Pandora Media
  • Project Panther Bidco Ltd
  • Reliance Industries Limited
  • Rhapsody International
  • Sirius XM Holdings
  • Slacker Radio
  • SoundCloud Limited
  • Stingray Digital Group Inc.
  • Tencent
  • TuneIn
  • Univision Communications
  • VK
  • You42 Radio.

How do music streaming Platforms make money?

The main music streaming platforms make money mostly through subscriptions, however, platforms like Spotify offer a freemium business model that generates revenue through advertisers.

  • Paid Subscriptions: The majority of the revenue model for music streaming platforms comes from ‘monthly active users’ – people who pay for the subscription service.
  • Advertising: Advertisers pay for exposure, with ads played every 15 minutes for 30 seconds, and can also include sponsored playlists, and homepage takeovers.

Amazon and Google lead the smart speaker market and the launch of free music service is to serve as an incentive to attract users to their other services, whether that is Amazon Prime or YouTube Premium, both have monthly subscription services.

Spotify Business Model

spotify business model canvas. The spotify business illustrated using the business model canvas by osterwalder.

Learn more about how to use the business model canvas.

How many subscribers does Spotify have?

As of Q3 2019, Spotify had over 248M monthly annual users of which 113M are subscribers.

Subscriptions account for over ninety per cent of their total revenue, ads make up the remaining ten per cent.

Why is Spotify Focusing On Podcasts?

Spotify announced plans to spend up to $500 million on podcasting and has been repeatedly reporting its progress in their quarterly reports. But why and what is this to do with its customers?

Spotify spent over $300 million to acquire Gimlet Media, the maker of Reply All and other popular shows, and Anchor, the company behind an app that allows anyone to easily create their own podcasts. 

Podcasts generate ad revenue, by 2020 it is estimated that they will bring in $659 million in ad revenue. This also allows Spotify to provide a similar range of audio offerings as Apple who has dominated the podcast market.

How Do Music Artists Make Money?

The way Spotify and Apple Music pay artists is done on a “pro-rata” basis. All of the money generated from users either through advertisements or subscriptions is divided by the total share of streams each artist received. Around 70% of the revenue goes to music labels and artists.

As an example, if $100 million is generated in revenue, and an artist accounts for 1% of all streams, then they would receive $1 million in royalties.

However, many artists want a user-centric model that pays artists based on who each user listens to the most. The debate over which model is best and who benefits from the two different models is set to continue. There is also debate around the role of music streaming platforms. This comes at a time when Spotify is adding a further revenue stream to its business model by allowing Music Labels to promote their artists through ads on their platform.

Music Streaming Infographic

This infographic from Global Web Index compares the popularity of the main players involved in the music streaming sector. It provides insights into how the market is heating up in terms of competition with big players Apple, Google and Amazon now competing head to head with Spotify.

Why are music streaming services like Spotify and Apple Music successful?

global music streaming platforms infographic

Future Growth For Music Streaming Platforms

Further growth within for music streaming platforms will come from:

  • the continued expansion in emerging markets e.g. Latin America.
  • new devices such as smart speakers and technologies with voice control.
  • 5G mobile networks.
  • further segmentation and packages based on users e.g. Spotify now provide Duo Plan, Family plan and Student packages.

Spotify has increased its focus on podcasts. In an attempt to expand its podcast library it has encouraged more users to upload their own podcasts, including ones recorded directly on their phones.

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