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Music Streaming Industry Analysis
Bosorg Etemad
Phirith Pheak
Melissa Torres
Javier Valdeavellano
Eening Yeoh
GBUS 600
Mar...
Music Streaming Industry Analysis 2
Table of Contents
1. Music Streaming Industry: An Overview…………………………………………………..……….......
Music Streaming Industry Analysis 3
1. MUSIC STREAMING INDUSTRY: AN OVERVIEW
1.1 Industry Definition
The music streaming i...
Music Streaming Industry Analysis 4
2. MUSIC STREAMING INDUSTRY: PORTER’S FIVE FORCES ANALYSIS
2.1 Threat of Entry
The thr...
Music Streaming Industry Analysis 5
active users is an important success factor (Marchand and Shaw 2). A high amount of ac...
Music Streaming Industry Analysis 6
Dawson, an independent technology analyst stated that, “They have the demographic that...
Music Streaming Industry Analysis 7
supplier power decreases the smaller the label, but it is the major label’s song catal...
Music Streaming Industry Analysis 8
the negotiating power to, for example, pull their catalogs from free advertisement bas...
Music Streaming Industry Analysis 9
services increased by 83.1% from 79.1 to 144.9 billion streams. With consumers growing...
Music Streaming Industry Analysis 10
illegal music services with medium income households representing the largest streami...
Music Streaming Industry Analysis 11
2.3.4 Product Differentiation
Even though the demand for product differentiation grow...
Music Streaming Industry Analysis 12
2.4 Threat of Substitutes
Substitute products can affect a competitive environment, d...
Music Streaming Industry Analysis 13
Satellite radio companies like Sirius XM offer a choice of three premium packages for...
Music Streaming Industry Analysis 14
In summary it can be said that while physical, digital records, and terrestrial radio...
Music Streaming Industry Analysis 15
subscribers, with Spotify having the most number of subscribers (Alexander). This sug...
Music Streaming Industry Analysis 16
of music streaming services is that these companies acquired specialized skills and e...
Music Streaming Industry Analysis 17
3. Final Evaluations and Future Perspective
Most consumers want access to music for f...
Music Streaming Industry Analysis 18
Appendix
Music Streaming Services Cost
Spotify $10/month
Apple Music $10/month, Famil...
Music Streaming Industry Analysis 19
Google Play Streaming up to 320 kbps
Tidal Streaming up to 1411 kbps – Hi Fi Pricing
...
Music Streaming Industry Analysis 20
 Decent audio quality, 192Kbps for Pandora One
Google Play  Large library for unlim...
Music Streaming Industry Analysis 21
 Superior audio quality, about 1,000 kbps
 No need for computers
 Plays on turntab...
Music Streaming Industry Analysis 22
Diagram 5. Comparison of Major Music Streaming Services
Source: Alexander, Madi. Appl...
Music Streaming Industry Analysis 23
Diagram 6. United States Music Industry Revenues in the First Half of 2015
Source: Ri...
Music Streaming Industry Analysis 24
Works Cited
Albright, Dann. The Evolution of Music Consumption: How We Got Here. Make...
Music Streaming Industry Analysis 25
“Digital Market Outlook: Music Streaming.” Statista. Statista, n.d. Web. 12 Mar. 2016...
Music Streaming Industry Analysis 26
Internet Radio Trends Report 2015. Rep. XAPP Media, Jan. 2015. Web. 10 Mar. 2016.
“Jo...
Music Streaming Industry Analysis 27
“Mobile Music Streaming: Driving the Next Digital Revolution.” AppAnnie.com. App Anni...
Music Streaming Industry Analysis 28
Owsinski, Bobby. 5 Bold Music Business Predictions For 2016. Forbes, 30 Dec. 2015. We...
Music Streaming Industry Analysis 29
Rivera, Edward. Facing The Music: Online Sales and Shifting Trends Continue to Siphon...
Music Streaming Industry Analysis 30
Wade, Peter. Did A Tidal Wave Just Hit The Music Industry?. Fast Company, 15 Feb. 201...
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Music Streaming Industry Analysis

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Music Streaming Industry Analysis

  1. 1. Music Streaming Industry Analysis Bosorg Etemad Phirith Pheak Melissa Torres Javier Valdeavellano Eening Yeoh GBUS 600 March 15, 2016
  2. 2. Music Streaming Industry Analysis 2 Table of Contents 1. Music Streaming Industry: An Overview…………………………………………………..………....…………… 3 1. Industry Definition ………………………………………………………………………..…..…………………. 3 2. History ……………………………………………………………………………………………………..…….…..….3 2. Music Streaming Industry: Porter Five Forces Analysis ……………………………..………….………. 4-16 2.1. Threat of Entry …………………………………………………………………….…………………………….4-6 2.1.1 Access to Supplies 2.1.2 Customer Acquisition 2.1.3 Major Incumbents and Switching Costs 2.1.4 The Apple Case 2.1.5 Result: Low to Moderate 2.2 Bargaining Power of Suppliers …………………..……………….………………………….…..………….… 6-9 2.2.1 Power of Major Labels 2.2.2 Power of Artists and Publishers 2.2.3 Buyer Power of Streaming Services 2.2.4 Result: High 2.3 Bargaining Power of Buyers ………………………………………….………………………………………….9-11 2.3.1 Buyer Profile 2.3.2 Price Sensitivity 2.3.3 Quality Sensitivity 2.3.4 Product Differentiation 2.3.5 Competitors and Substitutes 2.3.6 Result: High to Moderate 2.4 Threat of Substitutes ………………………………………………………………….……………………………12-14 2.4.1 Physical and Digital Records 2.4.2 Television and Radio Channels 2.4.3 Satellite Radio 2.4.4 Video Streaming Services 2.4.5 Piracy 2.5 Rivalry Among Existing Competitors ……………………………………………….……………………….14-16 2.5.1 Competitor Quantity 2.5.2 Competitors Varying in Size and Power 2.5.3 Industry Growth Rate 2.5.4 Industry Exit Barriers 2.5.5 Zero-Sum Price Competition 2.5.6 Result: Medium to High 3. Conclusion ……………………………………………………………………………………………….………..………..…. 17 4. Appendix …………………………………………………………………………………………………………………. 18-23 5. Work Cited ………………………………………………………………………………………………………………….. 24-30
  3. 3. Music Streaming Industry Analysis 3 1. MUSIC STREAMING INDUSTRY: AN OVERVIEW 1.1 Industry Definition The music streaming industry is comprised of organizations that offer non-physical audio playback through the Internet, this does not include online music downloads and satellite radio broadcast. Its main sources of revenue are paid customer subscriptions and advertising space sales. Music streaming services license content from copyright and master rights holders in order to stream it to its users. Its services can be further categorized into interactive (playback of tracks on demand) and non-interactive streaming (programmed or semi-random playback algorithm). Within the scope of this industry, record labels, aggregates, artists, and publishers are seen as suppliers. 1.2 History Before 1998, the only way to distribute music was through physical formats, CDs being the most popular ones. Digital distribution began with MP3.com, a site that allowed customers to download compressed MP3 files of CDs they owned (Alves and Michael 3). It took less than a year for Napster to provide a new platform to illegally share audio files (Johson, McGuire and Willey 1). The popularization of this free distribution model led to a huge drop in CD sales. Napster, like other similar platforms, was shut down after a series of lawsuits (Knopper 113- 149). With no legal way to download music, Apple Inc. launched the iTunes Music Store in 2003 to feed this need (Knopper 157-161). Thanks to this new form of distribution, the industry reignited with the rise of digital music. However, music consumers prefer having access to a large amount of music rather than owning just a small part of it (Wikstrom 9-10). This is why pioneers like Rhapsody, MusicNet, and Pandora made online music streaming one of the most popular forms of music distribution and consumption.
  4. 4. Music Streaming Industry Analysis 4 2. MUSIC STREAMING INDUSTRY: PORTER’S FIVE FORCES ANALYSIS 2.1 Threat of Entry The threat of new firms entering the industry can be defined as moderately low. New companies entering the market have to acquire a catalog comparable to the ones provided by established music streaming services. Further, established companies have already generated a large number of active users and the corresponding economies of scale. Lastly, to acquire a respective catalog and generate users, new entrants have to build business relationships from a much lower bargaining leverage than already established companies. 2.1.1 Access to Supplies Major suppliers have significant control over the music streaming industry because music streaming services value highly depends on the size of its song catalog. Before launching a music streaming service, entrants need to negotiate licensing agreements with publishers, aggregators, and labels (Blau 23), the latter having extremely strong negotiating leverage (Winogradsky). Since deals with suppliers only cover a specific territory, individual deals have to be negotiated for each market expansion (Rethink Music 8). Additionally, each preliminary licensing negotiation with a label takes around a year (Keating, 2015), and incumbents have the advantage of experience. A new company making its way into the industry would need high investment capital to cover the initial costs of building a competitive song catalog. 2.1.2 Customer Acquisition High demand and a large number of active users increases the quality of music streaming services and provides the economies of scale advantage. Since social interaction and the ability to share playlists are essential features of a music streaming interface, the amount of
  5. 5. Music Streaming Industry Analysis 5 active users is an important success factor (Marchand and Shaw 2). A high amount of active users leads to increased sharing and interaction activity. New entrants are forced to find creative and effective ways of enrolling and satisfying early adopters. The most common way of acquiring customers is to offer free trials with the prospect of turning free subscribers into paying subscription-based customers (Marchand and Shaw 1). In contrast, established streaming services have already built relationships with large customer groups and benefit from economies of scale. 2.1.3 Major Incumbents and Switching Costs New entrants are competing with major incumbents, who negotiated their agreements with labels and aggregators before a precedent deal of this nature had existed (Keating, 2015). Hence, suppliers have the benefit of being ahead in the learning curve, and therefore have a significant advantage when negotiating with less experienced market entrants. Furthermore, switching costs can be high for active users that have created their own playlists, preferences, and built relationships with other users. In an interview with Tech Times, Gary Sinclair commented “I don't mean switching costs in terms of financial, but in terms of the amount of work they put in to develop their playlists, maybe their friends are on Spotify, and even the hassle of switching providers" (Keating). 2.1.4 The Apple Case The market entry of Apple Music in June 2015 exhibited that despite all of the described market entry barriers, large and diversified companies can still threaten established music streaming services. After their initial three-month trial period, Apple had generated 15 million paying subscribers, which ranked them among the industry’s top competitors (Peoples). Jan
  6. 6. Music Streaming Industry Analysis 6 Dawson, an independent technology analyst stated that, “They have the demographic that is most likely to pay for music pretty well locked up” (Sisario). As a large corporation-like company, Apple is not dependent on the streaming service revenue (Greenberg) and can merely use it as a hub for its other product lines. Apple’s loyal customer base in conjunction with the described factors makes it an exception to the typical case scenario. 2.1.5 Result: Low to Moderate Among others, high supplier power, incumbents with superior experience, and large loyal customer bases define the threat of entry for the music streaming industry as low. But the threat of large diversified companies like Apple being able to overcome those entry barriers creates a tendency towards moderate. 2.2 Bargaining Power of Suppliers 2.2.1 Power of Major Labels The major label conglomerates, Sony Music Entertainment, Universal Music Group, and Warner Chappell Music own 80% of the music industry’s market share and consequently own a large majority of the global music catalog. When a music streaming service seeks to acquire the license to distribute a major label’s master recordings, the labels have extremely high bargaining power. Music attorney Steve Winogradsky confirms that they have the power to “…say no, and by having the ability to say no they have stronger negotiating leverage.” Since a streaming service can only succeed with a relevant catalog, the supplier power of major labels can be considered as the music streaming industry’s biggest barrier to success. This leads to the conclusion that streaming services can only gain bargaining leverage if they significantly distinguish themselves through market share and popularity. Of course,
  7. 7. Music Streaming Industry Analysis 7 supplier power decreases the smaller the label, but it is the major label’s song catalog that music streaming services are dependent on. Steve Winogradsky pointed out that major labels often use their bargaining power to gain equity share from music streaming services. “Labels often license their catalogs at sub- market rates in exchange for a share of ownership in the company, based on the concept that streaming services need lower rates to grow and reach critical mass” (Rethink Music 17). Major labels with equity ownership in music streaming services “currently own stakes in companies like Spotify…although percentages may change with each company’s round of funding” (Rethink Music 17). In many cases, record labels take stakes for free or cheap, and then give themselves the right to buy larger chunks at deep discounts to market later on (McIntyre). In early 2009, it was reported that major record labels had received roughly 18% in Spotify shares, with Sony BMG at 5.8 %, Universal Music at 4.8 % percent, Warner Music at 3.8 %, and EMI at 1.9 % (Nylander). Owning significant equity share in a company enables the shareholder to influence and control various aspects and decisions of that company (Child 230-231). Consequently, major labels owning significant shares of music streaming services increases their already high bargaining power. 2.2.2 Power of Artists and Publishers Record labels that own the master catalogs, can also exercise their power over the artists they represent by leaving them out of negotiations with music streaming services. “…When acquiring a label’s catalogue, a streaming service like Spotify negotiates direct licenses with major rights holders using nondisclosure agreements that leave artists out of the conversation entirely…” (Rethink Music 15). Only few artists with very large clout have
  8. 8. Music Streaming Industry Analysis 8 the negotiating power to, for example, pull their catalogs from free advertisement based streaming services. This was the case in November 2014, when Taylor Swift and her label Big Machine, removed her catalog from Spotify after the streaming service refused to limit her catalog to paid subscribers. In addition to artists, music publishers also have very little to no power when negotiating with music streaming services. Music publishers must have their songs associated with a performance right organization (PRO) such as the American Society of Composers, Authors and Publishers (ASCAP) or Broadcast Music Inc. (BMI), and cannot simply withdraw catalogs to make direct deals with record labels or streaming services. Although some deals between publishers and PRO’s are non-exclusive, which allows them to make certain negotiations with music streaming services, they do not have the power to negotiate royalty rates. Royalty rates received by publishers are those set by rate courts for PRO’s, and are typically low percentages of the streaming service’s revenue, minus a certain percentage that goes to the PRO’s (Winogradsky). 2.2.3 Buyer Power of Streaming Services With decreasing CD and download sales and the remaining threat of piracy, music streaming services present the record label’s only option for legal music distribution. Therefore possibly increasing the bargaining power of music streaming services. Steve Winogradsky states, “Labels can and were making money from downloading for a while but now nobody is downloading because you can hear all the music on demand…” In 2015 alone, Nielsen reported that digital album sales had decreased by 2.9% from 106.5 to 103.3 million units, while CD sales decreased by 10.8% from 140.8 million to 125.6 million units. Meanwhile, music streams from on-demand
  9. 9. Music Streaming Industry Analysis 9 services increased by 83.1% from 79.1 to 144.9 billion streams. With consumers growing preference of access over ownership, the bargaining power of music streaming services has the potential to become stronger. 2.2.5 Result: High Even though the bargaining power of two suppliers, publishers and artists, is fairly low, the strong bargaining position of major record labels is enough to define the force ‘Bargaining Power of Suppliers’ as high. Of course, the growing market share and importance of certain streaming services may ultimately lead to a power shift. Further, artists may become more independent and publishers stronger negotiators. But until some or all of these factors dramatically increase, record labels alone will hold high supplier power. 2.3 Bargaining Power of Buyers The buyers of music streaming services can be divided into two categories, the end consumers of music and the business-to-business clients that either buy advertising space, or seek to add a streaming service to their product(s) (Edwards). To not go beyond the scope of this paper, the following section will concentrate on the end consumer by analyzing and evaluating their bargaining power. 2.3.1 Buyer Profile Data ascertainments from 2015 show that the majority of current music streaming users are between the ages of 18 to 34 (Digital Market). They largely represent Millennials – as of 2015 defined by the ages 18 to 29 (Sneider) – a generation that was “born into a technological and wireless society” (Williams 8). Digitization, Internet proliferation and piracy have accustomed Millennials to the free and instant access to music through a multitude of legal and
  10. 10. Music Streaming Industry Analysis 10 illegal music services with medium income households representing the largest streaming user segment (Digital Market). The Post-Millennial generation, defined as younger than 18 years, makes up a significantly smaller share of current streaming consumers, but will logically grow into being the next majority. Where Millennials were conditioned into a digital environment later in life, Post- Millennials experienced early adaption and are therefore even more defined by a digital lifestyle (Heine). 2.3.2 Price Sensitivity Consumers can choose from a vast selection of interactive and non-interactive music- streaming services (IFPI 5, 17), which promotes high price sensitivity. However, this price sensitivity is moderated by the growing influence of Post-Millennial consumers. Research suggests that Post-Millennials show lower price elasticity and an increasing acceptance of online ads and higher streaming prices (New Study; Heine; ClearVoice 29-30). While current price sensitivity is high, it is becoming more moderate with the increasing influence of Post- Millennials. 2.3.3 Quality Sensitivity With the consumers advancing tech-savviness and the large amount of competition and substitutes, consumers become increasingly critical towards streaming services individual features. Advanced customization, content, ease-of-use, and mobility are the decision-making factors defining the choice of a streaming service. Research shows that these factors are becoming more important than price (New Study; ClearVoice 31-33).
  11. 11. Music Streaming Industry Analysis 11 2.3.4 Product Differentiation Even though the demand for product differentiation grows, most music streaming services still offer similar qualities and features. The only major differentiation lies between the interactive and non-interactive streaming function. Realizing this trend, some streaming services are working on differentiating themselves through additional musical and non-musical content, customized algorithms and an increased integration into mobile phones and automobiles (Cellan-Jones; Winogradsky; Internet Radio 13). 2.3.5 Competitor and Substitutes As described in chapters 2.4 and 2.5, the streaming industry offers consumers a wide variety of competitors and substitutes. Research shows that the free video streaming platform YouTube is still the most popular Internet platform with Post-Millennials (Heine). This, of course, strengthens the end-consumers buyer power. 2.3.6 Result: High to Moderate Preceding analysis display that the buyer’s bargaining power is high with a tendency towards moderate. The consumer’s price sensitivity and increasing demand in quality forces streaming services to differentiate their products, while maintaining competitive prices. This bargaining power is intensified through a high number of competitors with similar qualities, as well as substitutes in the form of free video streaming services, illegal downloading, and streaming platforms. However, through the growing segment of Post-Millennials, consumers are increasingly accepting advertisements and higher prices in exchange for more differentiated services.
  12. 12. Music Streaming Industry Analysis 12 2.4 Threat of Substitutes Substitute products can affect a competitive environment, driving down profit by causing consumers to purchase the substitute instead of the industry’s product (Porter 8). In the current music industry, music streaming services are confronted with various substitute products including physical records, digital media, TV and radio channels playing 24-hour music, satellite radio, video streaming services, and piracy (see diagram 1). 2.4.1 Physical and Digital Records Even though Long Play (LP) vinyl albums are experiencing growth, the record industry’s former industry driver – the compact disc (CDs) – is declining in sales (Rivera 8). In his IBISWorld Report, Rivera reports that physical record sales will decline by 4.6% to 1.4 billion over the four years to 2020, with a 4.3% decrease expected in 2016. Digital downloads are still a relevant medium but are at threat of being replaced by streaming services (IFPI 21). With vinyl unlikely to become the new mass consumption medium, and CD and digital sales declining, these mediums do not represent strong substitutes for streaming services. 2.4.2 Television and Radio Channels Cable service providers such as Time Warner offer music channel programming as an additional TV package feature (TimeWarnerCable.com). Although their prices are higher than the music streaming industry’s standard, consumers may be attracted by the two-in-one deal. Terrestrial radio on the other hand is free, but limited to a preset program the listener cannot influence. In any light, these substitutes may take away from profits and customer base. 2.4.3 Satellite Radio
  13. 13. Music Streaming Industry Analysis 13 Satellite radio companies like Sirius XM offer a choice of three premium packages for consumers (see diagram 2). These packages are very attractive because consumers can choose various programs between music, sports, and talk radio. This substitute outlet also steals advertisement revenue from the music streaming industry. Nick Petrillo, author of IBISWorld Industry 51511 Radio Broadcasting in the US reported and projected sales from advertisements to major companies such as Sirius XM will generate a revenue increase at an annualized rate of 1.0% to $19.8 billion in the five years to 2015 (7). 2.4.4 Video Streaming Services Together with piracy, streaming services like YouTube likely present the streaming industry’s biggest substitute. Among other reasons, music videos played an important role in more than doubling YouTube’s revenue between 2013 and 2016 (Chatter 1). International Business Times editor Micheal Learmonth states, “Music videos and music-related content are easily YouTube's most-popular single genre… accounting for about 72% of music videos… UMG artists account for 24 million views on YouTube on average per day and Sony artists account for another 13 million, or nearly 3% of YouTube's 1.3 billion total views a day” (2). 2.4.5 Piracy The authors of “Music as a Service as an Alternative to Piracy?” agree, “(…) global music industry revenues decreased between 2004 and 2010” and that in 2012 only 35% of members of illegal networks paid for music” (Dorr, Thomas and Thomas 383). These unlicensed music platforms also decrease the revenue of streaming services, especially because many illegal platforms offer comparable functions and features. 2.4.6 Threat of Substitutes
  14. 14. Music Streaming Industry Analysis 14 In summary it can be said that while physical, digital records, and terrestrial radio sales are no significant threats. It is more likely that streaming services will ultimately replace physical records and downloads completely. On the other hand, video streaming services and piracy offer similar functions as licensed streaming services, but free of pay. Their strong influence on the streaming market leads to the conclusion that the factor ‘threats of substitutes’ can be evaluated as high. 2.5 Industry Rivalry 2.5.1 Competitor Quantity As the music streaming industry was launched abruptly, it is not easy to identify which of the services existed first. However, Pandora is known to be “the biggest early music streaming service” (Albright). Starting the timeline with Pandora, it is safe to say that the music streaming industry has existed for 16 years, as of 2016. Today, Spotify and Pandora hold the majority of the music streaming industry’s market share (The CD is Dead). As the industry became more popular, it attracted more dominant players from large technology companies like Amazon, Google and Apple (Shaw). Currently, aside from Spotify and Pandora, consumers can choose from a long list of interactive and non-interactive music streaming services, including iHeart Radio, Tidal, Rhapsody, Deezer, Apple Music, Amazon Prime and Google Play. 2.5.2 Competitors Varying in Size and Power Since the streaming industry is fairly new and interactive services are rated differently than non-interactive services, it is difficult to define a streaming service’s success. However, according to a New York Times article by Ben Sisario, music executives, competitors and investors measure a streaming service’s success mostly by number of subscribers. Using this measurement factor, the size of the major streaming competitors of ranges from 1 to 75 million
  15. 15. Music Streaming Industry Analysis 15 subscribers, with Spotify having the most number of subscribers (Alexander). This suggests that competitors in the music streaming industry strongly vary in size and power, which is additionally displayed in diagram 5. 2.5.3 Industry Growth Rate During an interview with Reuters in 2007, Steve Jobs said that consumers were not interested in subscription-based model services and that “the subscription model has failed so far.” However, 9 years later, statistics show that consumer behavior has changed and that the subscription is currently one of the music industry’s main sources of income. According to the online statistics portal Statista (see diagram 6), music streaming revenues officially surpassed physical format sales in 2015. The music streaming industry is growing as the sales of music streaming continuously increased by 55% from 2013 to 2014 and by 93% from 2014 to 2015 (Statista). As of 2015, the global streaming revenue surpassed $1 billion (Music Streaming Just). With the continued emergence of cloud technologies, high-speed Internet and other technologies, the dynamic streaming industry is predicted to continue its growth and by 2022, reach revenue of $9.7 billion (Music Streaming- A Global). 2.5.4 Industry Exit Barriers Even though the music streaming industry is growing rapidly, statistics show that most music streaming companies are struggling with profitability. According to the app analytics firm, App Annie, Spotify is the worlds’, and Pandora is America’s most popular music streaming service. Despite their statuses and high revenue, both of these major players are experiencing losses year after year. However, moderately high exit barriers, which are mostly caused by high fixed costs, hinder them to file bankruptcy. While another factor that increases the exit barriers
  16. 16. Music Streaming Industry Analysis 16 of music streaming services is that these companies acquired specialized skills and equipment that cannot be utilize in other industries. In 2009, when Spotify had 5 million users, it was estimated that they spent over £826,000 per month solely on streaming, music licensing, and storage/hosting costs. These costs did not factor in other costs like marketing, software development, and staff maintenance (Arthur). 2.5.5 Zero-Sum Price Competition In terms of price competition, the music streaming industry currently faces a zero-sum competition. One reason for this is most music streaming services provide very similar services, with the only major distinction being interactive and non-interactive platforms. Apart from Tidal, who prides itself on superior sound and video quality, the majority of music streaming services have catalogs similar in size and song selection (see diagram 5). Further, the similar subscription fees of individual music streaming services reduce switching costs for buyers (see diagram 5). Ultimately it can be said that the services provided by music streaming companies are not perishable and eliminates the temptation to cut prices, thus, further contributing to the zero-sum competition of the industry. 2.5.6 Intensity of Rivalry: Medium to High Risk Michael E. Porter stated in his article that the intensity of rivalry is determined by the industry’s structure, growth rate and exit barrier. With the music streaming industry having numerous competitors of different sizes and power, high industry growth rate and exit barriers, the intensity of rivalry that the industry is currently facing ranges from medium to high risk.
  17. 17. Music Streaming Industry Analysis 17 3. Final Evaluations and Future Perspective Most consumers want access to music for free or at least for a very low cost. Since consumers can switch to a free music streaming service or a lower price competitor, with fairly low switching costs, they are in a strong bargaining position. Record labels, the main suppliers of this industry, are also in a strong bargaining position. With many similar services in the market, they can demand for high royalty rates, advances and equity shares. Streaming services on the other hand cannot operate without major label catalogs. This weak bargaining position forces them to accept the offers of major labels. The future holds hope for streaming services to gain more profitability. For one, preceding porter analysis highlighted the trend of certain streaming services investing in differentiation through customization, ease-of-use and mobility. This differentiation increases switching costs for both buyers and suppliers, putting streaming services into a stronger bargaining position. Analysis also shows, that the the Post-Millennial, is likely to show more acceptance to increasing prices and ad-times and also be more accustomed to the all-time availability of consumer technology and Internet. Streaming services are utilizing these by increasingly integrating their products into portable devices and automobiles. These positive trends may shift some of the current power of buyers and suppliers to streaming services. But predictions remain predictions and as Tiffany Devos stated in Indiestyle, “Nothing stays the same. The world is an ever-evolving place and so is the music bizz” (Thacker). It is unclear if streaming services might end up becoming a tool that big companies like Apple and Google use as a hub for their other product lines, or if streaming service will simply be replaced by a yet undiscovered future technology.
  18. 18. Music Streaming Industry Analysis 18 Appendix Music Streaming Services Cost Spotify $10/month Apple Music $10/month, Family Plan = $15/month, six for six people Pandora $5/month Google Play $10/month Tidal $10/month, Hi-Fi = $20/month Diagram 1. Music Streaming Services Cost Source: "Spotify vs Rhapsody vs Pandora vs Google Music vs Rdio." We Rock Your. Web. 2013. Web. 12 Mar. 2016. Music Streaming Services Cost Spotify $10/month Apple Music $10/month, Family Plan = $15/month, six for six people Pandora $5/month Google Play $10/month Tidal $10/month, Hi-Fi = $20/month Substitutes Cost Cheaper? Digital Albums $10/album up to 16 songs Same Digital single songs 99 cents to $1.29/song Yes Vinyl (LPs) $18-$20 No CDs $10 Same Piracy Free Yes Radio Channels Free Yes Cable TV Music $20-40/month – Just TV subscription No Video Streaming Services Free – but has ads Yes Satellite Radio “Sirius/XM” All Access $20/month – 150 plus channels Select $15/month – 140 plus channels Mostly Music $11/month – 80 plus channels About the same Diagram 2. Costs of Substitutes Compared to Industry’s Products Source: "Spotify vs Rhapsody vs Pandora vs Google Music vs Rdio." We Rock Your. Web. 2013. Web. 12 Mar. 2016. Music Streaming Services Sound Quality (bitrate kbps) Spotify Streaming up to 320 kbps Apple Music Streaming up to 256 kbps Pandora Streaming up to 192 kbps
  19. 19. Music Streaming Industry Analysis 19 Google Play Streaming up to 320 kbps Tidal Streaming up to 1411 kbps – Hi Fi Pricing Substitutes Sound Quality (bitrate kbps) Equal or Superior? Digital Albums Playing at 256 to 320 kbps Equal Digital single songs Playing at 256 to 320 kbps Equal Vinyl (LPs) Playing at about 1,000 kbps Superior CDs Playing at about 1,411 kbps Superior Piracy Playing at 96 kbps to 320 kbps Equal Radio Channels Playing at 96 kbps to144 kbps No Cable TV Music Playing at 320 kbps Equal Video Streaming Services Streaming at 128 kbps to 256 kbps Equal Satellite Radio “Sirius/XM” Playing at128 kbps No Diagram 3. Quality of Substitute’s Sound (bitrate kbps) Compared to Industry’s Products Source: "Spotify vs Rhapsody vs Pandora vs Google Music vs Rdio." We Rock Your. Web. 2013. Web. 12 Mar. 2016. Music Streaming Services Performance Quality Spotify  Large library for unlimited music streaming  Clean and good user interface  Excellent audio quality 320Kbps  Compatible with iPod Touch, iPhone, iPad, Android, Windows and home audio systems  Offline mode  Great social media tools  Free mobile service  Podcasts and video clips  Taste Rewind feature plays songs from different decades Apple Music  Includes Beats1 live DJ radio  Available in 100 countries  Sync songs to offline mode  More than 30 million songs  Apple has a great reputation  Comes pre installed on Apple devices Pandora  Compatible with Mac, PC, iOS, Android, PS3, PSP, PS Vita, Blu-Ray players, and TVs  Shows lyrics to each song  Rate songs with a thumbs up or down which helps determine future songs recommended  Pandora Premiers allows listeners to access albums that haven’t been released from a variety of different artists
  20. 20. Music Streaming Industry Analysis 20  Decent audio quality, 192Kbps for Pandora One Google Play  Large library for unlimited music streaming  Clean and good user interface  More than 30 million songs  Excellent audio quality, 320Kbps  Compatible with Android, iOS, and Windows  Store specific songs on your mobile app and listen while offline  Share with others  Upload your own music from your library (up to 50,000 songs) Tidal  Import playlists to Tidal by using Soundiiz.com  Ad free  Great sound quality at 1411kbps  Great FAQ section  Highest royalty percentages for artists, songwriters and producers  Student discount Substitutes Performance Quality Equal or Superior? Digital Albums  Own your purchases/downloads  Excellent audio quality, 256 to 320 kbps  Store songs on computer or external hard drive  Get exclusive songs with album purchases  Album Artwork  Share with others  Creates your library  Doesn’t use data to listen to  Compatible with any music playing media  Ad Free Equal Digital Single Songs  Own your purchases/downloads  Excellent audio quality, 256 to 320 kbps  Store songs on computer or external hard drive  Share with others  Creates your library  Doesn’t use data to listen to  Compatible with any music playing media  Ad Free Equal Vinyl (LPs)  Own your purchases  Rich sound experience  Doesn’t use data to listen to  Collectors item  Vintage  Share with others  Album artwork Equal
  21. 21. Music Streaming Industry Analysis 21  Superior audio quality, about 1,000 kbps  No need for computers  Plays on turntables  Ad free CDs  Own your purchases  Rich sound experience  Superior audio quality, about 1,411 kbps  Doesn’t use data to listen to  Collectors item  Vintage  Album artwork  Share with others  Compatible with almost any media player with CD slots  Ad free Equal Piracy  Own your downloads – but risk with the law  Doesn’t use data to listen to  Uses P2P – not safe  Decent sound quality, 96 to 320 kbps  Share with others No Radio Channels  Free  Access just about anywhere  Doesn’t use data to listen to  Don’t need much equipment  Decent sound quality, 96 to 144 kbps  No need to store songs No Cable TV Music  Access with cable TV subscription  Excellent audio quality, about 320 kbps  Doesn’t use data to listen to  No need to store songs  Curated channels No Video Streaming Services  Annoying Ads  Decent audio quality, about 128kbps to 256 kbps  Uses data or the Internet to access  Unlimited Access Equal Satellite Radio “Sirius/XM”  Annoying Ads  Decent audio quality, 128 kbps  No need to store songs  Uses data or the Internet to access  Curated playlist No Diagram 4. Quality of Substitute’s Performance Compared to Industry’s Products Source: "Spotify vs Rhapsody vs Pandora vs Google Music vs Rdio." We Rock Your. Web. 2013. Web. 12 Mar. 2016.
  22. 22. Music Streaming Industry Analysis 22 Diagram 5. Comparison of Major Music Streaming Services Source: Alexander, Madi. Apple Music, Spotify and a Guide to Music Streaming Services. The New York Times, 8 Jan. 2016. Web. 14 Mar. 2016.
  23. 23. Music Streaming Industry Analysis 23 Diagram 6. United States Music Industry Revenues in the First Half of 2015 Source: Richter, Felix. The Rise of Music Streaming Continues. Statista, 12 Jan. 2016. Web. 14 Mar. 2016.
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