A Crowded Field: Competition Between Music Streaming Services
For years, Spotify had a virtual monopoly in the digital music streaming market. It was revolutionary: for only $9.99 a month, a person can listen to his or her favorite music on demand. In the summer of 2015, however, Spotify faced its first direct competitor: Apple Music. Recently, Amazon and Pandora have begun offering similar services, each for the same price as Spotify and Apple Music. How do these products compare, and which has been the most financially successful? Investors and listeners alike have recently found themselves asking these questions and more.
Spotify Technology S.A. was founded in Sweden in 2008 and went public in April of 2018. The company has yet to see positive income, with earnings per share for the first quarter of 2018 being -$1.01. On the positive side, revenues have been increasing as a result of a growing user base. Revenues grew by 52.1% in 2017, and earnings are expected to be positive by 2019. However, despite a positive financial outlook, Spotify is facing big competition, especially from Apple Music. [1]
As a result of Apple pushing its music streaming service on users of its devices, it has seen a more rapidly growing user base than Spotify. An examination of the release of Drake’s Scorpion provides some insight. Within the first day of its release, the album was streamed 170 million times on Apple Music, but only 130 million times on Spotify. As of last week, Spotify still has more subscribers than Apple Music, but by next month, Apple Music is expected to catch up, and some think it has already done so. Compare this to one year ago, when Spotify had four million more subscribers than Apple Music. After a less-than-impressive first quarter earnings report, Spotify attempted to satisfy investors by unveiling a bundled subscription package with Hulu, but so far, it hasn’t been enough to stop Apple’s growth. [2]
Shortly after Apple Music was released, Amazon unveiled its Music Unlimited services. The biggest advantage of Amazon Music Unlimited is its compatibility with other Amazon products. Amazon offers a tier of services that connects the Alexa AI assistant and the Echo device to Amazon Music Unlimited. In addition, Prime members receive a discount on Amazon’s music streaming service, which makes it cheaper than either Apple Music and Spotify. Despite their efforts, Amazon Music Unlimited only controls 10.7% of the market for online music streaming, though with Prime membership expected to expand to 50% of households in the United States by 2020, their market share may increase in the coming years. [3]
Spotify, Apple Music, and Amazon Music Unlimited face another, unexpected competitor: Pandora. Pandora launched in 2000, before any of the aforementioned services, as an online radio application. However, in an attempt to counter its declining popularity and increased competition in the online radio market, Pandora launched Pandora Premium in 2017. The streaming service has a music library similar to that of Spotify, but it has been criticized for being less user friendly. Pandora has a Music Genome Project to more easily curate playlists, but despite its best efforts, the company has been facing financial difficulties. The number of active Pandora users has been shrinking since 2014, and it has not posted positive earnings since that year. In fact, earnings have been trending even more negative, with losses nearly doubling in the fourth quarter of 2017. Unless Pandora Premium is extremely successful, Pandora may be in big trouble. [4]
Of the many online music streaming services, Apple Music seems to be the most successful currently, followed by Spotify and Amazon Music Unlimited. However, this is liable to change any time. A newcomer could disrupt the market, or Pandora Premium may even surprise the critics. However, in its current state, the online music streaming market is a crowded field, and everyone is fighting to be the most popular.
Written by Jack Vasquez, Edited by Alexander Fleiss
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Sources:
[1] All financial data from Yahoo Finance (retrieved July 9, 2018) and the Securities and Exchange Commission
[2] Nicolaou, A. (2018, July 09). Apple slices into Spotify's lead in US music market. Retrieved from https://www.ft.com/content/ef2be1bc-809f-11e8-bc55-50daf11b720d
[3] Griffith, E. (2018, June 20). Amazon Music Unlimited vs. Spotify: How Do They Compare? Retrieved from https://www.pcmag.com/news/348636/amazon-music-unlimited-vs-spotify-how-do-they-compare
[4] Hastings, N. (2018, May 31). Spotify vs. Pandora: Which music streaming service is better for you? Retrieved from https://www.digitaltrends.com/music/spotify-vs-pandora/