Quite a few years ago now, the major streaming services started in Sweden, France and the USA. Spotify rapidly became dominant in the UK, Scandinavia and Germany. Deezer took on Latin America. Pandora rules the roost in the USA. It was a territory game. All that changed this week with Apple’s announcement of a new music service. But the signs have been there for months if not years.
Although the big three appear to dominate this fastest growing sector of the music industry, other players have quietly gained ground. Tidal developed a more bespoke service which was bought earlier this year by Jay-Z and a number of other artists. Their differentiator is artist exclusives and sound quality.
Straight outta Cupertino
Beats set up with a cool image, with their streaming service an adjunct to the successful headphones brand. Beats was also bought up. Last year, Apple paid $3bn for the company, even though the subscription service only had around 110,000 subscribers at the time.
That purchase was a strategic one and, just a year later, Apple has turned it into a full music service offering. With its integrated hardware and substantial working capital, Apple has moved centre stage in the streaming market.
Spotify has responded by closing its latest investment round, bringing an additional $500m into the company.
Meanwhile, Deezer has been quietly gaining ground, becoming the #2 streaming service in the USA earlier this year with the acquisition of Muve Music. That took its subscriber base to 6m, ahead of Pandora which has 3m premium customers, but still behind Spotify at 20m. Deezer has also developed a more finely tuned pricing policy to push customer acquisition.
The streaming market is no longer a game of Risk, with services acquiring countries one by one. But who is going to gain competitive advantage and how?
Customer choice is generally driven by price, convenience and quality. Pandora appears to be using price as the differentiator, with a determined attempt in the USA to use regulation to drive down the costs of obtaining artists’ rights. However, Deezer has undercut them through the Muve Music service.
This could be the start of a price war. Spotify, on the other hand, has put much store by developing the service and offering playlists, either programmed by celebrity DJs or shared among friends.
Perhaps most interesting to watch will be the new entrant to the market. Apple not only has marketing dollars. It also has integrated hardware with huge global penetration. In an age where one click is better than two, the convenience of having all your music services within your favourite device is compelling.
The other streaming services will not find it so easy to integrate with hardware, especially one with such a large global market share.
Apple has moved the goalposts and has everything lined up to score. The competition they really need to watch is YouTube.
Dominic McGonigal is the chairman of C8 Associates, a creative consultancy based in London. He holds a wealth of experience in the creative industries, including PPL who provide licenses to companies wishing to play music to the public. As well as C8 he also holds directorships with a number of creative startups. Read more here: http://www.c8associates.com