Music Streaming

This past month, digital marketing research firm eMarketer issued its new forecast on music streaming activities in the United States. What it shows is that Pandora, which has dominated the market ever since the category was created in 2000, will likely fall to the #2 position, overtaken by Spotify.

Based on a calculation of internet users of any age who listen to music streaming on any device at least once per month, Pandora jas occupied a narrow band of between 72 million and 77 million listeners since 2015.

During that same period, Spotify users have increased dramatically, from ~24 million to ~65 million Americans. And eMarketer projects that Spotify will overtake Pandora by 2021. The chart below shows the trajectory:

Actually, the trend had been building since even before 2015. In 2012, Pandora had ~67 million users compared to Spotify’s paltry ~5 million. But Pandora has been shedding users in recent years. As the chart above illustrates, by 2023 Pandora will have lost nearly 10% of its users since 2014.

To be sure, Pandora still holds a robust ~35% of audio listener penetration in the United States as of this year. But Spotify is nipping at its heels with a ~32% share. Amazon Music (~18%) and Apple Music (~16%) are further back, but with still-significant chunks of the marketing. (It should be noted that there is overlap, as some listeners may engage with more than one music streaming service during the month.)

What has caused the change in fortunes? Christ Bendtsen, an eMarketer forecasting analyst, says this:

“Pandora lost users last year because of tough competition from other services attracting people to switch. Apple Music has been successful in converting its iPhone user base. Amazon Music has grown with smart speaker adoption, and Spotify’s partnerships have expanded its presence across all devices.”

Speaking in particular about Spotify’s rapid surge, Bendtsen notes:

“Spotify’s initial growth was driven by its unique combination of music discovery, playlists and on-demand features. But now that all music streaming services [possess] the same features, Spotify’s future success will rely on partnerships with other companies. It has teamed up with Samsung, Amazon, Google and Hulu to be on all devices and provide bundled offerings. We expect more partnerships to come, leveraging multiple brands, devices and services to drive user growth.”

As for Apple Music, there’s a reason it lags behind other music streaming services in the rankings. That service operates on a subscription-only model and doesn’t offer any form of advertiser-supported free usage. Forecasters expect it to remain in the #4 position with its “premium-only” business model.

More information about the eMarketer music streaming forecast is available here.

What are your own music streaming listening habits? Have they changed in recent years, and if so, how and why? Please share your thoughts with other readers.

There’s no question that Spotify has been an up-and-comer in the music streaming business. Speaking anecdotally, over time more and more of my friends and family members have been signing up for the service.

And now, Spotify is pushing forward with an even more aggressive growth strategy … and it’s not aiming low at all.

In fact, the company is seeking backers at an eye-popping valuation level of $5.3 billion.

And to top it off, the company’s co-founders (Daniel Ek and Martin Lorentzon) intend to raise the funds not through equity investment, but through loans.

It seems neither person wishes to give up any more of the company to investors than has already happened.

What makes the $5.3 billion valuation so startling is not just the amount – big though it is. It’s because that the last business valuation of Spotify, done less than 12 months ago, pegged the company’s value at just $3 billion.

That time around, a number of institutional investors stepped up to the plate (including Coca Cola, Fidelity and Goldman Sachs). But don’t look for more institutional investment in this round of funding.

In the case of Spotify, being second or third in the music streaming market segment has turned out to be a good thing. Pandora and others were the pioneers, laboring in the vineyards for many long years before proving out the business model.

Then along comes Spotify and cleans up in a market space that people now understand fully.

At the moment, Spotify has around 6 million paying users in 28 countries — along with several times that number of people who use Spotify’s free, ad-funded services. Spotify streams music across desktops and mobile devices along with other music gear.

The company reports that it pays approximately 70% of total revenues back to music rights-holders. It’s not profitable yet … but how many years was Pandora bleeding red ink? The better part of a decade, certainly.

There continues to be some low-level grumbling about how Spotify handles payouts to the “bigger name” performers in the music industry.

According to some reports, Spotify pays only about $0.005 per stream. That means only big stars (the likes of Beyoncé and others) can make any meaningful money from the service.

But for anyone who thinks that $5 billion+ is a tad rich when it comes to the valuation of a business property like Spotify … remember that Skype was sold to Microsoft for $8.5 billion in 2011, after having been valued at just $2.75 billion two short years before.

So maybe the whole thing isn’t so far-fetched after all.