Pandora

Pandora’s Box: Spotify is poised to become the #1 music streaming service in the United States.

Phillip Nones Business, Content Creation and Content Management, Marketing Research, Media Consumption, Social Commentary , , , , , ,

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.

Spotify hits the spot in its business valuation: $5.3 billion.

Phillip Nones Branding, Business, Uncategorized , , , , , , , , , , ,

bullhornThere’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.

Internet Music Does a Number on Traditional Listening Habits

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Changing trends in music listening habits favor Internet radio and on-demand music services.
Changing trends in music listening habits finds Internet radio and on-demand music services growing at the expense of CDs and AM/FM radio.  Pandora radio users reflect the broader trend.

I’ve suspected for some time that the rise in popularity of on-demand music services as well as Internet radio are fundamentally changing how consumers consume music.

And now we have quantification showing the extent of those changes.

Marketing research firm NPD Group has just released results from a survey it conducted among American Internet users age 13 and older. It found that half of Internet users have listened to music on Internet radio or an on-demand music service at least once over the past three months.

User activity is split equally between Internet radio services such as Pandora, and on-demand services like Spotify and Rhapsody (about 37% each).

Internet radio appears to be growing in popularity significantly faster than the on-demand music audience. Internet radio audience increased ~27% over the past year, while the on-demand music audience grew by just ~18%.

By contrast, the audience fell in other categories – most dramatically in listening to CDs:

• Digital downloads: ~2% decline
• AM/FM radio: ~4% decline
• Music CDs: ~16% decline

Since finally breaking into the mainstream about three years ago, the Pandora Internet radio service has really taken a bite out of the conventional ways of listening to music. Moreover, about one-third of all Pandora users are now listening to music via the service in their cars. As a result, since 2009 the percentage of Pandora users who also listen to AM/FM radio has declined by ~10%. Even more dramatic has been the drop in Pandora users also listening to CDs on non-computer devices and/or on portable music players (-21%).

An intriguing  finding of the survey is that using Internet radio and on-demand music services has increased audience engagement with new music:  More than half of the respondents reported that these services have aided in their discovery of music that is new to them. 

Clearly, innovations such as Pandora’s “music genome” have made it easier and more fulfilling for listeners to broaden their musical horizons, branching out from musical styles that are familiar and most pleasing to them.

But an even more interesting finding may be this one: Two-thirds of respondents have used these services to rediscover older music – the music of their youth.

In this case at least, “what’s old is new again.”

Google’s Instant Search: Instant Irritation?

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Google's Instant Search is a Non-StarterHow many of you have been noodling around with Google’s new Instant Search functionality since its unveiling earlier this month? I’ve spent the better part of a week working with it, trying hard to keep a “completely open mind” as to its benefits.

I’ve finally came to the conclusion that … I can’t stand it. I’m a pretty fast typist, and generally know what I’m searching for. I really don’t need Google “pre-anticipating” search results for me, and find the constantly jumping search results window extremely off-putting to the point of distraction.

I gave Instant Search a full week … and couldn’t take it anymore. I’ve now elected to turn it off completely.

Wondering if I was the only one with this view … it certainly didn’t take long to find out that there are a great many people out there who feel the same way. You can use Google search (either the “instant” or “traditional” will do fine) to find any number of blog posts and user comments about Google Instant Search that are just one notch shy of mutinous — and hardly genteel in their choice of language. (A few examples can be found here and here and here.)

If the comments by disgruntled users are to be believed, Bing/MSN may find itself with a nice little bump in search volume market share by the end of September.

And if that actually happens, Google Instant might die a quiet death – which wouldn’t be the first time Google laid an egg in its “throw-everything-against-the-wall-and-see-what-sticks” approach to product development.

But if Google Instant does gain traction … there are some negative implications for search marketers as well. Many companies seek to structure their online marketing campaigns by determining the optimal amount of spending on search advertising, display ads and social media. The key to success in this endeavor is undertaking a process that examines the millions of cookies and billions of clicks that are made by web users, along with factoring in other elements like geographic location and time of day.

All of this information is weighed against the cost of various ads and the likelihood of success as they are served to the user. That’s determined by running regular models of millions of keywords and word combinations, judging the relative costs to determine the optimum frequency. For some of the most aggressive marketers, these models are run once or twice daily.

The advent of Google’s Instant Search scrambles all of that, because it makes the process even faster and more hectic than before. As those of you who have experimented with Instant Search know, you start seeing “suggested” search results with just the first one or two keystrokes … and those choices continue to change with each new keystroke made or movement of the cursor down the list of Google’s suggestions. For marketers, the result is a lot more velocity on the ad side – and more price changes.

As proof of this, within the first few days of Instant Search’s launch, sites that Instant Search recommends after the first one or two letters are typed into the search box – “Mapquest,” “Ticketmaster” and “Pandora” are three useful examples – were experiencing significant increases in traffic, whereas their hapless competitors were not.

If that’s what is happening with the big boys, where does this put smaller businesses? The answer is obvious: They’re going to get squeezed big-time … and as a result, their search advertising costs are going nowhere but up.

Mighty sporting of you, Google.

Radio Revolution: Pandora’s Box of Musical Delights

Phillip Nones Uncategorized , , , , , , , , , , , , , , , , , , , , , , , ,

Pandora Internet RadioPandora® Internet radio is one of the more interesting concepts to hit the web. Built on a powerful music recommendation engine known as the Music Genome Project®, it enables a listener to hear streaming music selections chosen on the basis of the musical styles of their favorite bands, performers or songwriters.

If you enjoy the jazz piano style of Marian McPartland, for example, Pandora will stream performances in a similar vein – such as the songs of Beegie Adair and Joe Bushkin. And you can create numerous personalized channels (also called “custom radio stations”) focusing on different styles of music to suit whatever mood or occasion you wish.

It’s an approach to listening remindful of Tom Hanks’ famous quote about that box of chocolates in the movie Forrest Gump: “You never know what you’re going to get.”

… Except with Pandora, you do “kinda-sorta” know what you’re going to get. I’ve been a Pandora listener for over a year now, and I’ve been introduced to musical artists I didn’t know before and probably wouldn’t have stumbled upon otherwise … and I’m the richer for it.

Pandora may be an Internet star today, but it sure didn’t start out that way. The brainchild of Tim Westergren, Pandora labored under difficult circumstances for the better part of a decade. The Music Genome Project took years to build and calibrate, during which time Pandora’s yeomen developers were obliged to work for large stretches at a time without pay.

Also, as with many Internet sites, figuring out an effective business model was challenging — and a barrier to obtaining funding.

Then in 2007, just as Pandora seemed on the verge of breaking out, an action by the Copyright Royalty Board raised Internet radio royalty fees to prohibitive heights, resulting in a court action that was finally settled in July 2009 in a compromise ruling.

Through it all, Pandora managed to survive, and now is close to having 60 million registered users. The Internet site is attracting sufficient advertising dollars to bring in profitable quarters. Revenues topped $50 million in 2009 (~60% goes to paying music royalties), and revenues are on track to double this year.

Always innovating, Pandora is now expanding into TV sets and automobiles as well, although the majority of activity currently comes from computers and a significant minority from mobile phones.

Long-term, Pandora believes the biggest potential rests in automotive. Consider this: Once listeners realize they can simply skip over a song on Pandora they don’t like, it should change forever the way people interact with radio.

Smartphones surge … and phone apps follow right behind.

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Smartphones surge in the marketplace ... phone apps right behind them.Media survey firm Nielsen is reporting that as of the end of 2009, about one in five wireless subscribers in the U.S. owned a smartphone. That’s up significantly from the ~14% who owned them at the end of 2008, and adoption is only expected to accelerate in the coming months.

So what’s going on with phone apps, now that a larger chunk of the population is able to download and use them? Nielsen is seeing about 15% of mobile subscribers downloading at least one app in a 30-day period.

Perhaps not surprisingly, those who own iPhones are more apt to download apps compared to people who own Android phones, Palms or BlackBerrys. Far more apps have been developed for the iPhone, although Android is feverishly trying to catch up.

Which apps are most popular? It goes without saying that games – free and paid – are quite popular. But the four most popular apps are Facebook, Google Maps, the Weather Channel and Pandora.

And where are the news apps in all this? Not even on the radar screen, it turns out.

… Seems people are getting more than enough news blasted out to them 24/7/365 without needing to sign up for a special app to deliver more of it — thank you very much.