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FREEMIUM MUSIC: TAKING OVER THE INDUSTRY

You may or may not be surprised to hear that subscription
streaming services are the fastest-growing form of music listening.
According to the 2018 Global Music Report, there are 176 million
music streaming subscribers, and the annual growth is tremendous,
with 68 million people signing up in the previous 12 months alone.
In Canada, streaming revenues were up 68.8 percent at the time.
That report also marked the first time that such services
registered more revenues ($6.6 billion) than physical music sales
($5.2 billion) and digital downloads ($2.8 billion).

Streaming is more than the future of music; it is also the
present. For example, The Weekend, a popular Canadian artist with
global appeal, has capitalized on this platform. His song “I Can’t
Feel My Face” premiered on Apple Music and was streamed more than
1.5 billion times, on all the various services, in the first two
years alone. That sort of exposure and popularity allows artists
like The Weekend to cash in. However, despite these impressive
figures, he said, “We live in a world in which artists don’t make
the money until they hit the stage.” What does he mean? In fact,
royalty payouts are not what they once were; they amount to only
about 0.006 to 0.0084 per stream, or less than 1 penny per stream.
In addition, 99.9 percent of artists don’t get 1.5 billion plays in
their whole career! In other words, under this new streaming model,
the nearly free access to music can help build popularity that is
then fully monetized and that eventually pays off with lucrative
tours and endorsement deals. In 2017, The Weekend earned $92
million. That same year, Chance the Rapper earned $33 million
without ever selling a physical album or even signing a record
deal! His real paydays have come through endorsement deals with Kit
Kat and Apple and of course through festival gigs and tour
money.

SPOTIFY THE MARKET LEADER AND THE COMPETITION
Spotify was originally launched in Stockholm, Sweden, in 2008 by
two entrepreneurs named Daniel Ek and Martin Lorentzon. As their
website indicates, Spotify has led the fight from a “transaction
based” music acquisition model to an “access based” model offering
more than 35 million tracks to its customers. Spotify has more than
170 million monthly active users, with 75 million premium
subscribers, in 65 countries. The company went public in 2018, with
an initial public offering (IPO) valued at US$26.5 billion. Its
most notable competitors are Pandora, SoundCloud, and Tidal. There
is also one other late comer to the party going by a name you are
quite familiar with: Apple.

APPLE THE MARKET FOLLOWER Apple is one of the
most innovative companies in the world; it helped transform the
computer, smartphone, tablet, and music industries. How-ever, the
dominant position achieved by Apple iTunes (after the digital
revolution disrupted the physical distribution model) is now
threatened by streaming services. In fact, the digital download
model championed by Apple’s iTunes saw heavier declines than
physical distribution in the previous 12-month period (20.5% vs.
11.2%). Apple saw the writing on the wall a few years back and
entered the streaming business in 2015 (albeit as a late arrival).
However, despite the delay, once it made the move, it was fully
committed. When Apple bought Beats by Dr. Dre for $3 billion back
in 2014, many scratched their heads at the high price tag. However,
Apple was not simply buying the company for its headphones; part of
that move was to acquire the Beats streaming service and brand
equity.

CONCLUSION So, where will the music industry be
heading next? There have been a few major disruptions in the past
couple of decades, from sales of CDs, to an epidemic of illegal
streaming, to the emergence of iTunes, to the new rise in
subscription streaming. The freemium model is the present hope for
the future, but these days you can be sure of one thing: change is
just around the corner. Survival of the quickest is the new
norm!

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