A new era of maturity begins
After years of stagnation, the music market has definitively entered a period of growth thanks to the success of subscription-based audio streaming platforms like Spotify. However, the sector could experience further developments as services are likely to consolidate and new competition from China is emerging.
Streaming is driving global growth
2019 marks the fifth year of consecutive growth in the global recorded music market (+11.9%), which is posting similar revenue levels to 15 years ago at 18.1 billion EUR. All regions of the world are benefiting from this return to sustained growth, although the situation is more fragile in Europe than elsewhere because completion of the transition from physical to digital varies across the continent. The United States is the largest market in value, ahead of Japan and the United Kingdom. It is also the most dynamic country among the top five, driven by the success of streaming, especially paid subscription offerings, which now account for more than 60% of total music revenues in the United States. Worldwide, streaming became the industry’s leading source of revenue for the first time in 2019 (54% of total revenue).
Paid audio streaming leads the way the West
Main sources of music industry revenue, by region, in 2018
Spotify confirms its status as leader
The public’s enthusiasm for video and audio streaming, and the widespread adoption of subscription platforms, is reinforcing the leading roles of two players: YouTube in video streaming and Spotify in audio streaming. The latter was the first global player to cross the symbolic threshold of 100 million paid subscribers in spring 2019, while its closest competitor – Apple Music – reached only 60 million paid subscribers. Amazon Music and Google Play Music continue to enjoy significant growth in their subscriber bases, but this is no longer the case for market pioneers such as Pandora and Deezer. They are now losing subscribers because they have not managed to attract a truly international audience. The threat may ultimately come from China, where Tencent Music and TikTok are making rapid progress.
Spotify shores up top spot
Progression of the main audio streaming platforms' paid subscriber numbers
Are we heading towards market concentration around four giants?
Although legal streaming started with new market entrants, its growth is now driven by development of services from the Internet giants. The early players may eventually vanish or at least converge with these giants, opening the way for an oligopoly around Google, Apple, Amazon and Spotify. Spotify would then be the last survivor of the industry pioneers and the only one of these four players whose business model is solely based on music. In this new rivalry, the Swedish service enjoys a comfortable lead in terms of the number of paying subscribers and it finally became profitable in the third quarter of 2019. Profitability is not the main aim for its three main competitors; their goal is to attract and retain users of their other products and services.
Streaming taking hold as the main source of revenue
Progression of global recorded music revenue, by source
The rise of Chinese players
Innovation in the industry could come from China, where Tencent and ByteDance (the company behind TikTok) have ambitions that extend beyond their national borders. While Tencent Music Entertainment’s international projects appear to be on hold for the time being, 2020 should see the arrival of a ByteDance music streaming application, which is expected to initially target emerging markets in Asia (e.g. India and Vietnam) and Latin America (including Brazil). This application is likely to differentiate itself from Spotify by focusing on a community approach, which will probably appeal to younger consumers who are already heavy users of the TikTok application. The potential success of this Chinese service could convince Western record companies to sign agreements with the newcomer, especially because it could limit the market power of the established players and recreate momentum.