Why Digital Music Service Consolidation Is Set To Continue
TMV’s Wayne Rosso recently reported on the acquisition of US based streaming music service MOG to HTC owned Beats. Was this a one off or more a signal that consumers are inundated with numerous digital music services and that perhaps there are just too many services fighting for a limited amount of consumers?
Business analysts state consolidation is inevitable, and whilst TMV tends to agree with such an assessment we want to drill down and examine the facts that may have led to this state of affairs. As after all, is not consolidation the enemy of competition? Consumer choice is king in this scenario of competition. Could it potentially be that oversupply of digital music service’s has led to in some instances lame user experiences, and in turn that this has turned off consumers?
Yet the question then needs to be asked, is why labels have licensed their music to services that quite frankly are not up to standard in terms of delivering a seamless iTunes al-la-carte experience or in the case of Spotify a seamless streaming experience?
Could it be the allure of catalogue licensing advances, which go straight to labels ‘black box’ of non-attributable income? Or is it out of a genuine willingness to take a punt? I would hazard a guess that it is somewhere in the middle and dependent on the major label. We all know in the case of WMG, that it is primarily only interested in accruing as much non-attributable income as possible – as witnessed by its continued demanding UMG level advances despite the fact Warner represents less than 13% of global record sales market share.
Best Buy Purchased Napster and then sold it onto Rhapsody. The current market share breakdowns between al-la-carte and streaming music services looks something like the below:
The graphs above detail the very real fact that there are two separately massively dominant players in each digital music service category (TMV excluded streaming video and radio type services from the extrapolations made). So what does this actually, signify in terms of competition? In reference to streaming music services it indicates that whilst there is some semblance of competition there is clearly a market leader in the form of Spotify. However in the al-la-carte sales sector Apple’s iTunes is clearly a monopoly with Amazon coming a far second in the market share stakes and Google Music as previously reported seeing users drop off at an alarming rate.
The fact is that between 400 – 600 al-la-carte digital music retailers have been fighting for a share of the remaining 9% of al-la-carte sales signals some very serious consolidation is a surety in the near future. This also perhaps reinforces why investors are vary of investing in digital music retail service, no doubt also compounded by high catalogue licensing costs associated with launching such services.
In TMV’s view, such a dominant monopoly hold on the al-la-carte sales sector is intrinsically bad for competition and especially new emerging digital music retailers. Three massive global conglomerates possess a combined 91% market share. Where is the incentive to innovate, little own develop compelling user experiences? On the flip side it can also be argued that the fact so many new services are fighting after such a tiny part of the market left, it is quite simply not a viable business proposition and so many current players will be history in the next twelve to twenty four months.
Whilst yes Spotify is close to being a monopoly in the freemium and premium music-streaming sector it is heartening to see Deezer along with Rhapsody, Rdio and others competing on a reasonable footing. However, from both a label and artist payment standpoint the question does need to be asked if streaming music services are viable business propositions?
TMV have been shown some startling figures, which compare the monthly physical and digital al-la-carte sales required to ensure an artist receives the minimum monthly wage in the United States of $1,160 with those of plays required from streaming music services to deliver the same revenue. The figures are astoundingly impossible for 99% of artists, and as such TMV do ask what is in it for the artists?
As noted above TMV are talking about 4,053,000 plays required per month required on Spotify to make an artist the equivalent of 1,229 iTunes album sales which is equal to $1,160 per month – the monthly minimum American wage. TMV would go as far to state realistically artists are being treated as slave labour to deliver Spotify’s IPO valuation of $3.5 – $4.0 billion. We will leave you the reader to make up your own mind, but if I were an artist I would also be taking my songs down from Spotify and other streaming services…TMV will be reporting in a more detail manner regarding what it takes for an artist to make the American minimum monthly wage from selling your music.