The music sector was one of the first to be hit by the digital revolution more than 10 years ago. The way we listen to music on the go continues to evolve with technology at a rapid pace.
Portable music began with Walkmans, before Discmans, then iPods and other MP3 players. Now smartphones are the most common device for listening to music.Digital sales in Australia have overtaken physical sales of recordings, which started to decline in 2005, the year Apple iTunes Australia was launched.
Music streaming is surging on smartphones and mobile devices driven by faster internet speeds, larger mobile data packs and lower costs of listening to music for the consumer.Ten years ago consumers paid about $30 for a new release CD, whereas music streaming costs on average $12 per month for access to exhaustive music libraries.
In Australia, there are 16 different players in the market that offer music streaming services. This figure continues to change at a rapid rate as players enter and exit the market.The Australian market is dominated by the international players, with Spotify, Apple Music, YouTube, Google Play and Pandora leading the way. There are also some Australian companies, such as Guvera, competing for a share in a highly cluttered local and international market
Choice of platforms
Each player offers a mix between free services backed by intermittent advertising, or an ad-free paid subscription. Spotify’s website says it has more than 20 million subscribers paying $11.90 per month from 75 million active users in 58 countries. Apple Music launched on June 30 this year, offering consumers a three-month free trial. Spotify also offered a free three-month trial one month before Apple Music’s launch.
The other player is YouTube, which holds the title for the most watched music videos in the world – Gangnam Style by Psy has been viewed 2.4 billion times. YouTube has flagged that the launch of its own streaming service has been delayed to late 2015.
The only-ASX listed company that has exposure to the sector is JB Hi-Fi, through its product JB Hi-Fi Now, which launched in 2011. In my opinion, it is a good offering, but consumers are spoilt for choice and we are seeing the global players gain more traction locally. To its credit, JB Hi-Fi acted early in the face of declining CD sales, responding promptly with the launch of a competing product. It still remains immaterial in terms of its contribution to the company’s financial results.
Content is key, and it comes at a cost. Generally artists have been supportive of music streaming and have acted quickly in collaborating with the various platforms. However, this relationship has not always been smooth. Major US pop artist Taylor Swift recently publicly renegotiated the terms of her relationship with Apple Music via an angry tweet.
In select markets globally we are seeing the resurgence of vinyl sales, driven by the 15 to 25-year-old demographic group. UK department store John Lewis recently reported more than 100 per cent sales growth in vinyl sales.
Illegal music downloads remain rife, although their scale and impact on physical or digital sales are almost impossible to quantify.
Music streaming combines lower costs and wider choices than its predecessors, and its prominence in the broader music sector is secured for the longer term.
In our opinion, the Australian market remains crowded and is set for consolidation. This has commenced with the recent market exits of Telstra Bigpond Music and Grooveshark. With plenty more movement to come, we will be listening closely.