In this section the different competitors which are considered in the overall analysis will be described, mainly focusing on the advantages and disadvantages these companies have, compared to Spotify. A comparison between the different streaming platforms can be found in table 3, the services are ordered by their current user base (free + paid users), extracted from publicly available data. Amazon Music Unlimited and Google Play Music have not been included in the table, since there is no publicly
Known data about the current user base. Tidal claims it has 3 million paid subscribers, but it has been reported that these numbers might have been heavily inflated. The report suggests that the amount of users of Tidal is closer to 1 million. Therefore, this figure will be used when comparing the service to Spotify.
Pandora is the oldest service considered in this comparison. Having over 80 million users, of which just 4.39 million users of the paid subscription. Next to this Pandora has the smallest catalogue size of the services considered in this comparison. Pandora, for that matter, is not an on-demand music streaming service, but acts as an internet-radio. Further analysis of the impact of this different way providing music will be analyzed later when answering the third sub research question.
Apple Music is currently the biggest competitor of Spotify, with over 27 million paid subscribers In June of 2017, just 7 months after it hit the 20 million subscriber mark. Apple has the advantage of being a large company with other means of securing revenue, this is a considerable advantage, since the music streaming market has yet to prove to be profitable. Reducing the need for attracting investor money. Apple currently has over $250 billion of cash on hands. It is using this cash to provide artists with deals. These deals help artist, for example, with large marketing campaigns and production of music videos. Apple Music releases the work of these artists as an exclusive, often for a limited time, making Apple Music the first music streaming service to offer the release to their users. Due to discontent shown by label companies towards exclusives, Apple Music is reportedly moving away from exclusive albums .The impact of these exclusives on the amount of users will be assessed later.
Because of Apple’s position within the digital market, it has another advantage. Apple controls the environment in which Apple Music is often used. The amount of devices which use Apple’s iOS surpassed 1 billion last year . This gives Apple more control on how the applications used for Apple Music are displayed and how these applications work. Next to this it gives Apple control over how the applications of competitors behave in the iOS environment. Spotify accused Apple of blocking an update of the Spotify application for iOS, because Spotify disabled the mandatory in-app billing system, which pays a mandatory fee of 30% to Apple. Spotify disabled this after it actively promoted new potential customers on the iOS platform to subscribe via the Spotify website, to which Apple, reportedly, threatened to remove the application from the App Store. Currently Apple Music offers a lower music quality than the other competitors, offering its streaming service at a 256Kbps bitrate. Instead of the more standard 320Kbps which the other streaming services, including spotify, offer.
Deezer is a company which, like Spotify, is a European start-up without a large company backing the service. Deezer does not have many distinctive features, but does provide a larger music selection than Spotify and Apple Music. Deezer lost subscribers during 2015 in a time in which the overall music streaming market saw a surge in the amount of subscribers.
Alphabet, parent company of Google, has not made any figures on user count of their music streaming service publicly available. The remaining share of the global market when subtracting Spotify’s and Apple Music’s share, suggest that Alphabet does not capture a large portion of the music streaming market, considering the market shares of the other competitors as well. Despite not having a large amount of users, Alphabet has some advantages which it can leverage. Just like Apple, Alphabet has large cash reserves on hand, $ 75.3 billion in Q1 of 2016. These cash reserves and other revenue streams offer possibilities for similar business deals like Apple’s. One of the most distinctive features of Alphabet when comparing music streaming services which are on offer, is the fact that it owns the largest music platform currently existing, YouTube, estimated to have 900 million users which use the service for consuming music . Whether or not YouTube is unfair competition for other streaming services, how large the actual impact is of the ’value gap’ or what the legal implications are of the way content is being delivered is out of the scope of this research. The fact that YouTube and its resources are available for Alphabet to utilize gives it an advantage over the other services considered in this research. Because of the ownership of YouTube, Alphabet bundles a subscription to Play Music with a YouTube Red subscription adding significant value to the e9.99 offer.
Amazon Music Unlimited
Like Alphabet and Apple, Amazon is a large company with other revenue sources. Giving it possibilities of offering exclusive projects on its service in order to give it an advantage over the competition. This financial room allows Amazon to provide its service cheaper for specific users than the competition. Amazon Prime members, of which the amount is estimated to be 80 million can subscribe to Music Unlimited for a monthly fee of $7.99. Owners of Amazon’s Echo can subscribe to the service for $3.99. The Echo enables Amazon to provide a seamless and voice-driven music streaming service, for a low price.
Channels one of the largest sources of the barrier to entry is the ’access to distribution channels’. Since the product delivered by the service is dependent on the work and willingness of artists or labels, it is important for a music streaming service to have a large catalogue of music, since consumers prefer an extensive catalogue. The large amount of deals which have to be made with labels and independent artists, do raise the barrier to entry significantly.
The capital requirements mainly stem from the issue of profitability. Since profitability has proven to be an issue for all music streaming services the entrant needs significant amounts of money in order to be able to carry the losses. If offering the service itself is not likely to be profitable, entering the market has to add some value to other business practices. Large corporations like Apple and Alphabet offer their streaming services in order to provide a more coherent experience, in case of Apple this means for example a nicely integrated music streaming service with the iOS device of your choice, in case of Alphabet this can be seen with an android device with Google Play Music being pre-installed. Next to this, Alphabet can use the data generated from users of their service, to improve advertisement, adding significant business value for Alphabet. Since start-ups do, generally, not have these other business practices, entering the music streaming market does offer added business value. This deters these possible entrants from entering the market. This limits the possible entrants to existing corporations with cash reserves, for which entering the music streaming market carries ads business value.
The music streaming market already has numerous amounts of services, of which Spotify is the most influential, as well as the first company to offer on-demand streaming which has become mainstream. This position give Spotify a more prominent brand identification. Brand identification is also a strong point for Apple Music, because of the strong brand Apple has .This raises the barrier for possible entrants. Overall, the likelihood of a new strong entrant seems rather low. Capital requirements are high and the market already has several competitors with strong brand identification. Next to this large competitors such as Spotify, have started negotiating for lower royalty fees.These factors make it highly unlikely that a new strong entrant can compete with the current streaming services, especially considering the fact that most large companies who would have interest in the market, already offer a service.
Services like iTunes (Apple) offer users a way of acquiring and owning music by paying per song. This song can then be downloaded and offers the user the right to listen to this song. This is considered as legal downloading. The songs usually cost around $0.99 and albums $9.99. This makes listening to multiple albums considerably more expensive than the $9.99 offer an on-demand streaming service which enables the consumer to listen to a large library of music. This does however make the user the owner of the song, which is available to the user forever. The streaming service only gives the user access during the months for which the subscription fee is paid. Legal downloading has suffered from the rise of streaming. The revenue declined by more than 20% in 2016, while streaming revenue increased by 60,4% Legal downloading does not seem like a competitive alternative to streaming, since the price of the individual albums and songs rapidly exceed the monthly subscription fees of the on-demand streaming services. Next to this the downloading of the songs results in the user owning a digital file, which does not bear the same sentimental and collectors value as physical albums, offering little added value to the product.
Illegal downloading or piracy has been a problem for the recording industry since the rise of the internet. Since music is acquired without the need for payment, artists and record labels earn no money from these downloads. IFPI estimated that in 2015, 20% of worldwide internet users regularly visit services which offer copyright infringing music This is a large portion of the worldwide internet users, suggesting that these downloading services are much more popular than music streaming services. On-demand streaming services however, seem to be a good alternative for costumers to piracy. Research by the Joint Research Centre of the European Commission suggests that on-demand streaming services, Spotify in the researched case, displace music piracy Streaming services offer a large catalogue of music in an instant, while most illegal downloading services requires the user to download each file separately. Streaming services are often more convenient for the user. The president of Valve, Gabe Newell, which owns the largest digital distribution platform for gaming, Steam, said about piracy: ’Piracy is almost always a service problem and not a pricing problem’ Researchers found that this claim might be true, offering the right service may be an effective way of combating piracy On-demand streaming services have seemed to tackle this service problem. Since research suggest that on-demand streaming services reduce piracy.
The research which has been conducted in regard to consumer preference almost exclusively came to the conclusion that the size of the music library is the most important factor for users when considering which streaming service to use. However, the amount of users of each service suggest that the importance of these factors is less than what is to be expected when considering the data. Spotify, having a relatively small music library, has the most users. Concluding the same when considering the pricing, also an important factor, cannot be said easily, since most services offer a standard $9.99 subscription. More in-depth research could provide more insight in why this phenomenon is apparent. One possible explanation for this discrepancy in data is the fact that music selection size is a rather subjective term. The size of the music library is sufficient when all the music the user wants to listen to is available. A user interested in one genre of music, does not need the service to offer a completely different genre. Most ’mainstream’ music is available on Spotify, listeners of this genre might not be interested in hard-rock or metal, having these genres included in the music selection adds little value to these users.