| 01 Dec 2023
Pandora and Spotify content acquisition costs increase in parallel with subscriber growth

MUMBAI: The growing popularity of music streaming services has not yet yielded positive results, stated the report- ‘Will Royalty Crisis Defeat the Music Streaming Industry’. This report examines the changing economics of the music industry around the globe.

It stated that current players are facing difficulty turning music streaming into profitable businesses.

The report predicts that music revenue globally declined 1 per cent, from $22.8 billion in 2013 to $22.5 billion in 2014. The report pointed out that digital music growth failed to equalise losses in packaged music revenues. Subscription and ad-supported music streaming resulted half of digital music revenue last year, which went up by 14 per cent y-o-y.

The author of the report and Digital Media Strategies (DMS) analyst Leika Kawasaki said, "Technology is evolving and changing the way consumers discover, listen to, share, and interact with music, but it is also a significant factor in the decline of music industry revenues. Many artists feel they are under compensated by streaming services, but as currently structured the underlying economics would not support higher royalty payments by these service, particularly for free ad-supported services. As a result, we may never see the same levels of spending on music as we did a decade ago".

Spotify average monthly revenue per user (ARPU) has actually declined for both subscription and advertising despite significant growth in revenue and a lower net loss. Monthly subscription ARPU in 2013 was down 2 per cent, while monthly advertising ARPU was down 37 per cent from 2012.

Pandora earns 82 percent of its revenue from advertising and Spotify earns 91 per cent of its revenue from subscriptions. Both the streaming services are increasingly spending on content acquisition which is equivalent with subscription growth. This prevents the services from going ahead.

Kawasaki added, "With too many competitors already in the space, music-centric companies are facing growing competition from tech giants that have a distinct advantage in terms of leveraging their vast product ecosystems to drive growth in the music space. Current music-centric services may not be able to overcome inefficiencies in music streaming economics and increased competition. As a result, we very well may soon be seeing changes in the balance of power."