Transfin.
HomeNewsGuidesReadsPodcastsVideosTech
  1. Reads
  2. Lite

From Vinyl to Live Streaming: History of How we Listen to Music

Quantitative Research Professional
Sep 1, 2017 2:30 AM 5 min read
Editorial

 

The Internet’s very omnipresence often clouds an objective assessment of its impact. Within two decades of it being mainstream, letters have become e-mails, ledgers have become spreadsheets, headlines have become click baits, and shopping has become e-commerce. Virtually every trade and business tossed and turned under its power, be it in design, production or distribution. The music industry is no exception, witnessing not one, but many such revolutions.

 

Back in 1877 when Thomas Edison invented the Phonograph, he introduced a concept mankind had never known before; to reliably record and reproduce sound (or Playback). Over the last hundred and fifty years, this technology in its evolving forms spawned a global music industry pivoting from vinyl records to cassettes to CDs to digital music. Once these storage mediums were optimized to achieve mass production, the next natural disruption came in the world of music distribution.

 

Streaming cos like Spotify and Pandora have shaken record companies by allowing, for the first time, a seamless on-demand and personalized playback. Instead of depending on broadcast content or burning a hole in one’s pocket to buy albums, users started expecting customized feeds of music available anywhere, anytime, and on any device.

 

A start was made in the early 2000s, when first movers like Napster and LimeWire created peer-to-peer distribution helping users share digital audio files with each other in real time over the internet, absolutely free! Access to music was democratized and established business models of record companies, which so far tightly controlled distribution were challenged. As expected the old world hit back with copyright battles and injunction suits. But the guerillas had changed the way people would consume music forever.

 

Soon after, Apple launched iPod, its breakthrough music player, backed by the iTunes store. iTunes was the first digital store to legitimize online purchase of tracks and albums by striking distribution deals with major recording companies.

 

However, Napster and LimeWire had shown the world the possibilities when it comes to on-demand music. No further need to individually pick songs or navigate through intermittent payment gateways! Widespread use of smartphones, cheaper broadband and rapid progress in cloud computing meant online streaming platforms could step in to make this a reality.

 

Online streaming comprises various models who compete by carving out their own niche. A majority of these services function as on-demand platforms allowing users to search, store and play music on-the-go, while others walk an extra mile by empowering music lovers to create social profiles, share songs with one another and curate playlists depending upon one’s preferences. Even as these platforms are yet to become profitable, they’ve made fundamental changes to how music is sold.

 

While Apple Music and Tidal provide an ad-free subscription-based service, Spotify and SoundCloud prefer a freemium model where basic access is free, with a fee required for the “premium” experience which includes ad-free playback and exclusive releases. A huge base of 140m users makes Spotify the current market leader amongst on-demand services. Apple Music however, which entered the market 9 years later is rapidly catching up, bagging half the number of subscribers already.

 

Pandora and iHeartRadio are following another trajectory by taking a digital approach towards radio. Aside from integrating local stations, these platforms sit in the driver’s seat by selecting music for their users instead of giving them limit-less optionality. Their recommendation engines are backed by big data as well as constant user feedback, thereby letting customers enjoy the ride. Considering 250m registered users of Pandora, there is obviously a demand for such differentiation.

 

This dramatic evolution has a direct impact on how Artists make money. Artists who traditionally earned royalties through physical sale of CDs, cassettes, etc. are now compensated by a “pay per play” model wherein they are compensated based on the number of times their track is streamed in a given time period. As the game has moved away from margins towards volumes, many music celebs have openly expressed their discontent on how the per-stream royalties are insufficient to compensate their efforts. Some of them enter exclusive partnerships, pulling out their music from all other streaming platforms. For instance, in 2015, Adele took a stand against streaming when she released her new album 25, only making it available by purchase via iTunes.

 

 

A breakdown of per-stream royalties from YouTube, Apple Music, Spotify, and Google Play Music (published 2016), Source: Digital Music News

 

This makes it almost impossible for consumers to store music in one place. The ones who wish to have it all end up paying an exorbitant price, almost $240-$480 per annum to maintain multiple subscriptions.

 

As a result, stream ripping, a practice which involves turning a song or a music video played on a streaming service into a permanent download, is becoming increasingly popular. According to the Recording Industry Association of America (RIAA), the top 30 stream ripping sites received 900 million visitors last July.

 

There is no denying that legitimate streaming is here to stay. According to a RIAA study, the US music industry experienced its biggest gain since 1998 at c.11%, owing to the sudden growth in paid streaming music subscriptions, with revenues rising from $1.2bn in 2015 to $2.5bn in 2016, and streaming comprising c. 51% of the pie.

 

 

Streaming services backed by corporate giants like Apple, Google and Amazon continue to show consistent growth, positioning themselves as lucrative alternatives in a very short span of time. With profitability posing as a key challenge for most, it is highly probable that these big players would subsume others in the foreseeable future.

 

While it is too early to say how this sector might shape up, the future not only depends on synergies that will be established by means of consolidation but also on how companies approach the yet untapped markets. Specialized focus may be the way forward, as demonstrated by Saavn, a New York based but South Asia oriented service. Mostly looking at Bollywood tunes, Saavn is one of the few companies on its way to profitability, on the back of its lower licensing spend for South Asian artists. Only time will reveal whether this a play in scale or strategy or both. With Spotify entering Japan only last year, the music has just begun.