How Music Streaming Won Over Millennials

Streaming is officially the lifeblood of the U.S. music industry: The latest annual report from the Recording Industry Association of America shows that streaming generated 75% of industry revenue last year, up 10 percentage points from 2017. This growth has been fueled by generational change: Despite their reputation as content freeloaders, Millennials actually are far more likely than their elders to pay for music streaming. Heading into 2019, the industry’s main players are jockeying for this coveted demographic—but which will win out?
As streaming has surged in popularity, so has the number of companies that have stepped in to offer their own services. Among the rivals to Spotify are YouTube Music, Apple Music, Pandora, Amazon Music, Tidal, Deezer, Slacker Radio, and Napster—and that’s just for starters. But consumers may have a hard time telling them apart, because the plans they offer are largely the same. Some focus on radio and others on-demand streaming; some let users listen for free with ads. But all provide the same core paid service: unlimited streaming with the ability to create playlists and radio stations, as well as listen to songs offline for $9.99 a month.
So where does each service stand out? YouTube Music and Pandora claim to have the best recommendations. YouTube Music selects songs based on Google’s considerable trove of user data; it will also suggest music based on your location. Pandora has its famed Music Genome Project, which it plans to recreate for podcasts. Spotify plays on the widest variety of devices and focuses the most on social features. Tidal and Deezer tout the highest audio quality. Amazon and Apple, meanwhile, make it easy for listeners who own their hardware to enjoy seamless playback. Apple Music, for instance, is the only streaming service that works on the company’s HomePod speaker.

Though the competition in paid streaming is fierce, there’s a clear frontrunner: Spotify. As of Q3 2018, the company had 87 million paid subscribers and a total of 191 million monthly active users. Coming in second is Apple Music with 56 million subscribers. To be sure, these aren’t exact comparisons: Many of these services aren’t available in the same countries, while others haven’t disclosed their subscriber numbers. Spotify also isn’t the most popular source for music streaming overall; that’s the free version of YouTube. Paid subscriptions, however, generate much higher revenue per user—and, over time, ad-financed content tends to be driven downmarket.
Yet even though Spotify rules the industry, it’s not profitable. That’s because the cost of music licensing is so high and will continue to be as the company grows. Furthermore, unlike Big Tech, Spotify can’t afford to compete on pricing. It’s no coincidence that the two companies offering the deepest discounts on streaming are Amazon and Apple. And with Google recently entering this space, Spotify is facing another competitor with unmatched negotiating power and money to burn. In order to become profitable, it needs to either cut its music costs or pursue other sources of revenue. The company has started offering advances to indie artists and managers who license their music to Spotify directly—the first sign it may have long-term ambitions to produce content, Netflix-style.


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