Music and Streaming

By pjain      Published June 14, 2021, 4:58 a.m. in blog Invest   

Music and Streaming

Market Shares

Year Spotify paidSubs Apple Music paidSubs AMZN paidSubs
2020 130m 60 m 55 m

Timeline

  • iPod
  • Piracy tearing apart paid music
  • Pitch to bands "95% of all music downloads are still illegal" allow streaming or else
  • 2006 Spotify launched platform for unlimited streaming - allowed indes to make money. It's insight: future of music not about ownership (i.e. records, tapes, CDs) but rather access and on demand.
  • The music industry initially fought Spotify—but now like in iPod saga depend on the company to survive and Spotify is the largest engines for revenue growth to artists and labels in the music industry

What is paid?

Company c/Stream
Napster 1.9
TIDAL 1.2
Apple 0.7
gPlay 0.7
Deezer 0.7
Amzn 0.4
Spotify 0.4
Pandora 0.2
YouTube 0.06

Majors

Spotify

  • Stock’s come down, come down a lot. Management is terrific. I like them very much. I know the podcast area is crowded, but I’m going to say at these levels you want to buy Spotify. - Cramer

Spotify has a firm lock on artists' family jewels as it is one of the worst payers at only 0.3-0.5c/streaming play. These royalties are likely to keep on decreasing inspite of rising subscriber counts.

  • Cathie Wood strong believer in it

  • Disruptive BM$: Aggregate customers through a freemium model, pay out royalties to the labels, and scale upwards.

  • THESIS

  • Mindshare of 200m users around globe - with 130m paid subs - it dominates by far over Apple/Amazon competition
  • Hard to get bands/labels signup => MOAT into entrenched business model, significant barriers to entry,
  • Audio focus is niche that Google, etc. are not in for ads - build high profit biz on podcasts, etc.

  • RISKS

  • HIGH COST Royalty Model - 75% from advertisers and subscribers paid to the LABELS esp big brands
  • PROBLEM: Spotify’s primary cost driver is not, like most tech companies, fixed investments in R&D or Sales & Marketing, but rather marginal payouts to record labels.
  • So as it expands, likely big hits owned by labels - and its profitability constrained.

  • CORE MUSIC: Google-like control/dominance of MUSIC

  • App on your phone FREEMIUM (ad supported) to stream a near-limitless catalog of on-demand music
  • Early stage of audio advertising - Spotify has enough control to dominate it! Spotify is in the early stages of building the infrastructure to redefine the economics of the streaming audio industry—from scratch. Its end markets are vast.
  • PROBLEM: Music as a form of content - Limited mechanism for advertisers to segment and target an audience. vs gSearch
  • BAND FRIENDLY : Music also offers its creators a clear roadmap for ancillary revenue streams (i.e. touring, licensing, merchandise, etc.)

  • BM$ and Conversion keys

  • In 2019 while Ad-supported produced E101m Premium netted E 1,621m
  • High Conversion into paid subscribers—which is already the most profitable segment of Spotify’s revenue.
  • 90% of Spotify’s 2019 revenue came from its premium subscribers - 2x more profitable than ad-supported listeners.

  • CORE: Content acquisitions - Low cost INDE, Podcasts, etc.

  • As of 2020, users enjoy access to more than 50 million tracks, including over a million podcast titles.
  • Spotify’s audio library expands into new categories, especially podcasts,

  • PODCASTS - Spotify Google of AUDIO FIRST initiative to boost profit margins

  • podcasting in 2020 like Web publishing in the late 1990s: Exciting but fragmented, hard to monetize content creation.
  • Advertisers pay up $479m in 2018 y+53% vs $314m '17 - still a fraction of overall digital ads $130 b '19 (Google/FB)
  • Apple’s dominated early but left creators behind on a podcast monetization platform for creators - too small for Apple!
  • RAPID growth - 62 million Americans now listen to podcasts each week—up from 19 million in 2013
  • Podcasters are, for the most part, limited to speaking into a microphone in a studio or garage.
  • The content of podcasts is incredibly diverse: from political commentary, to live sports talk, to dramatic fictional stories, true crime, niche comedy, etc.
  • AI/Faves/Recommendations can greatly engage - YouTube is great example of addictive nature
  • Seen as higher valuation - different high-brow (or CNN/Fox fanatics as well) - so different demographic than music
  • Audio First launched in 2019 by CEO i.e. make money off audio — not just music — would be the future of Spotify
  • Podcasts as new BM$ eg Joe Rogan $100m+ paid too high?

  • FY'2020 - share price remained stagnant

  • Q12020, 286m MAUs, 130 m paid global subscribers—while growing its topline revenue 22% YoY.

  • FY'2018 IPO Direct listing

  • About

  • Spotify’s founder-CEO Daniel Ek

Pandora - Struggling, Positioned as a Digital Radio

Pandora has 2nd highest subs and total user count. But it only pays 0.1c/play a very skimpy amount!

Apple Music

Pays artists much better than its streaming music rival, Spotify. Rising from '17 0.6c/play to 2019 0.783c

With Apple closely guarding its user metrics, it remains unclear how much Apple Music loses each year on the service as well as per user.

Amazon Music

A third party claims Amazon cut paid indie artists 0.74c per play down on 0.4c.

Deezer

French-based streaming music service Deezer still doesn’t have an established presence in the USA. Deezer recently reported an annual loss of $27 million, losing $1.69 per user. Deezer reportedly has 16 million users, with around 9.12 million – or 57% – paying for the service.

It is a decent payer at 0.6c / play.

Napster

On average by 2020 Napster is said to pay out $0.019 per stream. To meet the monthly minimum wage amount in the US of $1,472, an artist would need 77,474 total plays.

With 5 million paying subscribers, the service loses around $7.00 per user. Unlike its rivals, however, Napster remains a profitable streaming music service.

TIDAL

Jay-Z’s streaming music platform, TIDAL stuck in controversies.
yet, the service had remained friendly to artists.

  1. Accusations of hacking users accounts to inflate Beyoncé and Kanye West’s total streams.

  2. Unprofitable - Jay-Z’s streaming music service reportedly loses $6.67 per user with an annual loss of $28 million.

Reportedly pays out $0.01284 per stream but would fall slightly.

You Tube inherits Google Play Music after shutdown

YouTube hasn’t ever been an artist-friendly platform, thanks to its horrendous payouts. This has been stuck at the really low pay of 0.07 c/play!

Disruptor, high PE Ideas

SPOT

RH

  • Up 520% in last few years
  • Just getting started - cram er
  • Buffet reduced holdings

MCO vs SPGI

Cramer likes both but S&P Global more - Doug Peterson CEO of SPGI is very smart


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