Spotify has become a major force in the music industry in less than a decade.
Just like Netflix (NFLX - Get Report) is shaking up the traditional pay-TV world, the music streaming service is the catalyst behind the internet-driven evolution of the music industry, said Mary Meeker, a venture capitalist with Kleiner Perkins Caufield & Byers, at Recode's Code Conference in Rancho Palos Verdes, Calif. on Wednesday. Meeker came prepared with fresh data on Spotify's growing dominance as part of her closely watched annual internet trends report, which was released in the afternoon.
As Spotify's paid subscriber numbers continue to grow (they already reached 50 million in March), so has its dominance of the music industry: Spotify now comprises 20% of global music industry revenues, up from nothing in 2008, Meeker noted. On top of that, Spotify has grown from scratch to 126 million monthly active users in just nine years -- not bad for a private company.
And according to Meeker, Spotify is actually helping the music industry. Recorded music revenue rose 11% in 2016 after seeing a 4% decline in annual average growth for the 16 previous years. About 52% of those revenues now come from subscription and streaming services, while physical sales (i.e. LP/EPs, vinyls, etc.) account for significantly less than that. Subscription music services such as Spotify and Apple's (AAPL - Get Report) Apple Music are two significant forces driving growth in the recorded music industry recently, and the companies are poised to continue doing so.
"[Media companies like Spotify] speak to the power of the algorithms and the data," Meeker said in an interview with the Financial Times. "It improves pricing for users and consumer satisfaction."
Streaming services are expected to help music industry revenues double to $104 billion by 2030, Goldman Sachs estimates.
"Streaming is a massive game-changer for the recorded music industry, in the sense that it establishes a much more sustainable business model for the labels," said Goldman analyst Lisa Yang in a recent note entitled "Music In the Air."
Meanwhile, Spotify, Apple Music and Amazon's (AMZN - Get Report) Music Unlimited are battling for the more than 112 million subscribers of paid streaming services worldwide. Apple Music is likely Spotify's closest rival, with the service already reaching "well past" 20 million paid subscribers, Apple's senior vice president of internet software and services, Eddy Cue, said in February. While it's unclear how many subscribers Amazon Music Unlimited has, approximately 15% of U.S. households with broadband internet connections have Amazon Prime Music subscriptions, according to tech market research firm Parks Associates.
As a result of the head-to-head competition, streaming services have been trying to woo users through personalization, large content libraries, exclusive artist content and, in the case of Spotify, building sophisticated algorithms. According to Meeker, Spotify users listened to an average of 41 different artists per week in January, owing to its recommendation engine.
Spotify has pioneered the "search/find/serve up" process for media, Meeker said, due to its data and algorithms. Since launching Discover Weekly one year ago, approximately five billion tracks have been streamed from the feature, which creates a personalized playlist for each user every Monday based on their listening history and other habits. The success of Discover Weekly has caused Spotify to ramp up its focus on algorithm-based playlists, as the company now plans to roll out more algorithmic features in the future, according to Ad Week.
Spotify is speculated to be planning to go public either later this year or in early 2018. The company is reportedly working with Morgan Stanley, Goldman Sachs and Allen & Co. on the process, which may involve Spotify going public as a direct listing, instead of the traditional initial public offering.
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