A new framework for niche music streaming services

Nothing goes mainstream without being niche first.

Such is the story of music streaming’s past, and potential future. Many of the features that we take for granted today on major DSPs like Spotify and Apple Music — personalized playlists, mood- and activity-based curation, hi-res audio, social music feeds, etc. — were once considered niche. For diehard music fans in the 2000s, services like 8tracks (an interactive radio service that ran entirely on user-curated playlists), Songza (which created automated, personalized playlists for users based on time of day, mood, activity and other functional factors) and Last.fm (which made a performative experience out of users’ public listening activity, or “scrobbles”) added much-needed social, interactive and curatorial layers on top of the otherwise overwhelming “celestial jukebox” of millions of tracks that defined digital music platforms at the time.

Then throughout the 2010s, services like Spotify co-opted many of those same features in a slicker, more all-encompassing user experience that would go on to reach over 150 million paying subscribers, inspiring big-tech companies like Apple, Amazon and Alphabet to start competing on the same turf. These now-dominant DSPs have built up the engineering chops to scale personalized music listening to a mass-market audience — competing directly with terrestrial radio to the point where, in the words of Mark Mulligan, “niche is the new mainstream.”

For the most part, this has also meant consolidation and/or death for the niche streaming services that made this landscape possible in the first place. 8tracks shut down in late 2019, but was later acquired and relaunched by a company named BackBeat Inc; Last.fm is now owned by CBS Interactive; Songza was acquired and subsequently shut down by Google.

Engineering personalized listening experiences at scale is one thing; building the UX itself to cater to niche rather than mass-market audiences is something else entirely. As we’ve covered previously, as all the major DSPs compete head-to-head for global market share, we’re in a situation where their UX looks almost exactly the same across the board — emphasizing lean-back, functional and algorithmic music curation, and prioritizing playlists and singles over albums. Naturally, this means that more niche forms of music discovery and artist/fan/community engagement get left behind, especially for genres like classical and jazz that are largely left out of mainstream industry conversations.

Hence, the pendulum may now be swinging in the other direction with another opportunity for smaller, more niche music services to fill in these gaps. Instead of trying to compete with incumbents merely on catalog or user volume, these services focus, once again, on providing value that is not currently being addressed by their mainstream counterparts.

Let’s dig into what some of these music services are and how they’re trying to promote their own, unique flavor of music consumption and discovery. We’ve also compiled all the active niche music streaming services we’ve found on the market into a comprehensive, curated database exclusively for paying Water & Music members, which you can view below.

Some disclaimers

• In today’s increasingly globalized music industry, we do not consider geographic availability or specificity alone to be a “niche.” There are certainly music services out there that happen to focus on catalogs and users in specific markets outside of the U.S. and Europe, by nature of where they first launched — for instance, QQ Music in China, Anghami in MENA, JioSaavn in India and Boomplay in Africa. But these are arguably not “niche” services, as they still reach tens if not hundreds of millions of listeners each, and take a clear mass-market approach in their catalog acquisition and product strategies. (Generally speaking, it’s myopic to refer to Asian and African music markets as “niches” anyway.)
• With that said, our database has a clear Western bias by nature of our data sources. If you think there are any niche music streaming services (focusing on a particular genre, activity, user/community experience or payout model) outside of the U.S. and E.U. that would be helpful to add to our list, please let us know.
• This analysis and accompanying database focuses on audio-first music streaming experiences. We do include some classical-focused video streaming services (live and on-demand), but the overall focus is still on audio- rather than video-driven interfaces.

Breaking down the niche music streaming market

At the top of this article is our market map of niche music streaming services today, organized by mode of differentiation. Please note that like this map is not meant to be exhaustive, but rather is intended to provide an evergreen mental model for thinking about different kinds of growth opportunities in the niche music streaming landscape.

Differentiating by payout model

We’re leading this analysis with services that differentiate by payout model, given the timeliness of the topic — namely, the U.K. government’s 122-page report last week on streaming payouts to artists.

In general, the eradication of live shows during the COVID-19 pandemic compelled the music industry to grapple directly with the shortcomings of digital music economics, and to make several digital-friendly pivots accordingly. From the U.K. government’s inquiry to more grassroots campaigns like UMAW’s Justice at Spotify, the general public is gradually becoming more aware not only of the pitfalls of the current streaming model, but also what a better model might concretely look like for artists, from higher average per-stream royalty rates to friendlier, more transparent royalty flows and licensing deals.

Such critiques have created a small opportunity for some mainstream DSPs like Deezer and SoundCloud to experiment with user-centric rather than pro-rata payment models — where a user’s subscription or advertising revenue goes directly to the artists they listen to, rather than into a pool that is divided up by market share. But major labels inherently benefit from the current, market share-driven model, and thus arguably have no incentive to switch to a user-centric approach that some studies have suggested would reduce revenue for the top 1% of celebrities. It’s also worth recognizing how heavily regulated publishing royalties are, at least in the U.S. with the oversight of the Copyright Royalty Board, to the point where raising royalties meaningfully for songwriters will literally take decades.

Elsewhere, smaller companies like Resonate are building streaming interfaces with a fundamentally different payment model — in this case, stream-to-own — from the ground up. Newcomer the van has a model similar to Bandcamp, where the core streaming interface is free but fans get to financially support artists directly if they’d like, with the platform taking a 20% fee.

The recent hype around music NFTs has also spurred new exploration of Web3 streaming platforms that compensate artist and community contributions via crypto, rather than via traditional streaming royalties. For instance, crypto-powered music streaming services like Audius and Nina issue branded social tokens as rewards for behavior such as buying an artist’s music and contributing frequently to the platform socially as a fan, or trending the most and curating with the most impact as an artist. As Water & Music recently covered, more labels, distributors and publishers are experimenting with converting their artists’ royalties into crypto in the payout process; it’s only a matter of time before the shift to crypto happens natively on the platforms themselves.

The two major challenges facing these kinds of crypto-driven music services are rampant copyright infringement and lack of consumer-friendly education and messaging. Generally, music fans are less interested in the underlying payout models for streaming services, and more in the core utility of the service as a whole, with guiding questions like: Is the service easy and intuitive to use? Does this service enable me to discover and connect with new artists I like on a regular basis, to the point where I will make a long-term habit of visiting the service on top of any other mass-market DSP(s) I might already be paying for?

Ultimately, to survive in the long-term, music services that differentiate by payout model will have to navigate this balance between maximizing utility for artists and maximizing utility for fans.

Differentiating by genre or catalog

The most popular kind of differentiation for the niche music services in our database is genre specificity. We have a total of 11 services in our database that focus on licensing and aggregating catalogs from particular genres, like classical, jazz, metal, electronic and country. The rise of direct-to-fan engagement channels online has woken up much of the industry to the downsides of flattening multiple, diverse genres and fandom behaviors into a single platform, and to the reality that different genres and communities are seeking different kinds of fans experiences.

That said, catalog differentiation alone is arguably not a sustainable strategy for services in this category, given that the likes of Spotify and Apple Music have dramatically expanded their offering to 60+ million tracks over the past several years. In other words, the supposedly special catalog on a genre-specific music service is likely also available across more mainstream DSPs.

Hence the winning formula in this category arguably combines a more genre-focused catalog with a new user experience catering to genre-specific fan bases — especially with respect to music categorization, discovery and community engagement.

For instance, Gimme Radio, which was founded in 2017 and was a member of the 2018 Techstars Music cohort, focuses on two different genre-specific online radio services, namely Gimme Metal and Gimme Country. But these two services do not offer merely another passive, lean-back radio experience for said genres; they are intentionally designed to be more lean-in, active community experiences for metal and country fans who feel neglected by mass-market offerings.

“We’re not chasing dozens of millions of subscribers or aiming to feed music down a pipe to as many people as possible,” Gimme Radio CEO Tyler Lenane told Billboard in 2017. “We see ourselves more as a platform for enthusiastic fans who want much more engagement than just a digital stream.” Radio stations are hand-curated by artist and DJ figureheads in each respective genre (e.g. Dave Mustaine for metal), with engagement features including live chat and branded merch. Gimme’s business model includes a monthly vinyl club ($29.99/month) and the Gimme Brigade membership ($4.99/month or $49.99/year), which comprises member-exclusive physical merch, custom chat emojis and on-demand access to all past shows.

Elsewhere, a small handful of services like IDAGIO and Primephonic focus specifically on classical music — optimizing not so much for the community engagement experience, but rather for genre-centric discovery and consumption habits for individual subscribers. Compared to other genre-specific services, classical music services tend to more openly embrace features such as the following:

• Discovery design that takes classical music’s complex metadata seriously — e.g. digging deeper beyond just the “artist” level and distinguishing whom the composers, conductors, soloists, ensembles, engineers and other contributors/performers are on a given recording, as well as putting each track in historical (such as the year it was composed and released) and creative (such as whether the track is just one movement in a wider symphony, suite or sonata) context, instead of stripping that context as is often done with playlists on mainstream DSPs. For instance, if you want to browse recordings of Beethoven concertos only from a particular decade or featuring only a particular soloist, it’s difficult to pull up reliable and accurate search results for those parameters on a mainstream service like Spotify.
• Rich educational content, like a digital accompaniment to physical liner notes or program notes at classical shows. Features like IDAGIO Magazine and Primephonic’s original podcasts go behind-the-scenes in both classical music history and new releases from today’s working classical artists, in a way that encourages active rather than passive listening.
• Video streaming of classical music performances. Given how much of the classical music economy relies on live shows, classical-focused music streaming services have also been much quicker to host livestream events on their platform compared to major DSPs, such as IDAGIO’s Global Concert Hall. In fact, classical is the most prolific market in terms of the number of genre-specific video streaming services, such as Marquee TV, Medici.tv and Deutsche Grammophon’s DG Premium (which launched during the pandemic).
• HD audio as a subscriber benefit. Because classical music fans tend to value sound quality more than in other genres, classical music services have overall been much earlier than mainstream services to embracing HD audio, either pricing it as a separate premium subscription tier or baking it into the base tier. IDAGIO bakes lossless audio into its base $9.99/month pricing, while Primephonic offers lossless audio in a separate tier costing $14.99/month or $149.99/year. Some HD-specific audio services like Qobuz also have a large classical music catalog and audience base. That said, HD audio alone will likely no longer be a meaningful differentiator in a few years’ time as the likes of Spotify and Apple Music invest in their own hi-fi audio offerings at no extra cost to the consumer.

Differentiating by overall user/fan experience (genre-agnostic)

Some other services in our database are genre-agnostic, but home in on improving the overall user and fan experience. In many of these cases, there is an overlap between improving the fan experience and changing the underlying payout model — for instance, layering on direct-to-fan paid memberships and tipping instead of or in addition to backend, pro rata royalty payments.

Because they are consumer-facing media aggregators, mainstream DSPs today arguably optimize for a listener’s engagement and discovery across a sprawling catalog of millions of tracks, rather than for the strength of the listener’s existing relationship with their favorite artists. At Water & Music, we previously covered the rise of the “fan-centric” streaming service in response to this gap, where emerging startups like Matter and LÜM as well as established players like YouTube have been adding richer social, interactive and financial features to help artists cultivate deeper community in a streaming-first environment.

We’ve added these services to our database, as well as a few others like Stationhead and Roadtrip that have engineered a real-time social layer on top of existing DSPs through API integrations.

The major challenge that services in this category face is keeping their target artist communities motivated to stay on board and invest in their respective platforms long-term, when bigger DSPs and social networks have the resources to constantly court these same artists with larger audiences, similar features and, in some cases, billions of dollars in incentives.

For instance, at Water & Music, we previously covered how, after boycotting SoundCloud and moving to Matter, much of the hyperpop/digicore music scene has now reverted back to SoundCloud, courted by strategic initiatives for editorial and playlisting support. There’s also growing evidence that other major DSPs are interested in competing directly on community features, from Spotify’s acquisition and relaunch of Greenroom to both Spotify and Apple’s expansion into direct subscriptions for podcasters. It’s only a matter of time before these experimental features have a direct impact on musicians’ streaming bottom lines on these mainstream platforms as well, putting more pressure on niche services to differentiate their offerings.

Differentiating by activity

For many mainstream music DSPs, their most popular consumer use case — and often their most notorious punching bag for industry critics — can be described as “functional listening,” or listening that falls in the background to other activities.

Spotify’s functional mood-based playlists drive billions of streams on the platform, and have also been the target of years-long investigations about “fake artists” and label inequity. The Swedish company also used to offer its own dedicated Running playlist hub with automated BPM matching, but shut down the feature in 2018.

In December 2020, Apple launched its subscription fitness product Apple Fitness+, which integrates deeply not only with Apple Watch, but also with Apple Music. The music service now has a dedicated Fitness+ Spotlight hub, featuring listening experiences curated by artists ranging from Alicia Keys to Keith Urban alongside a series of genre-specific workout playlists. Big-tech conglomerates like Apple benefit from owning multiple parts of the ecosystem required to run an integrated music/fitness experience smoothly, across hardware, software and content.

Amidst this competition, can emerging startups successfully unbundle these kinds of “functional music listening” experiences into their own apps?

These seeds are already being planted, in the sense of health, fitness and meditation startups rapidly expanding their premium music strategies over the last few years, from Peloton’s “music festival” All For One to Calm’s Sleep Remix series and Headspace’s “Chief Music Officer” partnership with John Legend. Other music-focused startups like Tuned Global and Feed.fm build white-labeled music streaming experiences for fitness apps (like UFC Ultimate Sound and Daily Burn, respectively), creating a clear business case for music/fitness partnerships in a B2B setting. The growth in these kinds of partnerships is in no small part due to the virtual health/fitness category as a whole increasing dramatically in revenue during the pandemic.

That said, consumer-facing, standalone (or “pure-play”) music streaming services focused on serving a specific activity — which we highlight in our database — remain rare. The only three we could find for our database are Spring Running Music, Fit Radio and RockMyRun, all focused on offering non-interactive, curated radio stations and playlists for fitness and running. The main features on these apps are more utilitarian, allowing users to manually choose their preferred BPM or automatically sync their music to their stride or heart rate.

This is what makes activity-based music streaming one of the most interesting parts of the niche music market: Arguably its biggest players (Peloton, Calm, Headspace) are not music streaming companies. Rather, they treat music licensing as a loss leader to drive sales elsewhere — primarily in hardware sales (i.e. bikes and treadmills) and consumer software subscriptions for products other than music. It seems like the most strategic way to spin up an activity-based music DSP might be to have it generate excitement and interest in other, more profitable parts of the business. Under this model, music will always be treated as a feature, rather than a standalone product.

Conclusion: The bundling/unbundling pendulum

The ecosystem of niche music streaming services is dynamic and always adapting. As discussed above, we’re currently seeing a small but growing number of niche services try to fill in the gaps that now-mainstream (and once themselves niche) services are not addressing as they continue to expand globally.

But it’s worth asking: Will this pendulum simply swing the other way at some point in the near future, towards more consolidation again?

As a common adage in Silicon Valley goes: “There’s only two ways to make money in business: One is to bundle; the other is unbundle.” If other entertainment sectors are any indication, signs point to a system-wide “rebundling” of what was previously unbundled. In film and TV, almost every major studio and network is buying up, starting or partnering with their own suite of niche video streaming services, like Shudder (focus on horror, owned by AMC Networks), Crunchyroll (focus on anime, to be acquired by Sony for $1.2 billion barring an antitrust investigation) and The Coda Collection (focusing on music documentaries and concert films, available exclusively on Amazon Prime Video). The resulting business model doesn’t look entirely different from cable.

Given that the business goal of video streaming services is to attract and retain new paying subscribers, acquiring niche offerings with loyal communities and clear growth opportunities is a smart strategic move. It’s certainly possible for bigger music DSPs to go down a similar path and start buying up niche music services, building a wider portfolio of hyper-targeted, community-driven plays.

The biggest difference between audio and video streaming services, of course, is that the largest video streaming services do not overlap at all in terms of content, but rather run on their own original content and/or exclusive licensing deals with third-party studios — meaning that company acquisition is also inherently content acquisition. In contrast, essentially the same tens of millions of music tracks are available across all DSPs today, whether niche and mainstream. With this level of homogenization, the business case for buying a niche music service has to highlight the company’s product, UX and audience behavior, not their underlying catalog.

Solidifying this business case will be a challenge for all the companies in our database, given just how much the likes of Spotify and Apple Music already dominate the landscape. That said, the music industry has become steadily more critical of the mass-market streaming model since early 2020, and is hungry for solutions that concretely solve their pain points around compensation and community engagement. As far as building these solutions is concerned, smaller startups — not major DSPs — are getting the biggest head start.