The latest music-streaming user numbers and differentiation: What you need to know

[Updated on February 6, 2020 to include user and subscriber data for SiriusXM and Pandora, as well as monthly active user numbers for Spotify.]

Happy Wednesday everyone!

I wanted to write up a recap of the latest user and subscriber data that have been reported from the major music- and audio-streaming services, including Spotify, Amazon Music, YouTube Music, Apple Music and Pandora. In particular, Spotify and Pandora parent SiriusXM just held their Q4 2019 earnings calls this week, while Amazon Music and YouTube Music recently made the rare move of revealing user numbers around their respective products.

I thought it would be useful to lay out what we now know about these services as of today, contextualize these user statistics within wider music-tech trends and offer my input on the key moves to watch from these companies that could impact their growth and differentiation in the near future.

Spotify: 124 million subscribers, 271 million monthly active users
(as of February 5, 2020)

According to its Q4 2019 earnings release, Spotify has 124 million paying subscribers, reporting 29% growth year-over-year. (Total monthly active users as of Q4 were 271 million.)

There were likely two main factors driving this growth:

• Promotions and discounts such as a three-month free trial for new Family Plan subscribers, the free Google Home Mini perk for Premium subscribers and a six-month bundle with partners like XBOX Game Pass and French telco Bouygues
• Continued investment in podcasts, which Spotify claims has improved both user retention and conversion to Premium subscription across multiple markets globally.

As I wrote on Twitter, this means that Spotify still likely has the same number of paid subscribers as, if not more than, Apple Music, Amazon Music and YouTube Music combined. Weirdly, Spotify’s user growth accelerated in North America, Europe and Latin America, but not in the rest of the world — suggesting that emerging markets might not be a key source of growth acceleration, at least for Spotify specifically.

Also, Spotify’s economics aren’t necessarily getting friendlier over time. Average revenue per user for the company is at its lowest ever (€4.65), amidst ongoing discounted promotions and pricing in emerging markets. And the company’s latest earnings release projects operating losses to be as much as €250 million in the fiscal year 2020.

Future moves to watch:

• Investment in international podcasts. While Spotify is aggressively acquiring podcast production and tech companies based in the U.S. — most recently The Ringer — I’m much more interested in their equally proactive push into original podcast production in international markets where they are the streaming underdog, rather than the market leader. For instance, in Q4, Spotify released 26 shows on markets outside of the U.S.; at least four of those were in Japan and India alone (Hypnosis Radio in Japan; 22 Yarns, Love Aaj Kal and Bhaskar Bose in India) — two countries where Spotify is far behind on market share compared to local players.
• Growth in revenue from marketplace tools. “Marketplace tools” — i.e. tools that artists can use to gain insight into and reach fans directly, and/or find potential creative collaborators — don’t actually generate much revenue at all for Spotify yet. According to the company’s Q4 earnings report, “paid marketplace tools combined with strategic licensing [read: more favorable licensing negotiations] contributed more than €30 million in Gross Profit” in 2019. That’s only around 2% of Spotify’s entire gross profit in the same time period (€1.35 billion). That said, Soundtrap did double its paid subscriber base in Q4, and Spotify seems to be investing more in paid advertising products for music such as Sponsored Recommendations. Overall, the company is expecting profit growth from these paid marketplace products to exceed 50% YOY in 2020.
• A slow, steady pivot into a more or less real-time media business, not just a music aggregation business. In the wake of Spotify’s earnings call, Daniel Ek told several outlets that acquiring The Ringer is like “getting the new ESPN.” That stood out to me because The Ringer, like ESPN, is a proper media and news company; it’s not just a podcast network, but also a website and a digital publisher in multiple senses of that phrase. Spotify arguably does not have the expertise to scale multiple digital publishers; after all, it’s a media streaming platform without any history of owning rights to music. It will be crucial for the company to obtain that expertise soon, so it can do The Ringer proper justice in terms of smart investment of its resources.

Amazon Music: 55 million customers
(as of January 22, 2020)

Last month, Amazon Music made the rare move of unveiling its user numbers: 55 million total customers, with 50% growth year-over-year in subscriptions to Amazon Music Unlimited alone in 2019.

MIDiA Research, which has a pretty good track record with predictions around streaming user numbers, puts their estimate of Amazon Music’s total paid subscribers at around 40 million. That would imply that around 15 million of Amazon Music’s customers are not paying to use the service (the free tier, which launched in April 2019, is only available in the U.S. for now, which potentially explains that low number).

But an even more important point of comparison is between the number of Amazon Music customers and the number of Amazon Prime customers. According to the company, Amazon Prime now has 150 million members globally. That means at most 37% of Prime members are taking advantage of the music benefits included in their membership.

Why is there such a big gap between total Amazon Prime members and total Amazon Music users? I think it may be because Amazon Music’s marketing seems to tie the service closely to Amazon Echo devices. In other words, the company is communicating that the primary benefit of subscribing to Amazon Music is less about a better visual user experience or better playlist curation, and more about a better connected device experience via integration with Echo-enabled devices.

As for general smart-speaker usage, NPR and Edison Research pegged U.S. adult ownership of smart speakers at over 60 million in 2019, while eMarketer estimates that 21.6 million people will have made a purchase using their smart speaker by the end of 2020. Only a small number of those users will opt to use Amazon Music Unlimited or Prime Music, as the user experience and added value isn’t really there yet compared to those of market leaders like Spotify.

Speaking of which…

Future moves to watch:

• Any actual innovations in voice marketing, let alone specifically for music. As I wrote in my end-of-year “anti-predictions” piece for 2019, virtually no one I met in the music industry this year actually prioritized voice in their marketing campaigns — let alone in a way that truly took advantage of the transformative nature of voice-driven discovery and interaction. In general, Amazon’s Alexa unit is burning through cash right now, making only low six-figure revenues a year despite 10,000 staff members on board. There are a few potential paths forward for fixing these issues in a way that improves the financial picture for Alexa while also offering more interesting and engaging use cases of voice for artists and fans, such as merging voice strategy with podcast strategy.
• Amazon Music HD. In general, I personally don’t think hi-fi audio is a good business model unless it includes a meaningful hardware component. This is why I think Tidal has historically struggled to convert and retain subscribers; its hi-fi tier arguably didn’t matter if users were still largely listening through shitty headphones or speakers, anyway. This is also what gives Amazon Music HD — which launched in September 2019 and costs between $12.99 and $14.99 a month — an inherent advantage in the hi-fi market. The premium Echo Studio speaker specializes in streaming Amazon Music’s growing catalog of music mastered in 3D, but that dedicated 3D catalog is accessibly only through an Amazon Music HD subscription. There’s a clear connection between hardware and software that makes sense both for Amazon’s core business and for its high-paying ecommerce customers.

YouTube Music/Premium: 20 million subscribers
(as of February 3, 2020)

Earlier this week, Alphabet reported that YouTube Music and YouTube Premium had 20 million paying subscribers combined. The former costs $9.99/month, while the latter costs $11.99/month. Doing some back-of-the-napkin math, that amounts to 20 million subscribers * ~$11/month paid subscription on average * 12 months = ~$2.6 billion in annual subscription revenue for YouTube as a whole.

YouTube has around 2 billion monthly active users globally, suggesting a paltry 1% conversion rate to paid subscriptions. But considering that YouTube also generated over $15.1 billion in ad revenue in 2019, that means subscriptions still account for around 17% of the video platform’s revenue overall, which is still a pretty significant piece of the pie.

Moves to watch: To be honest, the one consistent sentiment that I hear all over the world from industry folks whenever I bring up YouTube Music is sheer confusion for the consumer around YouTube Music’s branding. What is YouTube Music Premium’s real value add for consumers above what they’re already listening to on YouTube’s mobile and desktop apps for free? The differentiation in content and user experience is not there at all, or is being poorly communicated, and I don’t think bundles with Google Home speakers will help that much with adoption. So, the general move to watch here is simply whether people will actually understand where YouTube Music sits in the market.

Apple Music: >60 million subscribers
(as of June 27, 2019)

This stat has not been changed for several months, but I thought it would still be useful to include Apple Music in this writeup, given that it’s second behind Spotify on global market share of paid music-streaming subscribers, and likely ahead of Spotify on U.S. subscriber share.

To me, Apple Music’s differentiation is based not in its playlisting, but rather entirely in non-audio content that is still related to music. (This is in contrast with Spotify’s differentiation, which is increasingly based in audio content that isn’t related to music at all, e.g. sports and true-crime podcasts.)

For instance, Apple Music has several exclusive concert- and tour-based film documentaries on its platform. The service also just inked a new partnership with Genius this week, in which Apple Music will co-produce videos for Genius’ “VERIFIED” video interview series that will be premiered exclusively on the music streaming platform.

Moves to watch: A potential multimedia bundle that combines Apple Music, Apple TV+ and Apple News+. There are a lot of potential crossover collaborations among these services; for instance, Billie Eilish is working on an exclusive documentary with Apple that will live on the TV+ service, but would also make sense to feature on the music service and integrate with the latter’s playlist ecosystem, incentivizing fans to subscribe to both for seamless access and engagement. That said, Apple isn’t necessarily cruising smoothly in its gradual pivot away from hardware towards focusing on services; Apple News’ former head of business Liz Schimel just left the company this week, less than a year after the paid Apple News+ product launched.

Pandora: 6.2 million subscribers, 63.5 million monthly active users
(as of February 4, 2020)

Ever since SiriusXM closed its acquisition of Pandora in February 2019, the latter platform has taken up relatively little mindshare in the streaming conversation compared to the above competitors.

But numbers published in SiriusXM’s Q4 2019 earnings report this week show that Pandora — one of the earliest movers in the algorithmic recommendation game, with Next Big Sound and the overall Human Genome Project — still has a significant footprint in the U.S., which remains its only active market.

Yes, Pandora’s user numbers declined year-over-year, by nearly 9%. But surprisingly, Pandora still has more monthly active users in the U.S. than each of Amazon Music and Apple Music have globally.

Moreover, despite declining user numbers, Pandora’s 2019 revenues grew by 10% across the board, with ad revenue reaching $1.2 billion and subscription revenue reaching $527 million. In other words, 30% of Pandora’s revenues now come from subscriptions, a higher percentage than that of YouTube Music/Premium (as described above).

Moves to watch: How SiriusXM and Pandora continue to merge their respective capabilities into singular products, experiences and business models. In an interview with Billboard, SiriusXM’s CEO Jim Meyer shared that he sees Pandora as the top part of a funnel to get free listeners to start subscribing to satellite radio. “As we get people into that free funnel, you can expect we will promote the value of our subscription,” he said. SiriusXM also has deals with entertainment franchises like Marvel to create exclusive podcasts, which could benefit from whatever discovery and advertising tools Pandora is building for non-music audio content — assuming Spotify doesn’t beat them to the punch.  🌊