Tech majors tuning into the music market

Music has been a segment historically disrupted primarily by small independent players and start-ups, always balancing on the edge of legality. However, as technology and the entertainment industry have become reluctant partners driven by lucrative opportunities, the world’s digital giants are entering the fold to offer consumers mass-market music-streaming offerings. Sell businesses have had a busy year clinching big deals for music firms, such as the Beats to Apple move. Google’s alleged interest in purchasing Spotify did not, however, come to fruition. Nonetheless, now is the time for lucrative exits in the music streaming business.

Music streaming becomes legitimate and less controversial

Much like the movie industry, music has taken a long time to find its feet in a digital world that initially tore up its corporate template. The year 2012 was a breakthrough moment for the music market, as sector sales grew for the first time since 1999, driven by digital downloads and subscription service fees. Growing Internet access, with one-third of the global population online and another one-fifth using the web via their mobile phone in 2012, has been a major factor in this resurgence. In 2013, global revenues from music subscription services broke the $1.0 billion barrier for the first time, according to global music federation IFPI.

This back-to-profit outlook did not escape the world’s digital majors, and in mid-2014 both Google and Apple entered the music-streaming business. Apple acquired Beats, with its online music play offering, for around $3.0 billion, while Google used its video platform YouTube to rollout Music Key, which includes live streaming of concerts as well as music videos.

Three factors are driving the renewed attraction of the digital music market, providing opportunities for new entrants:

  • Fixed and wireless broadband connections are becoming cheaper, allowing consumers to upgrade their speeds, especially in emerging countries. This has a major impact on the capability to stream music content;
  • Youth purchasing power continues to rise, especially in emerging markets, allowing more discretionary purchases among this segment;
  • Electronic currencies, m-wallets and other online payment methods are rapidly expanding their penetration rates globally, which is allowing more consumers to complete payment transactions for virtual good such as music offerings. Companies like Google and Apple can integrate their own e-payment services with music subscriptions. This is vital in monetising streaming services in predominantly cash economies.

Piracy remains a concern

Piracy has been the undermining factor for the music industry since the 1990s, but the growth in web usage has multiplied access to illegal downloads. Trade sources estimate that in the USA alone Internet users consume between $7.0 billion and $20.0 billion of digitally pirated music.

The competition provided by free services online is also a considerable speed-bump to the growth aspirations of market players, as numerous artists, radio streams, recording labels and distribution platforms use the web to reach new audience via non-pay offerings. Convincing consumers to spend on yet-another media service will require strong marketing and innovative, feature-rich, added-value content.

 

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