Emerging Markets: The Next Big Opportunity For Music Streaming Services

human with headphones to illustrate music streaming services

Music streaming could be the miracle response for labels and music companies in the piracy-ridden emerging markets.

According to a MIDia report, the price of music streaming is dropping and the total number of music streaming subscribers is set to keep growing, forecast to reach 221.5 million globally by 2020. Emerging economies will play a important role in this growth.

Though music streaming is not limited to mobile phones, the increasing ownership of smartphones across regions beyond developed economies that presents significant opportunities for music streaming services. As people in emerging economies don’t own top-of-the-range mobile handsets and tend to use pay-as-you-go mobile plans, though there will be some challenges for music streaming companies to overcome.

For Brazil, Price is a Sticking Point

Nielsen mobile market report points to an increase in the adoption of music streaming services by Brazilian smartphone users. Although offline formats (MP3 and other formats which do not rely on internet connection) are still the most popular way to listen to music, these are dropping as a proportion of music consumption, and online music is increasing – for example, music streaming reached 40% of smartphone mobile users in 2014.

The current three major services in the world – Spotify, Deezer, and Rdio – offer significantly lower prices in Brazil compared to Europe and North America, while special bundles and discounts on their subscription fees have been continuously introduced to attract more customers.

In Brazil, mobile operator TIM is bundling Deezer with some their plans: for a little extra money, TIM customers can have a Deezer subscription as part of their plan.

This could represent a massive turnaround for music streaming as telecommunications companies tend to operate the billing relationships (a crucial asset as credit card penetration in emerging markets like Brazil is typically low) and can bear some or all of the cost to drive data plan uptake, making the music subscription feel as though it were ‘free’.

In India, Local Music Streaming Apps Dominate the Market

Home-grown Saavn was launched in 2007, which initiated the transition to online music streaming, ditching India’s tendency towards download piracy. Until recently, Saavn had virtually no competition, but the last two years has seen many new players entering the field. Gaana, Hungama, Wynk, Apple Music are the most prominent.

Today, according to Saavn’s figures their service already has 18 million active users streaming 250m songs a month.

The secret of Saavn’s success is how they monetize their service. 75% of their revenue comes from advertising and 25% from subscriptions. This is the opposite of what Spotify might be in India.

In an interview with Musically, Rishi Malhotra, chief executive of Saavn, said his sevice is relishing the prospect of competition with Apple Music. While acknowledging that it makes for a powerful rival he sees no guarantee that it will make a big impact in India. He also mentions the Indian e-commerce industry as an analogy, where local e-commerce site Flipkart have more users than Amazon in the Indian market.

In China, Music is (Almost) Free

China had an estimated 282 million online music listeners on their phones in 2015, says data from Beijing-based iResearch . Spotify has no presence, but all other local apps are free.

Baidu Music (run by the nation’s top search engine, Baidu), Xiami (owned by e-commerce giant Alibaba), or QQ Music (made by Tencent, maker of WeChat) are the major players – and their basic music subscription is free. They make money by offering premium packages offering higher-quality music. However, the subscription fee is small – typically US$1.50 to $3 per month (compared to the US$6 that Spotify charges in nearby Hong Kong, or US$10 in the US).

But how do these services manage to turn a profit? They use their massive horizontal market power. For example, in addition to its QQ music streaming service, tech and e-commerce giant Tencent also oversees a social network, a gaming platform, and the hugely popular WeChat messaging app, which has more than 700 million active users. The company’s massive reach into the Chinese population means it has solid negotiating power with record labels. QQ Music also has a massive user base: 400 million monthly active users, compared to Spotify’s 100 million globally.

This article was originally featured on The Market Mogul

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