How Music Streaming Makes Money
The global music market experienced its fourth consecutive year of growth in 2018, generating over $19 billion in revenue. Music streaming now accounts for almost half of that revenue, with 255 million paid users worldwide.
Today’s infographic from Global Web Index compares the popularity of streaming services, exploring how streaming behavior differs by age group and region.
While listeners can now gain access to an abundance of streaming options—is the success of the industry good news for everyone?
The Age of Streaming
Streaming platforms are web-based services that allow users to listen to high-definition music without having to download and store large files.
The foundations of music streaming were laid by peer-to-peer file sharing system Napster when it was created in 2001, followed by Apple’s iTunes a couple of years later. Spotify, in an attempt to combat music piracy, was founded in 2006 by Swedish duo Daniel Ek and Martin Lorentzon.
Today, 68% of adults use a music streaming service of some kind. According to Global Web Index, Gen Z leads the way with the highest average streaming times, accessing their favorite tracks across multiple platforms.
How Streaming Platforms Make Money
There are currently 33 active streaming platforms available, with a range of different features and characteristics available. Spotify and Apple Music, the largest of the streaming giants, rely on almost identical models to generate revenue:
- Paid Subscriptions: Advertising drives free users towards monthly subscription packages, which include a premium offering for $10 a month and a family offering for $15 a month.
- Advertising: Advertisers pay for exposure, with ads played every 15 minutes for 30 seconds, and can also include sponsored playlists, and homepage takeovers.
With 217 million active users, and revenues of almost $6 billion in 2018, Spotify is the global leader in music streaming.
For Spotify, 91% of the company’s revenue comes from its 100 million paid subscriptions—double that of Apple Music—while the other 9% comes from advertising.
Apple’s streaming service commands a larger user-base than Spotify in the Asia Pacific and the Middle East and Africa regions.
While Apple Music has not been a profitable move for the company, the streaming platform bolsters Apple’s ecosystem of services—encouraging a more loyal consumer base.
How Artists Make Money
For both Spotify and Apple Music, 70% of the revenue generated from paid subscriptions and advertising goes towards paying music labels and artists.
Both platforms use the pro-rata model, which pays based on the total share of streams each artist has. For example, if $100 million is generated in revenue, and an artist accounts for 1% of all streams, then they would receive $1 million in royalties.
However, artists advocate for a fairer, more user-centric model that would pay artists based on who each user listens to the most, using their subscription fee. Smaller platforms like Deezer are moving towards a user-centric model and pressuring more established platforms to do the same.
The Future of Streaming
Over the next decade, the music streaming industry will continue to transform, with new innovations presenting significant opportunities and challenges for both streaming platforms and consumers alike.
- Personalization: Streaming platforms are using technology to fully understand a user’s listening habits and to tailor music recommendations directly to them.
- Original Content: Spurred on by the growth of streaming services like Netflix and YouTube, Spotify’s purchase of Gimlet Media for over $200 million signals the beginning of streaming platforms investing in original content.
- Premium Prices: Artists and music labels are demanding more for music, forcing streaming platforms to hike their subscription rates in an attempt to make up for lost revenue.
- Live Streaming: With live streaming rising in popularity, artists can offer audiences an intimate connection and more authentic version of their music.
Currently, artists can increase their chances of being featured on more playlists and ultimately earn more money by altering their music based on streaming platform algorithms. For example, artists only get paid if their song is listened to for 30 seconds, which results in much shorter songs that open with the chorus to keep the listener’s attention.
While streaming platforms continue to provide more avenues for artists to get in front of the right ears, many industry critics argue that music is no longer about creating something for pure enjoyment, but rather about using a formulaic approach to make more money.
Is the future of music safe in the hands of tech giants?
Which Streaming Service Has the Most Subscriptions?
From Netflix and Disney+ to Spotify and Apple Music, we rank the streaming services with the most monthly paid subscriptions.
Which Streaming Service Has The Most Subscriptions?
Many companies have launched a streaming service over the past few years, trying to capitalize on the digital media shift and launching the so-called “streaming wars.”
After Netflix grew from a small DVD-rental company to a household name, every media company from Disney to Apple saw recurring revenues ripe for the taking. Likewise, the audio industry has long-since accepted Spotify’s rise to prominence, as streaming has become the de facto method of consumption for many.
But it was actually the unexpected COVID-19 pandemic that solidified the foothold of digital streaming, with subscription services seeing massive growth over the last year. Although it was expected that many new services would flounder along the way, media subscription services saw wide scale growth and adoption almost across the board.
We’ve taken the video, audio, and news subscription services with 5+ million subscribers to see who came out on top—and who has grown the most quickly—over the past year. Data comes from the FIPP media association as well as individual company reports.
Streaming Service Giants: Netflix and Amazon
The top of the streaming giant pantheon highlights two staples of business: the first-mover advantage and the power of conglomeration.
With 200+ million global subscribers, Netflix has capitalized on its position as the first and primary name in digital video streaming. Though its consumer base in the Americas has begun to plateau, the company’s growth in reach (190+ countries) and content (70+ original movies slated for 2021) has put it more than 50 million subscribers ahead of its closest competition.
The story is the same in the audio market, where Spotify’s 144 million subscriber base is more than double that of Apple Music, the next closest competitor with 68 million subscribers.
Meanwhile, Amazon’s position as the second most popular video streaming service with 150 million subscribers might be surprising. However, Prime Video subscriptions are included with membership to Amazon Prime, which saw massive growth in usage during the pandemic.
|Service||Type||Subscribers (Q4 2020)|
|Amazon Prime Video||Video||150.0M|
|Amazon Prime Music||Audio||55.0M|
|Tencent Music (Group)||Audio||51.7M|
|New York Times||News||6.1M|
Another standout is the number of large streaming services based in Asia. China-based Tencent Video (also known as WeTV) and Baidu’s iQIYI streaming services both crossed 100 million paid subscribers, with Alibaba’s Youku not far behind with 90 million.
Disney Leads in Streaming Growth
But perhaps most notable of all is Disney’s rapid ascension to the upper echelons of streaming service giants.
Despite Disney+ launching in late 2019 with a somewhat lackluster content library (only one original series with one episode at launch), it has quickly rocketed both in terms of content and its subscriber base. With almost 95 million subscribers, it has amassed more subscribers in just over one year than Disney expected it could reach by 2024.
|Service||Type||Percentage Growth (2019)|
|Amazon Prime Video||Video||100.0%|
|Amazon Prime Music||Audio||71.9%|
|Tencent Music (Group)||Audio||66.8%|
|New York Times||News||60.5%|
The Disney+ wave also spurred growth in partner streaming services like Hotstar and ESPN+, while other services with smaller subscriber bases saw large growth rates thanks to the COVID-19 pandemic.
The lingering question is how the landscape will look when the pandemic starts to wind down, and when all the new players are accounted for. NBCUniversal’s Peacock, for example, has reached over 30 million subscribers as of January 2021, but the company hasn’t yet disclosed how many are paid subscribers.
Likewise, competitors are investing in content libraries to try and make up ground on Netflix and Disney. HBO Max is slated to start launching internationally in June 2021, and ViacomCBS rebranded and expanded CBS All Access into Paramount+.
And international growth is vital. Three of the top six video streaming services by subscribers are based in China, while Indian services Hotstar, ALTBalaji, and Eros Now all saw surges in subscriber bases, with more room left to grow.
How Do Esports Companies Compare with Sports Teams?
With some esports companies more valuable than traditional sports teams, we visualize esports vs sports in franchise value.
How Do Esports Companies Compare with Sports Teams?
Are esports on the same level as “real” sports? These comparisons range from tricky to subjective, but the monetary value of companies speak for themselves.
The world’s largest esports companies have definitely risen to the occasion. Valued at almost half-a-billion dollars, they’ve started to pass some sports franchises in value.
In the above graphic, we compare Forbes’ valuation of the top 10 esports companies in 2020 against median franchises in the “Big Four” major leagues (NFL, MLB, NBA, and NHL). Despite competitive gaming’s rapid growth, there’s still a long way left to go.
Esports Impress but NFL Teams Reign Supreme
The world’s top esports companies have grown quickly, and impressively.
As of 2018, there was only one esports company worth more than $300 million in valuation. By 2020, four of the top 10 were valued at more than $300 million.
|Esports Company||Games with Franchises||Value (2020)|
|TSM||League of Legends||$410M|
|Cloud9||League of Legends, Overwatch||$350M|
|Team Liquid||League of Legends||$310M|
|FaZe Clan||Call of Duty||$305M|
|100 Thieves||League of Legends, Call of Duty||$190M|
|Gen.G||League of Legends, Overwatch, NBA 2K||$185M|
|Enthusiast Gaming||Call of Duty, Overwatch||$180M|
|G2 Esports||League of Legends||$175M|
|NRG Esports||Call of Duty, Overwatch||$155M|
|T1||League of Legends||$150M|
When compared to traditional sports valuations, esports companies have already reached major league hockey status.
TSM, the world’s most valuable esports company in 2020, has a higher valuation than five NHL franchises. In fact, four esports companies were estimated to be more valuable than two NHL franchises, the Florida Panthers and Arizona Coyotes.
But other sports leagues are further away. While the median value of an NHL franchise in 2020 was $520 million, the MLB, NBA, and NFL all saw median values of over $1.6 billion.
|Esports vs. Sports Franchises||Lowest Valued Team||Highest Valued Team||Median|
|Esports (Top 10)||$150M||$410M||$188M|
Differences in Esports vs Sports Structures and Growth
Try as we might to make a clean apples-to-apples comparison between esports and traditional sports teams, there are significant differences in the business models to consider.
For starters, major esports companies own multiple franchises and non-franchise teams across many games. Cloud9 owns both the eponymous Cloud9 League of Legends franchise and the London Spitfire Overwatch franchise, for example, as well as non-franchise teams in Halo, Counter Strike: Global Offensive, Fortnite, and other games.
The revenue streams for esports companies are also extremely varied. Companies like TSM, 100 Thieves, FaZe Clan and Enthusiast Gaming made 50% or more of their revenue from outside of esports, having instead expanded into diverse companies with an equal focus on content creation and apps.
But it’s this greater ability to diversify, and the still-increasing size of esports fandom, that continues to grow esports valuations. In fact, TSM’s estimated 2020 revenue of $45 million is less than half of the Arizona Coyotes’ estimated revenue of $95 million, despite a $100+ million valuation difference in favor of TSM.
That’s why the continued maturation of esports is only going to make traditional sports comparisons easier, and closer. Instead of having to pit companies against franchises, direct league-to-league comparisons will be possible, and the differences will likely shrink from billions to millions.
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