“What we’re really excited about is the acceleration into streaming, with streaming radio and paid on-demand. Finally it’s happening! It took a while…”
It’s no wonder that John MacFarlane is excited about the growth of Spotify, the launch of Apple Music and the bustling industry of streaming services competing with both: he’s the chief executive of Sonos, whose wireless hi-fis and speakers are one route into the living room for those services.
Not that Sonos has a distribution deal for Apple Music, yet. “I don’t believe you’ll see Apple supporting Sonos at launch, as it’s very much focused on the mobile phone. We focus on the home, but we are a very open platform, so we would love to see them on it,” he says.
Even without Apple, the rise of streaming has been good business for Sonos, which reported sales of $535m in 2013 and expected to double that in 2014 – a year in which it also raised $130m of funding.
MacFarlane is a keen observer of the streaming market, which he describes as “a world of islands” in terms of the speed at which different countries have embraced the various streaming models.
“If you lived in Sweden, you would have thought paid on-demand has already happened because of Spotify. If you lived in the US, you wouldn’t know what paid on-demand is, and you would be listening to Pandora,” he says.
“Apple Music is the first shot heard around the world that breaks those barriers down. It will launch across Europe, and they’ll put a lot of effort into paid on-demand in the US. It’s all good news for Sonos, because the miracle is to marry on-demand with being able to play it in your home.”
Spotify and Rhapsody might disagree that there is no traction for on-demand streaming in the US, but MacFarlane reiterates his point. “In the US, we’re a third-world country when it comes to paid on-demand. If you’re just walking around asking people, you’re going to find the penetration’s teeny. Something needs to change around awareness.”
MacFarlane adds that he thinks labels are “leaning in to streaming” properly for the first time – throwing their weight behind the model rather than simply licensing it.
“You’ve seen all the back-and-forth about removing the free on-demand [from Spotify] but I literally watched the labels protecting SoundCloud through that, although they still need to finish their negotiations,” he says.
“That’s the first time I’ve seen them lean in to streaming services, and that’s huge: I couldn’t tell you how big a change that is. Spotify and Pandora had to get through a world of almost-zero oxygen up until now, and that speaks to how passionate and stubborn they’ve been.
“But it has to get a lot easier for startups, and I think that’s starting to happen. There’s a long list of music startups that have died over the years, but being a music fan, I love that the ecosystem is getting friendlier to bringing music to your mobile phone, and to your Sonos.”
Sonos has been making the case for its devices – and home listening in general – recently. The company commissioned research in January 2015 into how more than 12,000 people in 12 countries listened to music, and claims the results show 50% of music listening happens at home, versus 28% in the car, 12% at work or school, and 10% in other places.
More recent figures from Sonos itself found that 92% of all listening on its devices are from streaming services, while it also claims that its customers listen to 18.6 hours of music a week, compared to 10.4 hours a week before they bought the device.
Is that case for music in the home, not just on the mobile, winning people over? “The mobile phone is the most accessible platform if you’re going to launch a streaming service: you’re going to get to a billion people very quickly,” admits MacFarlane.
“For a technology company, even if you’re Apple, that’s a no-brainer. It’s natural: that’s the device with you, and the most interesting part of Apple’s new service in many ways is that they’re going after Android too. But after that breadth of access comes quality, and the only environment for quality listening is your home.”
We can only imagine the reaction of Beats founders Dr Dre and Jimmy Iovine to that suggestion, but MacFarlane’s point is that Sonos sees an opportunity to pitch its vision of connected home-audio to people “around six months” after they’ve been using a streaming service, when they may be most susceptible to the quality argument.
Sonos’ first products in 2005 were ways for people to play their own MP3 or iTunes collections in different rooms around their houses, but then a couple of years later it added Rhapsody support, then Spotify in 2009, and since then a steadily-growing number of their rivals.
MacFarlane talks about the two modes of listening: lean-back and lean-forward. “Lean-back or background listening is frankly what you see the majority of in the US, which is why it’s been such a good environment for Pandora and Songza and others,” he says.
“Pandora streams more music than YouTube does globally. It’s the dominant player. And it’s background music: you’re bringing in your groceries and unpacking them, or getting up in the morning, and you just throw on a Pandora station.
“That hasn’t really taken off outside the US, and that’s where you’ll see Apple going in strong. If they’re going to go after Spotify in Sweden, they’re not going to do it with paid on-demand. They’re going to do it with a Pandora-like service.”
By contrast, MacFarlane claims that the US is “virtually a green field” for subscription streaming – something RIAA figures appear to bear out, showing 7.7m paid subscriptions in the US in 2014, which is less than 3% of the adult population there.
Will high-quality streaming play a role in boosting those figures? Deezer used hi-res streaming as its entry point into the US through a partnership with Sonos that has since expanded globally, but are higher-quality streams just for audiophiles?
“It’s still a niche. We do support high-quality with Tidal, Deezer and Qobuz, and I can tell you the number of subscribers worldwide is under 20,000, so it is nichey. But it’s only a niche because on-demand awareness is low,” says MacFarlane.
“If you’re listening to all your music on your mobile phone, you won’t be able to tell the difference. But if you have a Play:1 speaker paired with a sub in a good listening environment, once you’ve heard it, it’s hard to back off.
“But we’re building on paid, on-demand and then quality on top of that, so it’s still a narrow group of people.”