Streaming music services Rhapsody and Napster now have more than three million subscribers, up from two million a year ago. The companies – Rhapsody is the parent but Napster the brand in certain countries – announced the milestone this afternoon.
They also released more figures. Mobile users are up 60% year-on-year for the pair, with Napster saying that 50% of its active users in the UK are listening on their mobile devices. Offline listening grew by nearly 40% in the last six months.
Napster’s EVP and general manager Thorsten Schliesche talked to Music Ally about the company’s growth over the last year, and some of the wider issues in the streaming music market.
“It’s the fastest-growing year we’ve ever had as a company, increasing our subscriber base by 50%,” he said. “Two things are really driving it: on one hand, our direct-to-consumer business. But our second pillar is our partner business, especially with mobile operators, which has really helped to facilitate the growth.”
Napster has struck deals with a number of mobile operators to launch streaming music services, in a variety of forms from hard bundles to bolt-on packages. That’s one of the reasons the company is excited about Latin America, where mobile broadband is helping several countries catch up on developed markets after years of patchy fixed-line connectivity.
“The lack of internet connections at home basically excluded these counties from streaming music for years. But now smartphones and better data connectivity really facilitates streaming. They have the handsets and the data connections, so they can use the services,” said Schliesche.
Napster is seeing some interesting quirks elsewhere in the world, such as the UK, where 72% of its active users are listening through Sonos hi-fis, compared to the 60% listening on mobile devices.
Schliesche said that this is partly because Napster has a long-term relationship with Sonos that has included a number of high-profile promotions, including a six-month trial two years ago for anyone buying a Sonos system over the Christmas period.
Napster is also bullish about Rhapsody’s Music Inbox feature, which launched this summer as a “weekly music concierge” to recommend new music to users, and has so far delivered nearly 1m recommendations. Notable, in the week that Spotify launched its own Discover Weekly playlist, which has a similar ambition.
“This is the year that every service tries to figure out what the best way is to tailor its service to its customers, where they can find the music they love but also explore new music they might love. The more music they find that they love, the less the risk is that they churn,” said Schliesche.
“It’s a very important topic for all the services, especially as the competition is going to heat up over the next months. User experience is a key differentiator, including how you differentiate yourself from piracy. The advantage we have is that we have more than 10 years of customer data, to understand how things work together and how people use playlists.”
Schliesche was also bullish about Rhapsody’s partnership with BandPage to offer VIP experiences – everything from soundcheck access and meet’n’greets to Skype guitar lessons sold by artists to fans – within the streaming service.
“We have a very deep integration, and we have also thought carefully about it. We have excluded everything that is merchandise: I do not want to promote t-shirts to my customers! For me, it is not the best experience to sell merchandise. But getting access to exclusive experiences before anyone else? That is appealing for my customers.”
Back to that prediction of competition heating up – something that’s happening already with the recent launch of Apple Music. The standard line from established rivals is ‘a rising ride lifts all boats’, with the hope that Apple’s entry into the market will raise awareness of streaming, and thus help everyone to grow. Is that overly optimistic though?
“We would be crazy if we didn’t take Apple seriously. They have proven in the past with iTunes that they really can sell music, and they have 800m customers’ credit cards on file, which makes it much easier for people to jump over the paywall. You cannot underestimate Apple’s potential,” said Schliesche.
“But streaming music is still in a growth mode: in Germany, for example, streaming has grown 87% in the last 12 months, in the absence of Apple. So their initial impact will be to significantly increase the audience of people that are interested in streaming, which is beneficial for all the services that are in the market.”
Schliesche maintained that Rhapsody and Napster have yet to notice a negative impact in usage of their services from Apple’s launch, although he admitted that in 18-24 months’ time, it may be crunch time for some of the smaller streaming players.
“The market will concentrate on the key players, and you will see acquisitions of the smaller players, with some maybe disappearing completely. But huge competition and services trying to steal customers from each other? I do not expect that over the next 18-24 months. The majority of people coming in now are people who are new to streaming, not people who are switching services,” he said.
“And this is partly because there are barriers to switching: you have built your data, your playlists, your music. You might be able to transfer your playlists across, but your ability to get personalised recommendations is based on the user data. If you switch, you’ll start from zero with regards to your music history, and it will take longer for the service to give you good recommendations.”
It’s an interesting topic, this: there may be an argument that people DO have the right to export their listening-history if they switch streaming services, although establishing a standard format and persuading the big services to sign up will be a big challenge.
Schliesche also talked about some of the other possible results of intensifying streaming competition, including services scrapping for exclusives on specific albums or artists. He’s not a fan.
“So far, the content that’s been on the services has been very much a commodity, which is a difference between music and film. It’s not like where some TV series are only on Netflix and others only on Amazon. I don’t think it’s a very good experience for users, and I hope the music industry stays very consistent on its approach,” he said.
Do fans care? Spotify has been lacking Taylor Swift’s back catalogue since last autumn, yet it has still added tens of millions of new users in that period. Schliesche said that fans do care about their favourite artists being available on their streaming service of choice – 60% of customer enquiries on Napster’s Facebook page is questions about whether certain artists will be available, he estimated.
“People do care: they pay 10 euros a month and they should expect to get all the music that is available. On the other hand, there are so many alternatives, especially when you think about playlists becoming the new album,” he said.
By that, he was referring to the growing prominence of playlists on the various streaming services, particularly those compiled by their in-house editorial teams around certain themes or topics (from afternoon coffee to gym time).
“If you are creating playlists and you do not have Taylor Swift available, you will create the playlists without Taylor Swift. And if the playlist is good and touches the customer, they will not miss the content, because basically they will not notice what is missing,” he said.
“In all the services, playlists are becoming more and more important, and that is obviously giving more power to the services. If it’s our editorial decision what music to compile into the playlists, that makes it easier to bridge certain gaps in our music catalogues.”
What about bridging gaps in the business models of streaming music services: specifically the often-yawning gaps between their revenues and their costs? Rhapsody might not be in Spotify’s league for financial losses, but the company is not yet profitable: its net losses grew from $1.6m in the first quarter of 2014 to $8.9m in the first quarter of 2015, for example.
Still, with no free tier, Rhapsody is spared some of the financial headaches of its bigger rivals. But is Schliesche happy with that state of affairs? “I have never been a big fan of the freemium model. I have always been keenly aware that this model has failed to provide proof of its sustainability, as the last two years of Spotify’s numbers show,” he said.
“Meanwhile, you have Taylor Swift complaining that she’s not getting enough for the streams on the free service, so she’s not making music available on Spotify. Right now, the discussion around freemium and sustainability is getting more heated than ever, which is some indication that the way it is today will probably not last forever. There might be adaptations to it.”
Schliesche does think that streaming music needs to break out of its $10/€10/£10 a month box and offer more flexible tiers to entice as mainstream an audience as possible to start paying to stream. Rhapsody has been experimenting on that front, with the launch of its UnRadio ad-free personal radio service last year.
“There is a need for more flexible price points. Making a music lover pay 10 euros a month isn’t too difficult, but for young people… my son is 16 now, and his friends in the schoolyard all use YouTube and the YouTube MP3 rippers. They have never spent a cent in their life on music: this generation is not educated to pay money for music,” he said.
“For them, you need some kind of lower price point to get them towards paying for music step-by-step. The step from zero to 10 is too big, so there must be more intelligent ways to price the services. I’m extremely sure that we will see them in the future, although we have very reluctant rightsholders on the label side as well as the publishing side, who claim there is a minimum value for music, per-track, and try to keep the value at the same level or increase it.”
YouTube is the elephant in the room during all these discussions: why should those children pay for streaming subscriptions if they can get everything they want on YouTube for free – regardless of whether they’re also ripping it?
“It’s this paradox: if you think three years back, certain artists had not licensed their music for streaming, but they pushed their music like crazy for YouTube and called it a promotion. Those same artists now are claiming they are not getting enough money out of the streaming services,” he said.
“But if they hadn’t made YouTube so strong and so relevant for the youth… This is a monster you cannot deny at the moment, so we have to find other ways to get music towards this new generation.”
Schliesche is more optimistic that streaming companies can win artists round on the royalties question, adopting the now-familiar argument that scale will win out over time.
“Streaming has doubled its revenues over the last 12 months, and it will more than double over the next 12 months. If more and more people are using the premium services, the amount we can pay out to the music industry and artists will significantly increase,” he said.
“I’m very sure that in five years from now, an artist comparing the income they have from selling an album as a one-time event to five years of streaming revenue, which is a recurring event, they will see that they can earn more by streaming.
“Selling an album gives you an income with a dedicated timeline of maybe a few months, mostly. But streaming income is more like radio income, which is split over several years because every time someone is playing your song, you get the same amount of money. It is not fair to compare streaming to album sales: it’s a completely different usage pattern, so we need a little bit more long-term thinking.”
Interestingly, though, Schliesche is willing to express more sympathy for artists grappling with day-to-day economics than some of his peers in the streaming industry.
“People need to pay their bills. An artist cannot tell their landlord they have to wait for five more years before the rent gets paid. So this is where the scale kicks in: as more people are paying for streaming, the more we can pay out.”
He also expressed support for Taylor Swift’s stance on Spotify, and the wider debate around free versus premium streams. “I agree partly with some of the artists: why should a freemium service pay less than a premium service? It’s the same stream. Wy should there be a different price attached to it?” he said.
“We need to move things closer together so the disparity isn’t too big. That, in combination with the scale, will mean this conversation will die away.”