Music streaming’s evolution will be about more than just how the big, global services like Spotify and Apple Music continue their growth.
Emerging markets are throwing up some interesting new business models and partnerships around streaming, as a panel session at Midem’s ‘Streaming Day’ strand explored today in Cannes.
The panel included Simon Cole, CEO of 7digital; Andy Ng, VP at Tencent Music Entertainment; and Geir Skaaden, EVP chief product and services officer at XPERI. he moderator was Zach Fuller of Midia Research.
What represents success in the streaming world? “It’s pretty obvious that streaming is the future trend, really,” said Ng. “Streaming will be the latest trend for the next five to even 10 years. I’m seeing that streaming will be the main key in the B2C environment. However, free streaming is just a stepping stone for you to acquire users into your platform. But then how do you convert them into revenue?.. Getting free users to become the paying users, that will be the key issue for every music portal to figure out.”
Tencent has 600 million active users, but only 15 million of them are paying. “That’s only a single-digit conversion rate. But every music portal has been facing the same problems,” said Ng. “China has just started, but there’s still a lot of work that we’ve got to do. But to my point of view, free streaming is just a stepping stone: the beginning of how B2C actually works.”
Cole agreed that this is all about a stepping stone. “There are 100 million people paying to stream and maybe another 200 million streaming for three. There are three billion people listening to the radio every day. Those people are going to be the streamers of the future,” he said. He predicted that the music industry will ultimately “be making much, much more money from people who are listening in a more casual fashion”.
Cole clarified that this must mean going beyond the keenest music fans who are currently paying $9.99 a month for a streaming subscription, to those who are more attracted by radio-style curation and playlists.
“The people who are going to become engaged with digital music from now on… are going to be those people who want some help. The question for me is what’s the entry model for those people? What’s the pricing model? How do you get them into the industry?” he said.
Ng talked about what Tencent is seeing in China, including its work curating playlists (or “themes” as he put it). “Every day we are creating over 100 different themes for our users to choose from,” he said.
“70% of our users actually choose the word ‘don’t care’. They just need music but ‘I just don’t care!’. Maybe they are doing exercise, having a shower. They just want some background noise, some background music. That’s how the behaviour is acting now, especially in the China market. They will tend to choose the themes fitting their mood at that very moment… Sometimes they are maybe working, or chatting with friends. Having dinner… That’s why the trends nowadays are pretty much on the playlists.”
He admitted that this is a tough challenge even for a tech giant. “Honestly, right now, it’s not really working! There are still a lot of users saying ‘whatever music you push to me, it still doesn’t fit’. But we are working hard on the AI, the intelligence,” said Ng.
Skaaden talked about some of the devices in the market, like Amazon’s Echo speaker and its Alexa voice assistant. “Far more interesting is what Andy’s mentioning: the device being smart enough to understand the context… that it actually then fits your situation,” he said. “A hardware product between digital radio and streaming, where the device, the radio, understands your listening patterns and automatically generates playlists that fit.”
Cole said that some of this should not be a difficult challenge. “Some of this is low-hanging fruit. If it’s a sunny day, a lot of people want to listen to the Beach Boys’ ‘Good Vibrations’! But how many music services have anything to do with the weather where you are,” he said.
“It took Apple five days after David Bowie died to curate a single playlist of David Bowie music. That tells me we are a long, long way for doing – pardon my French – the bleeding obvious… There are some really complicated things in AI, but getting this much better than it is at the moment is not complicated. It’s just a matter of working out what the consumer wants.”
Ng talked about China and ARPU. “China is still in a learning process. It’s not as mature as the rest of the territories… In order to attract the users that are willing to pay for the services, we are having to price them really low,” he said. “However, in China the population is huge. Even though we have a lower ARPU, when we are talking about the volume, that makes a big difference… This is the start, but this is a good start! We will slowly migrate the price back to what we call the international standard, hopefully.”
80% of Tencent’s music-streaming revenues come from paying subscribers, while only 20% comes from advertising. “If you are leveraging advertising as the only business model, I don’t think you will survive. I don’t think you will sustain,” he said. “In China it’s not going to work: you will not be able to cover the costs for operations or licensing… That’s why Tencent always believed in the user-paid model… Advertising could never cover my licensing costs!”
Music Ally’s Midem 2017 coverage is supported this year by Music is GREAT, the British government’s campaign to promote UK music exports.
The UK and British Music are represented through the British Music at Midem stand, with the Department for International Trade joining forces with music industry associations AIM (Association of Independent Music), BPI (British Phonographic Industry), MPA (Music Publishers Association), PPL (Phonographic Performance Limited) and PRS for Music.
Together, they will support over 150 UK music businesses and member delegates as they seek to pick up on the latest trends, connect with international companies, sign deals and develop trading and export opportunities.