Boutique investment banking firm Coady Diemar released its June edition of the Random Bits note to investors. (See it here.) Focused on digital music, with particular attention to the Apple/Beats acquisition, the analysis concludes that the so-called access model is supplanting music ownership.
“It seems clear that consumer preferences regarding music consumption are changing again. Just as digital downloads gradually replaced CDs as the dominant form of music consumption, it now appears streaming music or a rental instead of purchase model is emerging as the next leading form of music consumption.” –Chris Ensley and Colin Knudsen, Coady Diemar
Authored by investment bankers Chris Ensley and Colin Knudsen, tracks the success of the music-download era as driven by the iTunes Music Store.
Pulling data from Nielsen and the RIAA summary of music industry economics in 2013, the report documents the growth of music downloads as a percentage of music sales until 2013, and the drop in music consumption across the board which started in 2013.
The report notes two streaming models: interactive services like Spotify, and non-interactive Internet radio like Pandora, and contrasts their business models. Pandora earned 785 of its revenues through advertising in the last quarter, whereas Spotify (according to the most recent available information) generated 855 of its earnings through music subscriptions.
Ensley and Knudsen see a clear displacement of download sales by on-demand streaming: “Why would a consumer pay to download a song when he or she can go to Spotify and have the song play on their desktop?”
In summary, the report points to streaming as the emergent leader of music revenues: “It seems clear that consumer preferences regarding music consumption are changing again. Just as digital downloads gradually replaced CDs as the dominant form of music consumption, it now appears streaming music or a rental instead of purchase model is emerging as the next leading form of music consumption.”