Why is music streaming going all the way up?

For years, the music industry revenues had been declining because of piracy and the decline in the sale of physical records. When the legendary entrepreneur Sean Parker brought Napster, the world got the first taste of an access-based model of consuming music - similar to how video OTT consumption takes place today. While it did come fraught with privacy and no cuts flowing back to the artists or the label, Spotify changed the game, followed by Apple (NASDAQ:AAPL) Music and other streaming players worldwide.

Every time a song is streamed, Spotify has to pay a fixed royalty irrespective of the tier of membership the user is on. To count as one stream, a user has to listen to a minimum 30 seconds of the song which explains why the average song length has come down in the past decade to almost 3 minutes.

Another interesting thing to note is the fact that artist catalogues have now become a sought after asset class.

On one end technology has helped in tracking streaming numbers and estimating the true value of an album and on the other end, investors’ appetite for looking at an asset class with the stability of fixed returns over a given time frame has rejuvenated interest in this space.

Low-interest rate and the appetite for looking at asset classes that have a low correlation with stock markets has stemmed from this interest. It is not just record labels that are going after this but also private equity investors.

How does the market stack up in India?

The music industry in India is worth ~1,800 cr. Of this pie, 85% comes from streaming. The remaining is a mix of performance rights, collection societies, etc. which declined by ~67% due to restrictions in travel and movement.

Just like the global decline and resurgence, the Indian market seems better placed for exponential growth on account of a larger share of the 16-24 cohort and 85% share in streaming compared to the global average of 60%.

While piracy is still high in India compared to global averages, gone are the days when users would download songs from torrents, and pirated websites and share them through Bluetooth. Better and cheap data connectivity has helped streaming to thrive. Music consumption takes place on YouTube, Spotify, Instagram, and the likes.

Experts are now worried that the same phenomenon will affect music streaming. This market has been booming up until now. In fact, streaming is now the main way to listen to music worldwide. Of the $25.9 billion in revenue generated by recorded music in 2021, $16.9 billion will come from streaming, or 65% of the total, as detailed by the International Federation of the Phonographic Industry (IFPI) in its latest annual report. Between 2020 and 2021, revenue from this mode of music consumption thus increased by 24.3%.

This rise is mainly due to paid, subscription-based streaming, with 21.9% revenue growth. And—good news for Spotify, Apple Music and others—subscribers to paid music platforms are steadily increasing their listening time. They now spend 1 hour and 33 minutes listening to music, up from 1 hour and 26 minutes, according to a recent GWI study on media consumption. This trend is visible in all world regions, although it remains mostly driven by the Americas (Latin and North) as well as Africa and the Middle East.