New report: How does music streaming services affect online music consumption habits and how can we expect such services to affect consumer behavior in Denmark?
The report takes a closer look on Norwegian music consumption and the usage of Spotfiy and Wimp. It is based on an online survey with 332 respondents conducted amongst students in Norway (96,3% are Norwegian citizens). The survey was carried out in the period from April 18th until June 1, 2010. The respondents are primarily between the age of 20-24 (58,7%) and 25-29 years of age (29.5%) and there’s a 50/50 division between male and female respondents. The population was contacted through their student networks at the University of Oslo, Bergen, Tromsø and Trondheim as well as Hedmark University College.
Furthermore the survey has been compared with previous research done by the undersigned and three other students at the IT-University in Copenhagen, Denmark.
As people still listen to music on “old” formats such as radio and CD, the reports’ analysis shows that there’s no reason to predict radical changes in music consumption and listening habits in the immediate future. It is however without doubt that the CD is valued less in a world of access. The future of music consumption is clearly about providing access to content instead of selling units. With the launch of music streaming services, the overall music consumption will go up and generate more value for the music industry as a whole. In addition music streaming services leads to a decrease in illegal downloads. However, strong brand awareness and size of content is of decisive matter in order to have legal streaming services heavily minimize piracy. Although most people do not want to pay for music online, one may still expect some users of music streaming services to pay for its usage. The survey shows that 21,6% of Norwegian users of music streaming services pay to use it. As the network society values the actual size of content, streaming services need to have everything available in order to be attractive. Music consumers want access to everything including the record labels massive back catalogue – no matter if they already own any of this content on other formats. The size of the music collection is therefore the most important feature to attract users, and will therefore be decisive when it comes to pricing. Other features such as the ability to share playlists, seem to be of rather insignificant matter for the average user. However, as so-called “superusers” value the social sharing of music, such features will be of great importance in order to draw attention to the actual streaming service. Seen from an industry perspective, streaming services might actually seem like the only basis for existence on the consumer market for the established music business. On the other hand it is most likely that revenues from streaming services will not match the old economy of selling units. It is therefore important for the traditional music industry to take serious action in order to consolidate on existing markets, as well as entering into new music markets. One may not expect streaming services to save revenues. Such services do however have the potential to increase value of music in general as the overall music consumption goes up.
Right now I am writing a report on how music streaming services affect online music consumption habits. I have conducted a survey in Norway with 332 respondents (all students). I am about to start with my analysis of the survey, but thought I should keep you guys updated on my project angle (fyi I have removed all references in this post):
Historic perspective on music consumption
During an industry event in the early 90s, the now late record company executive Maurice Oberstein pointed out that the music industry practically was “giving away master tapes”. Oberstein was talking about the sale of CDs in a time when everybody was too busy counting cash to listen to what he had to say. Unfortunately for the record industry Oberstein was right.
The history of popular music is by far a history of developments in media and technology. Radio and the gramophone came into peoples home followed by the record player and the cassette deck. With the cassette tape came the ability of copying music as well as the social sharing of mixtapes and listening to music on the move (the car stereo and later the walkman).
With the introduction of the CD in 1982, music recordings changed from analogue to digital. The invention of the compact disc also underlined how the sale of music really was an issue of format change. The CD combined both portability and high audio quality. With this format change, the consumers of music not only started to buy CDs instead of vinyl records and cassettes; they updated their record collection with digitally remastered CD versions of already owned albums. For years, the recording industry was truly successful with a business model where you record and repeatedly sell music that people want to hear on preferred physical media.
With music being digitized and the emergence of the Internet, digital compression techniques came along. The birth of the MP3 provided a breeding ground for Napster (1999) and peer-to-peer (p2p) networks. For once the format change was not staged by the music industry. Digital compression techniques were simply developed by scientists, government agencies and computer hackers. Sharing music on this new digital format, which was not owned and controlled by the right holders, was obviously considered a crime. And the criminalization of sharing (known as piracy) has, for more than a decade been the biggest challenge for the music industry. However, many consumers and music fans experience illegal filesharing as the liberation of music. With even higher broadband connection and further development of compression techniques, we are now experiencing streaming services becoming more widespread as a substitute to physical formats and maybe also MP3 files.
How does music streaming services affect online music consumption habits? Comparing Denmark with Norway.
Today, more than 10 years after the first launch of Napster, legal music streaming services are becoming accessible all over the world. However, what’s interesting here is that Denmark up until now has lagged behind with only one commonly known legal service available, TDC Play, which is only available to the people who subscribe to the company’s broadband, cable or mobile services. This stands in great contrast to neighbor country Norway, where streaming services have been available for more than a year (Spotify since October 2008 and Norwegian competitor Wimp since the summer of 2009).
Although Spotify is not yet available in Denmark, this is about to change as Wimp has recently launched in Denmark through Telenor (April 15, 2010). It is also important to mention that the Danish library will launch a music streaming service July 1, 2010. The IT and music industry is also speculating if Apple is about to launch “iTunes in the cloud”. That assumption is based on the Apple acquisition (and closing) of the web based streaming service LaLa. Rumor also has it that Google is planning to launch a music streaming service this fall, while it is realistic to presume that Spotify eventually will launch in Denmark in the very near future.
This overview shows that there is no doubt that the music market has developed into what Jeremy Rifkin (2001) describes as “The World of Access”. It is therefore realistic to assume that the music industry will experience an economic shift where access is more important than ownership. From an online marketing perspective it would therefore be highly relevant to look into how streaming services might affect music consumption habits, and how we can expect it to affect consumer behavior in Denmark.
It is with this market perspective in mind my main research question is:
How does music streaming services affect online music consumption habits and how can we expect such services to affect consumer behavior in Denmark?
Why is this relevant?
My main goal is to be able to point out how streaming services affect music consumption habits, and that way say whether or not such services will be a good thing for the music industry in Denmark (or in general for that matter). The argument against launching streaming services (mostly Spotify) in Denmark has for the most part been based on fear of low royalty payments to right holders (composers). This argument is fronted by KODA, the Danish Performing Rights Society. It is however pointed out by Chief Economist at PRS, the UK equivalent to KODA, Will Page, that it is important to look at legally available streaming services as “legal venues” that drives traffic from “illegal venues” such as Pirate Bay and Mininova. That way it is possible to say that streaming services will rather function as an important step to fight piracy than lead to a devaluation of music and decrease in royalty payments. At the same time the supporters of streaming services are convinced the business model will be economical beneficial in the long run.
Another argument that speaks for streaming services is that there, despite the fact that few of already available services are being used, seems to be a demand for certain music subscription services in Denmark. This might seem a bit confusing as I at the beginning of this report claim that TDC Play is the only commonly known legal service available. In this assertion it is important to outline the expression “commonly known”. There are more services available, in fact there are quite a few, but as previous research shows, TDC Play is the only legal service, which is commonly known. Yet it seems to be far from satisfying for Danish music consumers.
The above image shows services which are in use in Denmark today (Octover 2009). The graph is based on previous research done by the undersigned and three other students at ITU (as a research project in Media and Communication). The research showed that 32% are using a subscription service in Denmark. It also shows that 43% of the people using a subscription service download less pirated music after they started using one. The interesting part is however that about 80% of those who do less pirating, either use a service that is not legal or legally available in Denmark (the majory use either Spotify or Grooveshark).
I have now spent the last couple of months diving into how this is different in Norway and that way say something about how we may expect such services to affect consumer behavior in Denmark (if Spotify launch today, how will consumers act a year from now?)?
…I will make sure to post the final report by the end of the summer.
What does music subscription services (i.e. Napster, Spotify, TDC Play, Grooveshark) mean for music consumption and listening habits?
October-December 2009 I spent quite a lot of time together with 3 other guys researching music listening habits amongst (primarily) students at the IT-University in Copenhagen, Denmark. The report is based on quantitative research with 203 responds. It was an exam paper in “Media & Communication”, a masters level course at ITU.
With Spotify and its likes, legal music streaming and subscription services are becoming widely available, although Denmark up until now has lagged behind with only one commonly known service available, TDC Play, which is only available to the people who subscribe to the company’s broadband, cable or mobile services.
Today I found a good excuse to publish the report, as it came to my knowledge that KODA in Denmark are informing the public that the Digital Music Report 2010 by IFPI contains unfortunate information. Not cool! But, by reading the news posting by KODA, you may get the impression that there’s a lot of online music subscription services in Denmark – a statement I have to say I do not understand. There might be food on the table, but no one wants to eat it.
Overall findings in the report.
The over all figures in our survey shows rather surprisingly that 32% are using a subscription service, this despite the already before mentioned fact that very few such services are legally available in Denmark. The survey also shows that TDC Play is the only fully legal service Danish consumers seem to use. However, more than 80% use a service that is either not legal or not available in Denmark, meaning the user will either have to fake their IP address or do other technical “tweaks” in order to use the service. This shows that there is a demand from the users to have access to music subscription services. It also shows that TDC Play is far from satisfying for Danish music consumers.
What was even more surprising was that when comparing the two groups (the subscribers and the non-subscribers), there were no significant differences in their responses to how they consume music, how important music is, how much they listen to music on the radio, to CD’s, on the computer, or how much they download illegally. This said, 43% of the people using a subscription service, said that they download illegally less often since having started using a subscription service. These results are confirmed by another survey done in Denmark by Megafon for IFPI and AntiPiratGuppen (2009).
What service do people use?
Grooveshark is by far the most popular service. But as this is a music service operating in the grey zone between legal and illegal, with the slogan: “Play any song in the world for free”, I would like to focus on Spotify and TDC Play in this short summary. This because Spotify is not available in Denmark, mostly because the service has yet to make an agreement with Koda. I therefore find it interesting to compare this service to one already established on the Danish market.
Even though Spotify is not available in Denmark, 25 out of 203 respondents use it, and 60% (15) of these are from Denmark. No matter nationality, they all (100%) have listed friends as an important source for new musical findings. This proves that there might be a more social aspect to music subscription services, compared to more traditional music consumption. Spotify users also have a far larger usage of playlists (48%). The discovery of new music on online media is also way higher compared to the already mentioned general picture. 48% of all 25 Spotify users hear of new artists and new releases on blogs, 56% from specialized music websites and 44% from online recommendation services.
Services such as TDC Play and YouSee are surprisingly slightly less popular than Spotify (especially considering the fact that TDC Play launched in April 2008). What is interesting here is that the users of TDC Play and YouSee seem to be more deadlocked in old media habits, while the users of Spotify are more online minded. Spotify users are also slightly more interested in music compared to the users of TDC Play and YouSee, and at the same time the users of Spotify value better sound quality.
It is, however, important to mention that the users of Spotify in Denmark today are innovators as the service has yet to launch. When they (finally) launch, it is natural to assume the total users of Spotify’s will become more like the general picture. It is however striking numbers for TDC Play that more or less the same amount of Danish respondents uses Spotify as TDC Play. Especially when we take into consideration that TDC Play launched more than one and a half year ago. This way it is conspicuously tempting to claim that TDC Play will be ousted by Spotify soon after launch in Denmark, although this of course only is based on speculations.
But one thing is for sure: If we look at this from a consumer perspective, there’s simply no reason to prevent Spotfiy from launching in Denmark. The fact that Spotify has yet to pay out large amount of royalties to artists is another matter, but hey: We all have to start somewhere, either we are artists or entrepreneurs.