Online Audio

Future Viability: Growth

A growing consumer base, but profits are elusive.

Free and low-cost access to unlimited audio content, both on-demand and personalized, has made streaming increasingly popular with Canadian consumers in both the English- and French-language markets
The number of online audio listeners is growing, including those who subscribe to premium streaming music services
Providers face a crowded competitive landscape, and financial data suggests that profitability continues to elude them

While online audio consumption and revenues will continue to grow, over the next several years there could be consolidation among existing players to leverage bargaining power with the major music labels who own most of the content. As they gain subscribers, the largest online streaming audio services will have significant leverage to market and promote select artists and labels on a global scale.

Read time: approx. 6 min

The Fundamentals

Spotify, Apple Music, YouTube, SoundCloud… These popular streaming audio services, along with many others, allow people to easily listen to music or spoken word content online. Users can access this content through dedicated audio services like Spotify or through user-uploaded services like YouTube. These no-cost/low-cost models provide instant access to vast libraries of music, podcasts and audiobooks. Today, users can stream audio on a multitude of platforms, including in their cars, on mobile devices, intelligent speakers, tablets—and on virtually any Internet-connected device. The content itself is becoming more social, with streaming services increasingly looking to connect fans with artists.

Many revenue generation strategies. Streaming audio providers offer free ad-supported services, subscription services, revenue sharing or some combination of the three. Spotify, for instance, offers a free ad-supported tier with limited catalogue access and a subscription tier with unlimited online and offline access. Premium plans can also include access to content before it is publicly released. YouTube is a free, advertising-supported upload and streaming service, but also offers a premium service that is ad-free. Core costs for dedicated providers involve acquiring the music rights from record labels in order to offer vast catalogues. Upload services work differently. While they currently don’t pay license fees for music, they offer to “partner” with content uploaders/creators by sharing revenues after a certain level of viewing hours has been reached.1

Standing out in a crowded market is hard. Differentiation is a challenge for streaming services, with so many services to choose from that all offer much the same content from the major labels. Some services are experimenting with exclusive windows, where an artist’s album is available exclusively on one service for a select period of time. Personalization is a key feature of all streaming services, which use algorithms to identify and suggest content that individual users may like based on their streaming history, geography, preferences, ranking and other indicators. Some streaming services offer both professionally curated playlists as well as playlists compiled by users. Opportunities for users to enjoy social experiences by sharing music with friends or interacting with artists are also becoming an important feature.

Canadian Contribution

An open platform for sharing creative content to a global audience. There are few hurdles preventing artists from getting their music on streaming audio platforms, since most services want to ensure that music is available via an open platform. Streaming services can help Canadian creators connect with new listeners, distribute their creations, monetize their content, and promote their work on a global scale. Some services also give creators access to analytics that help them better understand and expand their audience. Global online music services are becoming a key platform to market and promote artists.

Less promotion and funding to support Canadian creators. The promotion of Canadian artists through radio airplay does not necessarily translate to the on-demand streaming audio world. It is unclear if any measures are in place to promote Canadian artists using the algorithms that are becoming so important to music discovery. Although certain services clearly identify and promote Canadian artists, streaming services are unregulated and thus have neither Canadian content quotas nor the requirement to make Canadian content development contributions. Online audio services must nevertheless pay royalties to rights owners. In 2016, SOCAN distributed $3.6 million in royalties from internet streaming to Canadian songwriters, composers and publishers. Independent Canadian artists may be at a disadvantage with this model, and particularly so French-language artists, who tend to be signed by independent labels. Their works represent a smaller proportion of plays on music streaming services and thus receive less exposure than works from artists who have signed with the big labels that benefit from significant negotiating power.

Consumer Profile

Online audio services have been growing in popularity. About three-quarters (69%) of Canadians now access these services weekly, and this level is relatively the same for Anglophones (70%) and Francophones (66%). For those who listen to online audio services, the time spent listening is high—on average about 10 hours/week (Anglophones 10.5 hours and Francophones 8.4 hours).

Audience trends for online audio

Source: MTM

Note: Includes streaming AM/FM radio online

Financial

Rapidly increasing revenues; subscriptions are leading the charge. In 2016, total revenues for audio streaming in Canada were $208.7 million, an increase of 245.5% compared to 2015. About 90% of these revenues were from subscriptions. Despite this increase, online audio represents less than 10% of audio revenues in Canada.

Generally, streaming music revenues are experiencing high growth but negative profitability. Although revenues have increased rapidly, these services have yet to show they can be profitable or even viable over the long term. This is true for Spotify, the streaming service with the most subscribers worldwide. According to Spotify’s financial statements, despite a significant increase in revenues from 2015 to 2016, Spotify saw a bigger operating loss in 2016 than in 2015 as it ramped up product development and sales and marketing costs.2

Financial trends for online audio

Source: CRTC estimates (CRTC data collection; Sirius XM publicly available financial statements; Ovum; MTM consumer data)

Notes:

The advertising revenue portion of online audio represents the trade value only. It includes record companies’ revenue from the sale and licensing of recorded music products to retailers/intermediaries.
Revenues from music video streaming are excluded.
Splits by language markets are estimated based on MTM data.