Please explain how Spotify's business works in the Australian market and include market trends in music streaming in Australia

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Please explain how Spotify's business works in the Australian market and include market trends in music streaming in Australia

Based on the most recent articles and credible sources, Spotify, a digital music streaming provider, operates in Australia using the same freemium business model that it is using in other countries. This enabled the company to earn, from premium subscribers, a fee; or, from paid advertisements being shown to the subscribers who are using it for free.

Australia’s streaming music market is growing at a fast pace with a revenue of AUD 135.5 million in 2016 and a CAGR of 106%. Market movements in music streaming in Australia revolves around the following: accelerated growth due to increase in subscribers, preference for music streaming formats versus traditional formats, streaming services that are packaged with phone plans, market consolidation among the remaining streaming providers, more affordable plans with limited features, diversification in products offered by streaming providers, surge in artists’ income due to increasing use of streaming platforms, and the Australian government’s piracy crackdown that led consumers to seek legal music sources. Challenges include profitabilty concerns on payment models. Some comparison were also done between the two major players, Spotify and Apple Music.

More details about Spotify and trends in the Australian music streaming market can be found below. Since most website sources used are localized for Australia, monetary figures that are indicated in this research are most often in Australian dollars (AUD), unless otherwise indicated.

Spotify’s Australian Business Model

Spotify offers a digital music streaming service where users can choose from over 30 million songs. The service can be used across multiple devices such as tablets, mobile phones, computers, TV sets, game consoles and other platforms.
Spotify’s service is based on the freemium model in Australia and the rest of the world. In Australia, Spotify is free for one month and allows users to listen to songs, but with frequent ads and limited features.

On Spotify's website, local subscription prices for specific countries can be obtained by ensuring that the applicable country code is indicated in the Spotify URL, which in this case is 'AU'. Upgrading to Spotify Premium at AUD 11.99 per month will let users listen to ad-free songs and avail of other premium advantages such as unlimited skips, offline play, multiple tracks, and high-quality sound. Spotify also has a family plan that accommodates up to six accounts for a AUD 17.99 fee. Student accounts costs AUD 5.99.
Spotify’s primary monetization sources come from subscription fees of premium users and advertisements shown to those using the service for free.
The company’s primary expenses will be the royalty fees given to record labels and their singers. These music firms are paid on a per stream basis.
Spotify has around one in eight Australian premium subscribers or a triangulated 3 million subscribers in Australia who are using its premium service. In terms of visits, the service has welcomed around 5 million visitors to its platform in March 2017.

Australia’s Music Streaming Market Trends

Australia's music streaming market trends are explained in detail below.

* Accelerated Revenue Growth
Australia is currently experiencing a speedy growth in its streaming music sales, as its revenue in this area went up from AUD 31.8 in 2014 to AUD 135.5 million in 2016, for a CAGR of 106%. In the first half of 2017, the streaming turnover was AUD 96.9 million, which is a 57% jump from the same period in 2016.

* Fast Rise in Number of Subscribers
Approximately one in eight Australians, or around 3 million, are premium subscribers to music streaming services such as Spotify and Apple Music. In terms of visits, the service has welcomed around 5 million visitors to its platform in March 2017.

* Surge in Market Share due to Dominant Format
Music streaming only placed third among various music formats in 2014. However, in 2016, the streaming format jumped to first place at 38.5% overall market value, with approximately 90.5% growth over the year. This is way ahead of traditional music formats, such as CDs and digital downloads, as more Australian music fans now prefer to subscribe to streaming services. According to the Australian Recording Industry Association (ARIA), music streaming in Australia jumped to 90.5% in 2016, compared to the previous year.
Music streaming has contributed a 17.6% surge in Australia’s total digital market, which now stands at AUD 244 million overall.
In terms of revenue growth, streaming music’s market has more than tripled its growth rate from only 10% in 2014 to 38.5% in 2016.

Telecom Companies in Australia

Australian telecom firms are already trying to meet the increasing demand for streaming music services by offering more bundled data services. The bundled services being provided will include free or premium music streaming services from Spotify or other companies, with selected phone plans.
Telecom companies such as Optus and Virgin are already offering free access to Spotify. Telstra and Boost Mobile also provide Apple Music. Optus and Virgin have bundled Google Play Music into their phone plans.
This is expected to further increase the revenue of music streaming services.

Reduction in Music Streaming Service Providers / Market Consolidation

Prior to 2016, Spotify, Soundcloud, Apple Music, and Pandora were the major players in the Australian market. However, due to problematic payment models and the declining usage of their services due to the country’s market size, Pandora, Soundcloud and Guvera left the Australian market in 2016.
This signaled the music streaming market consolidation in the hands of the remaining major players in this sector like Spotify, Apple, and Google. Whatever revenue and subscriber base that the three players left will most probably be divided among these three providers.

Australian Government Piracy Reduction Initiatives

With a major crackdown on music piracy by the Australian government, legal music providers such as streaming services are enjoying further boon in their businesses. Modifications by the government on copyright infringement laws resulted in the blocking of pirate websites. Information dissemination initiatives also helped in educating the consumers on illegal music use and ensuring that they are aware of legal ways to obtain songs such as from Spotify music streaming services.
This can divert the previously lost piracy revenues to music streaming businesses.

Surge in Artists’ Streaming Earnings

Australian and New Zealand artists were able to earn AUD 62 million in royalties from various music streaming services like Spotify and Apple Music, from January to October 2017. This translated to a 127% increase in revenue for these artists.

Other Trends

In order to account for varying levels of market spending on music streaming services, more affordable, differentiated plans with limited features are being offered.
There’s also some diversification happening, such as when Spotify launched 'Stations', a radio-like service that was previously provided by Pandora. With the integration of streaming and live-streaming platforms, the music streaming industry aims to sell more by having more types of music information and products available like concert tickets. An example of this is when Spotify combined its streaming platform with the live music suite of Songkick. With this integration, Spotify will pull live concert information from Songkick into its platform where it can sell concert tickets.

Challenges to the Music Streaming Industry

Even with the high revenue and subscriber growth rate mentioned above, the music streaming industry is still going to face several challenges. For one, many users naturally prefer to take advantage of the free subscription and may also opt to spend less on the chosen subscription plan. This might mean that revenue sources can be limited to advertising revenues. With these limited sources of revenue, coupled with high expenses like royalties paid to music labels, expensive infrastructure, high marketing costs, and others, the payment models of music streaming providers make it difficult to earn profits.

Fortunately for the major players, they have the advantage over smaller providers to counter-act these challenges. Even if profitability is a struggle, Google Music's parent company support, Spotify and Apple's huge funding and large user base, can provide very thick cushions against bankruptcy.

SPOTIFY VS. OTHER KEY MUSIC STREAMING PLAYERS

In the Australian music streaming market, Spotify and Apple Music are the top players. Google Play music is just a runner-up to these two providers.

The following are just some comparison points of Spotify and Apple Music:
1. Subscription Fee:
Apple Music: AUD 11.99; Spotify: AUD 11.99
2. Number of songs:
Apple Music: 37 million; Spotify: 30 million
3. Free Trial:
Apple Music: 3 months; Spotify: 60 days
4. Quality:
Apple Music: 256 kbps; Spotify: 320 kbps
5. Premium Inclusions:
- Play, save and like
- Connect content and radio songs
- Ad-free
-Unlimited skips
-High quality
-Listen offline

There's no official data yet that can be found on the number of Apple Music users in Australia. Globally, Spotify has more than 70 million global subscribers, while Apple Music has only 36 million subscribers. However, with the backing of its cash-rich parent company and with other perks like the connection to its HomePod device, Apple hopes to surpass Spotify's subscriber volume in 2018.

CONCLUSION

Spotify operates in Australia using the freemium business model where it can earn from either advertisements or from subscribers’ fees. The market of music streaming services in Australia’s yielded a revenue of AUD 135.5 million in 2016 and a CAGR of 106%.

Music streaming trends in Australia are the following: market growth due to the rise in music streaming subscribers, users opting for music streaming formats, streaming services offered with phone plans, market consolidation for the remaining music streaming companies, more affordable plans, diversification in products provided, surge in artists’ income from streaming platforms, and the Australian government’s piracy crackdown on illegal music sources. Challenges abound such as profitability concerns on existing payment models of the music streaming providers. Spotify and Apple Music, key players in the music streaming market in Australia offer several advantages over the other for the same pricing levels.
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