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On-Demand Music Streaming is Winner-Take-All, Right?

This is a quick full blog post that is a follow up to a question I posted on Quora. One thing I’ve been thinking about is whether the battle between Spotify, Deezer, Rdio, Beats Music, and the various other competitors from Google, Amazon, and others will result in a winner-take-all scenario. I have a few basic thoughts on the space and am curious to hear what others think – I’m including my basic views on the space below:

  • All properly-capitalized providers have access to the same basic catalog of music content – From what I’ve seen, most, if not all, on-demand music companies can negotiate or simply license access to the same catalogs of music content on roughly equal terms.
  • While UI / UX is a differentiator, most UI / UX and design innovations can and will be copied by competitors – While companies can innovate around and within design and UI, anything innovative and interesting will be copied by a competitor and hence cannot be a long-term differentiator or advantage for any well-capitalized company in the space.
  • Consumers care about price and no provider will get a sufficiently differentiated pricing agreement such that they can differentiate in terms of end price to the consumer – Ultimately, consumers do have a fixed budget for what they will spend on music and the price of unlimited or limited on-demand music offerings has a firm ceiling in terms of what consumers will pay. And given the nature of licensing terms and catalog access, no company will be able to get preferential licensing and access terms for any reason other than scale and usage. There is no “club deal” to be done by any provider on the long term. This does not mean that some companies cannot afford to lose money in the short term to secure market share, but I do not see a model for a long-term price advantage for a single provider.
  • Eventually, the winner will be the company that can spend the most on customer acquisition and afford to wait out the content owners (labels) until their rivals wither – If no single player can get preferential economics when multiple players exist and all players have access to the same underlying content catalog, the winning company will be the one that can advertise the most and acquire the largest consumer base. I don’t believe most consumers, particularly those with budget constraints, will subscribe to multiple services. In the end, most consumers will subscribe to one service and one service only.

When I add all of this up, it seems to argue to me that there will be one major winner in on-demand music streaming. The one wildcard in this space is companies like Google and Amazon for whom on-demand music streaming can be marketed as a loss-leader. Given Google’s interest in both the Google Play ecosystem and Android and Amazon’s larger ambitions in boosting both Prime and its own content ecosystem around the Kindle and other content, both of those companies could make the decision that subsidizing on-demand music as part of a larger offering makes sense. I’m not sure that’s a good idea, but I believe it is possible and potentially aligned with their larger strategies.

I am by no means a music expert but interested in the space. And I feel that Internet radio is fundamentally different given the licensing rules and nature of the experience. The one thing I do think that is potentially interesting is seeing some of these streaming providers becoming effectively “labels” in that they have preferential licensing and distribution terms for breakout content.

Feel free to leave a comment below or send me your thoughts on Twitter (@chudson) or Quora.

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