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ABI’s Optimistic Forecast Says Music Subscriptions Will Exceed $46 Billion by 2018
There are optimistic forecasts and there’s ABI Research forecast on the next five years of the music subscription business. Subscription business will generate $46 billion of consumer spending and roughly $32 billion of trade value by 2018, according to ABI.
The company expects there to be 29 million subscribers by the end of this year. That implies a 45% gain from the 20 million subscribers the IFPI had counted at the end of 2012. “The past two years have seen a remarkable international expansion of streaming as a distribution model, but in terms of its long-term potential we’re still only scratching the surface,” senior analyst Aapo Markkanen said in a statement.
Indeed, ABI believes momentum will pick up in the coming years. ABI forecasts the number of global subscribers will increase to 191 million by 2018. That figure implies a 45% compound annual growth rate (CAGR) — the same rate of increase from 2011 to 2012.
Such a high forecast for number of subscribers implies several friction points will have been reduced by 2018. Partnerships with mobile carriers and broadband providers will be better in quality of greater in number. The services will have become more user-friendly in order to attract more mainstream customers and create a better value proposition (consumers will pay for convenience, after all).
To reach 191 million subscribers by 2018 will also require greater participation of technology giants. If Apple’s iTunes Radio is counted as a subscription service — it will be free to subscribers of iTunes Match — that 191 million number will be a lot more achievable. Google Play Music All Access, launched this year, will need to have gained traction on multiple continents. Sony Music Unlimited and Samsung’s mSpot must click with consumers.
A $46 billion subscription market by 2018 implies about an 84% CAGR from 2012. Assuming labels got about 60% of consumer spending, trade value would be just under $29 billion in 2018. According to the IFPI, which counts only revenue received from record labels, subscription services accounted for 13% of the $5.8 billion (in trade value) global digital music market. The $754 million trade value of subscriptions in 2012 would have to increase at 84% per year to equal $29 billion by 2018.
Notice the discrepancy between the growth rates of subscribers and revenue. ABI expects revenue growth to far outstrip growth in subscribers. In other words, ABI is effectively arguing that later adopters of subscription services will pay more than the earliest adopters, not the other way around.
How could this happen? How could revenue growth outstrip subscriber growth? One or multiple factors would need to cause a dramatic increase in average revenue per subscriber. Many subscriptions would have to be family plans that give access to multiple people for a higher fee. Or subscription services could introduce super-premium tiers for the heaviest users.
In reality, however, the average revenue per user is more likely to fall than rise over time. A forecast of 191 million global users within five years implies fees will fall in order to attract far more subscribers.
As for specific companies, Spotify is expected to be the leader with 9.3 million subscribers. That would be a 50% increase from the company’s last publicly stated number of six million subscribers. Companies typically — but not always — announce subscriber levels when major milestones are reached. Spotify would need to announce three more major milestones — seven million, eight million and nine million — by the end of the year for ABI’s forecast to be accurate.
Forecasts about subscription services have been overly optimistic in the past. Take the Jupiter forecast in 2000that subscription revenue would account for 63% of U.S. digital recorded music by 2006. Jupiter wasn’t close. Subscriptions accounted for just 14% of digital revenues in 2012. Three years after Jupiter’s forecast, Apple launched iTunes and made the download the dominant revenue driver of the next decade.
Forester’s example shows the difficulty in accurately predicting growth of a growing technology. ABI has run into the same challenges. History may not be kind to its forecasts as a result.
The Science of Productivity
In today’s crazy world, productivity is on the minds of many. So what can science tell us about the human brain and productive work? How do we become more efficient at working, and spend less time working overall?
It’s easy to see why: being able to get more done allows us to get ahead in life, and even gives us more time to do the things we love outside of work.
The problem we run into, however, is that it is easy to get motivated, but hard to stay disciplined.
This is because most of us look at productivity in the wrong way: it’s not about signing up for the latest task management tool (which, admit it, you’ll use for a week and soon abandon) or chaining yourself to your desk, it’s about understanding the science behind how your brain works, and using it to your advantage.
Today, we’ll look at what science has unveiled about the human brain and productive work, and you’ll learn how to tackle the biggest pitfalls that sabotage your ability to get things done.
Spotify Revenue Has Increased Dramatically
Documents filed by holding company Spotify Technology show that revenue more than doubled in 2012. The music streamer’s revenue took in $577 million USD, as it doubled it’s user base and expanded into new markets. Spotify currently has about 20 million active users of which 5 million pay for a premium mobile and ad free subscription.
Net losses also increased, but not as quickly as overall revenue. In a sign that offers hope for Spotify’s future, 2012 losses were $77.4 million, up 32% from $58.8 million in 2011. The company says it pays about 70% of revenue to rightsholders.
Spotify’s growth came both through expansion into new markets including Ireland, Germany, Australia and New Zealand, and it’s integration with Facebook. After launching in mid-2011, the Facebook music integration took off . By April of 2012, 17.5 million Facebook users were using Spotify via the social network..
Northzone, Kleiner Perkins Caufield & Byers, Accel Partners and DST are Spotify’s major investors, and all three major label groups are also stockholders. But the company does not rule out future fundraising, according to Reuters. “We cannot exclude the need or desire to raise more funds in the future to fund future growth initiatives,” Spotify said in the Luxemborg filing.