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II

MARKET RESEARCH

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Table of Content for Chapter II: MARKET RESEARCH

2.1 The Operating Platform ................................................................................................................... 9
2.1.1 The Latest Battle ................................................................................................................................................ 9
2.1.2 Androids Hardware Fragmentation .................................................................................................................. 9
2.1.3 Apples App Stores Influence ............................................................................................................................ 9
2.1.4 iOSs Users Are Ideal ........................................................................................................................................ 10
2.1.5 Optimistic Growth ............................................................................................................................................ 10
2.1.6 Conclusion ........................................................................................................................................................ 10

2.2 Market 1: Social Media Advertising ............................................................................................... 11
2.2.1 Mobile Is Growing .......................................................................................................................... 11
2.2.1.1 Mobile Market Growth ........................................................................................................................... 11
2.2.1.2 Enhancements In Mobile Internet Broadband Coverage ....................................................................... 11
2.2.1.3 Increased Time Spent On Mobile Devices .............................................................................................. 11
2.2.2 Mobile Advertising ......................................................................................................................... 12
2.2.2.1 Market Overview .................................................................................................................................... 12
2.2.2.1.1 Social Media Advertising .............................................................................................................. 12
2.2.2.1.2 Market Locations: North America Leads The Way ....................................................................... 12
2.2.2.1.2.1 The Big Spender In Social Media Ad Spending ................................................................... 12
2.2.2.1.2.2 The Leading Markets Increase Their Spending Per User .................................................... 12
2.2.2.2 The Importance Of Native Advertisement .............................................................................................. 12
2.2.2.3 Showing The Right Content At The Right Time To The Right People ...................................................... 13
2.2.2.4 Why Marketers Should Engage In Audio & Music Advertising ............................................................... 14
2.2.2.4.1 Audio Has Impact ......................................................................................................................... 14
2.2.2.4.2 Audio Is Everywhere .................................................................................................................... 14
2.2.2.5 Advertising On Music Streaming Platforms ............................................................................................ 15
2.2.2.5.1 Spotify .......................................................................................................................................... 15
2.2.2.5.1.1 Spotifys Playlist Targeting For Brands ............................................................................... 15
2.2.2.5.1.2 Focusing On Programmatic ................................................................................................ 15
2.2.2.5.1.3 Spotifys Targeting Options ................................................................................................ 15
2.2.2.5.2 Soundcloud .................................................................................................................................. 16
2.2.2.6 Companies Have Money Ready To Be Spent .......................................................................................... 16
2.2.2.6.1 Budgeting ..................................................................................................................................... 16
2.2.2.6.2 Company Perceptions Towards Social Media .............................................................................. 16
2.2.3 Conclusion ...................................................................................................................................... 17

2.3 Market 2: Social & Music Streaming Platforms .............................................................................. 18


2.3.1 Market Overview ................................................................................................................................................................. 18
2.3.2 Music, Powered By Smartphones ........................................................................................................................................ 19
2.3.3 Music, Empowered By Youth ............................................................................................................................................... 20
2.3.3.1 Millennials .......................................................................................................................................................................................... 20
2.3.3.1.1 Overview ............................................................................................................................................................................... 20
2.3.3.1.2 Relationship With Music ........................................................................................................................................................ 20
2.3.3.1.3 Social Relationships ............................................................................................................................................................... 20
2.3.3.2 Generation Z ....................................................................................................................................................................................... 21
2.3.3.2.1 Overview ............................................................................................................................................................................... 21
2.3.3.2.2 An Online Powerhouse .......................................................................................................................................................... 21
2.3.3.2.3 Relationship With Music ........................................................................................................................................................ 21
2.3.4 Music Streaming Industry & Platforms ................................................................................................................................ 22
2.3.4.1 Give Me A Feature To Love You ......................................................................................................................................................... 23
2.3.4.2 Its Raining Laws: The Value Gap Issue ............................................................................................................................................... 23
2.3.4.3 Money Makes The world Go Round. Stream Money Doesnt ............................................................................................................ 24
2.3.4.4 Revolution: A New Music Business Model ......................................................................................................................................... 25
2.3.4.5 Music Streaming Markets Are Growing ............................................................................................................................................. 26
2.3.5 Social Music Apps ................................................................................................................................................................. 27
2.3.6 Latest News .......................................................................................................................................................................... 27
2.3.7 Conclusion ............................................................................................................................................................................ 28

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2.1 The operating Platform
It is our desire and long-term goal to be available on both Android and iOS
operated devices. However, Hesli will be developed and operated on Apples iOS
Buy an iPhone.
first. Data on speed to market, growth and demographics supports our decision. - S.Shah, 2014

2.1.1 The latest battle


Mary Meekers Internet Trend Report (KPCB,
2016) states that Android has gone from owning
4% of the mobile operating system market share in
2009 to a dominant 81% in 2016. On the other
hand, over the same 6 years Apples iOS increased
its market share ownership by only 2% to a total of
16% in 2016. Furthermore, the report predicts a
loss of iOS market shares of 11% Y/Y, whilst
Android is expected to gain 7% Y/Y.

However despite Androids promising growth and


wider audience reach, several online bodies have
argued the disadvantages for an early stage start-up
to develop their online platform on Googles
operating system first. Figure 9: Smartphone Unit Shipments, iOS vs Android, 2007 2016E (KPCB, 2016)

2.1.2 Androids Hardware Fragmentation


As an early stage start-up we expect to review many of our features on a
regular basis. Adopting the build-measure-learn mindset requires the
ability to implement change in a rapid manner. The ubiquity of Android
being used to operate devices with different hardware (nearly 12000 in
2013 (QZ, 2013)) makes it difficult for us to use the system as a primary
one. Even if Samsung leads the explosively fragmented Android
ecosystem with a 22% share of the smartphone market (Ahonen, 2016),
we would still need to adapt any change in the app to not only the many
different Android-run devices, but also to each Android operating
version. Contrary to iOSs homogenous installed base with 88% of
iPhones running on the systems latest operating version (Apple, 2016),
Figure 10: Installed Base Figure 11: Installed Base
the Android installed base is very heterogeneous with its latest version on Android Devices on iOS Devices
operating on only 15% of the Google-run devices (Android, 2016).
Finally, the fact that Apples iOS operates on Apple-only products allows us to execute quick and homogenous changes
across all Apple devices and in a considerably shorter amount of time (Savvy Apps, 2015).
v Developing our product on iOS will allow us to implement quick and homogenous changes across Apple
devices with close-to-identical hardware, and 88% of which are running on the latest software version.

2.1.3 Apples App Stores Influence


Being featured on Apples App Store is often more impacting in acquiring new users than a post in mainstream
technology press. Contrary to Google Play, the App Store has defined new standards within the app industry by
checking every application uploaded to the store. Over time, its selectiveness and the high expectations of Apples
customers for a great experience has allowed it to become both an influencing entity in itself and a great distributor.

Furthermore, Forbes (2014) reported that iPhone users are the most engaged tech adopters. It is therefore not surprising
to learn that during the 2013 SXSW festival, over 80% of the attendees had an iPhone. It has also become common
practice for influencing technology journalists to be on iOS. This has created an ecosystem where apps are regularly
filtered out for public consumption, a fact that has made both start-ups and ourselves want to first nail the iOS
experience and gain Apple App Store Certification before moving onto Android (Scoble, 2012).

Moreover, the tendency for Apple customers to be high-income individuals has been reflected in the online store
revenues: iOS had an Average Return Per User (ARPU) that is roughly 4 times that of Googles Android in 2014
(Evans, 2014). Android has a higher percentage of ad-supported apps, but paying for apps is more common on iOS.
v Being on the Apple App Store puts the app in a demanding ecosystem that contains some of the most engaged
tech users and journalists. This will help us receive efficient feedback and build a product that meets the
highest expectations on the market.
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2.1.4 iOSs users are ideal
Aside from being a high-income customer base, the Apple clientele is also
a deeply consuming demographic: ComScore (2014) reported a monthly
64 hour-app-engagement compared to 55 for Android users, on top of
which Forbes (2014) stated an overweight of 65% for iPhone users being
addicted to digital devices. In 2015, the popular Coachella Music Festival,
which caters for a segment of our target users, had 90% of its participants
use the Coachella app on iOS. The festivals Director of Technology G.
Sangha qualified them as heavy iOS users (iMore, 2015).
On top of having almost 5 times the purchasing power of Android users
and being 10% more likely to make in-app purchases, iPhone owners
were deemed more loyal than their Android counterparts with 62% of
them being satisfied with their device compared to 48% for Android-run
smartphone owners. Apple users become more interesting for us to reach
during our early development stages, as they are less likely to switch to
another platform during growth (Crew, n/a).
Thus what has allowed the iOS platform to lead the way in the app market
despite its non-dominance on the smartphone OS market is a deeply
Figure 12: Characteristics of iPhone and Android People
consuming and loyal customer base that has a tendency to install, engage (Forbes, 2014)
and pay more than Android users for mobile applications.
v Being on iOS means interacting with users that are more deeply consuming, more loyal and more likely to
spend than their Android counterpart.

2.1.5 Optimistic Growth


Android has had the upper hand in emerging markets since 2010. Some of the
reasons behind the systems extraordinary growth over the last few years have
been explained by its ability to not only adapt to a myriad of low-cost devices
(which is in-line with Googles mass distribution strategy) but to also create
an iPhone-like experience on non-Apple products (iDownloadBlog, 2016).
Tomi Ahonens Almanac (2016) reported those prices to vary from under $40
for ultra-cheap phones to $150 - $450 for mid-priced smartphones. Apples
introduction of its low-cost iPhone 5C, which is currently followed up with
the iPhone SE with an entry price of $400 (Apple, 2016), is a sign that the
tech giant is on its way to reach a broader audience in key geographies and Figure 13: World Map of Android vs iOS
(Device Atlas, 2016)
that it is likely to steal market shares from Android in the long run (Shah, 2014).

v The introduction of mid-range Apple smartphones is the tech giants answer to an Android-dominated
smartphone market. This will allow the company to reach a broader audience, hence new iOS users.

2.1.6 Conclusion
v Developing our product on iOS will allow us to implement quick and homogenous changes across Apple
devices with close-to-identical hardware, and 88% of which are running on the latest software version.

v Being on the Apple App Store puts the app in a demanding ecosystem that contains some of the most engaged
tech users and journalists. This will help us receive efficient feedback and build a product that meets the
highest expectations on the market.

v Being on iOS means interacting with users that are more deeply consuming, more tech adventurous, more
loyal and more likely to spend than their Android counterpart.

v The introduction of mid-range Apple smartphones is the tech giants answer to an Android-dominated
smartphone market. This will allow the company to reach a broader audience, hence new iOS users that could
potentially become Hesli users too.

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2.2 Market 1: Social Media Advertising
2.2.1 Mobile is Growing
2.2.1.1 Mobile Market Growth
Since the introduction of Nokias 9000 series in 1996, the smartphone market has grown
to a $259 billion market valuation, and counts 1.55 billion smartphones in operation today
(Ahonen, 2016). With decreasing average smartphone prices (from $348.6 in 2011 to
$276.2 in 2015 (Statista 2016)), the market grew by 11% in 2015 and the worldwide
smartphone adoption rate in 2016 was reported to be 28.02%; a value that is expected to
reach 34.64% in 2019 (Statista, 2016). With smartphones becoming more affordable than
ever, smartphone ownership in emerging countries has boomed from a median of 21%
in 2013 to 37% in 2015; one of the important factors that have contributed to smartphones
being sold as much as 3 times more than normal mobile devices. Currently, low cost and
mid-range smartphones occupy 41% and 15% of the smartphone market in that Figure 14: Smartphone Users And Penetration
respective order (Ahonen, 2016). With such promising growth ahead, eMarketer (2016) Worldwide, 2014 2020 (eMarketer, 2016)
estimates that a third of the population, or more than 2.87 billion people, will have a
smartphone by 2020.
v With smartphones becoming more affordable than ever, advertisers aim to expand their mobile
advertisements reach on both developed and emerging countries.

2.2.1.2 enhancements in mobile Internet Broadband Coverage


The mobile internet penetration rose from 23.2% in 2008 to 46.1% in 2015, meaning
that over 3 billion people had access to the internet at the beginning of 2016 (Internet
Society, 2015). Despite global growth, the digital divide was still ongoing in 2015 with
78.2% of Europeans subscribed to mobile broadband, compared to only 17.4% of
Africans (BBC, 2015). However, with falling mobile-subscription prices the service
has become more favourable for many compared to a fixed-broadband subscription
(Figure 15), especially in emerging countries where the ratio is 2:1.
It is also worth mentioning that the mobile internet infrastructure, at only 48% global Figure 15: 2014 Broadband Prices in PPP$
coverage, is yet to catch up with the global mobile cellular networks reach of 94%.
Initiatives have been put in place to close the gap in both developped and emerging countries to make the world more
connected. With a global internet penetration expected to reach 71% in 2019 (Internet Society, 2015), this surge in
mobile connectivity is creating new opportunites for brands to acquire new customers in both developped and
developping countries; an opportunity that advertisers have foreseen and have prepared for by switching their ad
spending to mobile first (PC MAG, 2015).
v Decreasing prices in mobile-broadband and the increased coverage of mobile internet is allowing emerging
markets to get online; an unmissibale opportunity for advertisers looking for new mobile consumers.

2.2.1.3 Increased Time Spent on Mobile Devices


The Internet Society (2015) reported that individuals now spend more time on
apps than on mobile browsers, and in the US, this times exceeds the time spent
on desktop and mobile browsers combined. According to Digiday (2016),
people use the Internet for about 3 hours and 20 minutes on their phone, and
only 40 minutes on their computer. Wired (2015) explains that this is due to the
ability for users to achieve more tasks on mobile phones thanks to technological
advancements, added laptop-like capabilities and increased performance in
mobile phone hardware and software. In developed markets most consumers,
when in apps, spend 90% of their time on social networking, entertainment and
gaming platforms (Figure 16). In emerging countries, the mobile phone is often
bought as both a communication and work device due to a lack of financial
Figure 16: 90% Of Time On Mobile Is
resources; a factor that explains their mobile-first and mobile-only Internet Spent In Apps (Smart Insights, 2015))
access.

v Users in both emerging and developed countries are spending more time on their mobile phones than ever
before thanks to increased capabilities in mobile hardware and software, and the growing availability of
online tools and platforms. Mobile has also become the primary device for accessing the Internet, worldwide.

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2.2.2 Mobile Advertising
2.2.2.1 Market Overview
Mobile has become the largest advertising media by having a reach of 1.5 times
the total Internet audience, 2.5 times the number of TV sets and 12 times that of
newspaper (Ahonen, 2016). With the increase in mobile ownership, many
advertisers have switched their main ad spend from desktop to mobile, with global
mobile ad spending forecasts of over $100 billion in 2016 and almost $200
billion in 2019, each representing 51% and 70% of the total media ad spending
respectively. The US alone is expected to spend over $40 billion to reach
consumers active on tablets and mobile phones, whilst China is expected to invest
more than $22 billion for the same purpose (eMarketer, 2015). Figure 17: Mobile Internet Ad Spending
Worldwide 2013-2019 (eMarketer, 2015)

2.2.2.1.1 Social Media Advertising


Since its creation, social media has created new ways for people and brands to
communicate. It has also offered new opportunities for companies to build brand
awareness by targeting specific audiences based on geographic location,
demographics and behaviours, amongst other criteria. With 2.3 billion active
users on social media in 2016, reaching new customers can be a difficult process
without promotion (MTB, 2014). So much so that the social media advertising
market is expected to generate $41 billion in 2017 (eMarketer, 2015) (Figure
A4, p.66). The trend convergence of precise ad analytics, programmatic audience- Figure 18: Social Network Ad Spending Worldwide
buying tools and the rise of social apps has even led to high-profile analysts (such by Region 2013-2017 (eMarketer, 2015)
th
as Mary Meeker) to qualify the Mobile Internet as the 5 technological cycle
(GigaOM, 2010) and consider social media as the major ad platform of the future (BI Intelligence, 2014). It does
not come as a surprise that ads are a, if not the, financial driver of the mobile app economy (LaunchBit, 2013).
v Social media advertising is a booming market that analysts expect to become an advertising industry changer.

2.2.2.1.2 Market Locations: North America leads the way


2.2.2.1.2.1 the big spenders in Social Media Ad Spending
New figures from eMarketer (2015) predict a global social media ad spending of $35.98 billion in 2017, or 16% of the
global digital ad spending. Those numbers will represent a 20.3% growth since 2016. With a reserve of $15.15 billion
expected to take 42.1% of the total social network ad spending share, North America remains the most favourable
market for social media advertisers, followed by Pacific Asia and Western Europe, each having an expected social
media ad spending of $11.91 billion and $6.85 billion in that order. Latin America, Central Europe, Eastern Europe,
Africa and the Middle East, who altogether occupy just 5.8% of the social media ad spending share, remain far behind
even though they all experience continuous and considerable growth rates in the shortcoming future.

2.2.2.1.2.2 the leading markets increase their spending per user


North American social media advertisers were spending $50 on each user across all social platforms in 2015 - a number
that is expected to grow to $71.37 in 2017. Western Europe is expected to experience a similar growth rate, however the
spending rates are forecasted to remain half that of North America. In Asia-Pacific however, the advertisers spending
amount per user was at a very low $8.04 per user in 2015 and will grow to only $10.54 per user in 2017.
v By continuously spending the most on social media advertisement and social media users, North America
appears to be the most favourable market for social media advertisers.

2.2.2.2 The importance of Native Advertisement


The decline of banner ads justified by their ineffectiveness, customer banner-blindness, the drop in
eCPM and their intrusive nature (NY Times, 2014) and the rise of new online behaviours promoted by
social platforms contributed to the development of online native advertisements. Native ads, which are
defined by advertisement formats that fit the form, style and voice of the platform they appear on, have
been proved to result in a 52% increase in visual attention, a 9% higher lift for brand affinity, and
an 18% lift increase for purchase intent responses compared to banner displays (Sharethrough, n/a).
Users also said that they spent a similar amount of time looking at native ads than original content thanks
to its natural feel and unobtrusive placement. Consumers also stated they had a positive perception of
native ads as long as they appeared relevant, of quality, and transparent (no hidden publicity). Business
Insider Intelligence (2015) reports that $21 billion will be spent on native advertising in 2019, up from
$4.7 billion in 2013 (Figure A7, p.66))
v Native ads are better for brands and for users. Because Hesli is firstly a mobile application, it is Figure 19: Example of
important to make the ad experience as unobtrusive as possible, which is why the platform will use Native Ads
native advertisement. When the platform moves to a desktop app, banner will be introduced.

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2.2.2.3 Showing the right content at the right time to the right people
With bigger-than-ever audiences on all social platforms, creating great content is just one of the factors that promises
high engagement rates. Another important factor is one that many software and social media management companies
have been created to tackle: the need of showing the right content at the right time to the right people. This need
has been and continues to be exploited by social platforms that offer targeting tools, called Ad Targeting Options, to
advertising customers in order to increase the efficiency and ROI of their ads by not only providing insight onto their
most appropriate audiences but by also targeting them.

Facebook, for instance, allows brands and companies to reach prospective customers based on their interests, gender,
relationship status, educational status, age, location and language (Facebook, 2016).
Example: A food delivery start-up will use location and educational status to target their service to current
college students in specific regions.

Similarly:

% SMP* Marketers who 2016


Primary Purpose 2016 Ad
used the want to learn Active
Platform Ad Targeting Categories (Vertical Response, Unique Attributes Revenue
platform in more about the Users
2015) (in $bn)
2016 platform (in m)
Demographics: Location, Age, Gender, Language, Reaches a variety of segments
Relationship Status and Education. within an audience with 1
Builds brand loyalty and
Interests: Determined by what the audience is connected post.
reputation. Establishes
to on Facebook (Page, Apps, etc.). 73% Opportunity to create ads and
your business as an
Behaviours: Based on purchase behaviour or intent, 93% up from 68% in drive traffic 1712 17.079
Facebook authority through
device usage. Determined by what the audience is 2015 Ideal to share personal stories,
interesting content and
connected to on Facebook (Page, Apps, etc.) informational posts. testimonials, detailed info
More Categories: from Partner Categories: Data from about your business
trusted partners, adding categories such as income, if
they are home owners or not, if they are in the process of
Artistic niches excel
buying a truck
Hashtags
Only available in the USA, France, Germany and the
Visual promotion and identity
UK. Promotes artistic work,
Quick content consumption
Connections: Based on who or what the audience is 44% 55% lifestyle products. More
Instagram connected to. up from 36% up from 49% in visually focused than Beautiful imagery 500 1.48
Custom Audience: Upload a specific list (e.g. people in 2015 2015 Facebook, but less than A platform for story telling
who have visited your website). Pinterest. Stronger emotional
Lookalike Audiences: Target a lookalike audience connections with what we see
present on a partners platform. rather than what we read.
(Facebook, 2016)

Demographics: Location, Gender, Language.


Interests: People connect with the passions and pursuits
they find meaningful. Determined on who they follow.
Serves audiences looking for
Behaviours: Provided by Twitter Partners: Based on Shares breaking news
quick info.
their shopping behaviour, lifestyle and other key and quick updates,
76% Focuses on dialogue creation
attributes (income, pet ownership, etc.), Device usage. promotes new products,
Twitter Down from 59% and instant feedback. 313 2.61
Followers: Based on who they follow. content, brand contexts,
79% in 2015 Best platform for PR and
Keywords: What they have recently tweeted about or collects instant feedback
Publicity.
threads they have engaged with. from audience.
Hashtags
Custom (tailored) and lookalike audiences: Upload
a specific list of contacts or target a similar audience
present on a partners platform.
(Twitter, 2016)

Demographics: Location, Gender, Language, Device,


Age. Generates leads and drives
Acts as an online
Interests: Strong category for the company, based on 30 traffic to other content
40% scrapbook, showcases
categories and over 300 sub categories. Visually promotes and
Pinterest down from 45% products and displays 110 0.169
Keywords: Based on recent searches. highlights products/services
45% in 2015 brand essence through
Custom and lookalike audiences: Audience retargeting, inspiration boards. Allows micro-targets with
list of contacts, people who have engaged with pins clearly defined categories
related to website, visitor targeting, lookalike targeting.
(Pinterest, 2016)
Demographics: Location, Gender, Language, Age,
No.2 Search Engine in the
parental status
53% Used for long-format World.
Topics/Interests; Based on previous search, Keywords
YouTube down from 58% video advertising for all Great for audio-visual 1000 5.18
Remarketing: Video Remarketing, Placements, In- 55% in 2015 sorts of companies. publicity and brand building
Market Audience, Affinity Audience
Tell your story
(Google, 2016)
Demographics Age, Gender, Location, device /
Unique advertising format and
operating system, mobile carrier Used for brand
28% consumption
Behaviours: Content affinity (based on Discovery), awareness, promote
Snapchat 5% up from 19% in Growing users and data 150 0.3
Lifestyle categories engagement, increase
2015 Dominated by 18-24 year olds
Custom Audiences: Audience match and lookalike purchase intent
Quick content consumption
(Marketing Dive, 2016)
Demographics: Location, Gender, Age. Huge reach for professional
Business oriented social
Professional Data: Company Name / Size / Industry, Job 67% people
networking site dedicated
Linkedin Title / Function / Seniority, Skills & Endorsements, down from 61% Great platform to find 450 3
to professional
Schools, Degrees, Fields of Study, Years of Experience. 71% in 2015 potential hires and job
networking and hiring
(Linkedin, 2016) candidates
*Social Media Platform
Table 1: Comparative Table of Social Platform
Ad Targeting Options (Social Media Examiner, 2016)

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Table 1 shows that social media platform marketers have a clear preference for major social networks, and an average
of 54% of those marketers want to learn more about them. It is worth noticing that despite having a considerable
amount of active users and having a similar set of basic ad targeting options (gender, age, location, language), the usage
percentages by marketers on each platform are not the same. This is partly due to the different content consumption
behaviours that each platform creates, and partly due to the specialised categories (e.g. company size in LinkedIn, or
followers in Twitter) that are consequential data sources fed by the platforms unique environment. In other words,
marketers choose a platform over another depending on the user they aim to target within a set environment of
consumption behaviours where they will provide specially formatted content meant to be consumed in a specific
way, by specific people, at a specific time. Therefore despite the sense of saturation in the social network market,
marketers will still consider using a new social platform given it creates a new experience within a new environment
where the content consumption behaviour is different from (and is as good (if not better) in terms of ROI and reach as)
the existing online environments.
v A new social platform can be successful amongst social media marketers and users alike if it creates an
environment where the content consumption behaviour differs significantly from existing social platforms.

The Social Media Examiner (2016) also reported that social media marketers with more
than 5 years of experience still showed strong interest in the same social giants (Figure
20). It is worth noticing that none of these platforms use audio or music as their main
advertising content, but the majority use visuals (Figure A8, p.66)). As a matter of
fact, the report stated that 74% of the commonly used type of shared social media content
is visual, followed by blogging at 68% and videos at 60% (Figure A9, p.66). The
importance of image, the Internet Trend Report explains, is due to the fact that millenials
and generation Z-ers both communicate via text and image (KPCB, 2016). The
absence of audio-only content could be also explained either by the fact that no social
platform that serves audio-only content currently exists, or that marketers do consider
audio advertisements but in other types of networks. Figure 20: Platforms Used By Social Media
v All the successful social platforms use visual content that is distributed Marketers With More Than 5 Years Of Experience
and consumed in different forms, but none of them use audio-only content (Social Media Examiner, 2016)
with as much significance, or consider audio-only content as part of the
platforms identity.

Therefore, marketers cannot yet show interest in audio-only advertising on social media networks because no
social media has created a platform where audio-only content is consumed by users. However, music-streaming
platforms, which depend heavily on advertising, have been offering audio advertisement real estate to marketers who
either advertise products during the music experience, or advertise a music experience by itself with sponsored playlists.

2.2.2.4 Why Marketers should engage in audio and Music advertising


2.2.2.4.1 Audio has impact
A lack of music initiative or music strategy is often the reason why marketers do not engage in a digital audio
strategy. H. Browning, from The Drum (2016), affirmed that marketing on music platforms is as important as marketing
on social media or email in todays market place. Brownings statement is based partly on a 2014 study from Nielsen
Catalina Solutions (2014), which found that audio advertising was the most effective advertising channel in terms of
ROI: every $1 spent in audio advertising delivered $6 of sales lift on average. The radio streaming servicer Pandora
also measured 11 CPG (Consumer Packaged Goods) campaigns that generated, on average, 12% lift in incremental
sales, whilst individual campaigns generated a 32% lift in sales. This shows that the power of audio is undeniable.
v Studies have shown that audio-only advertising can have considerable positive effects on sales.

2.2.2.4.2 Audio is everywhere


Todays music streaming technology has combined more music and better A Music Strategy Is An
discovery propositions than ever before, creating highly engaged audiences. There
is a common perception that music has the power to break into the brain and Audience Strategy.
affect the listeners emotions, and therefore their behaviour. With music being - Browning, 2016
consumed at different occasions during the day and the cross-device ubiquity of music streaming platforms, marketers
are able to reach their audience in optimal conditions - or when the relevancy of the product and the behavioural
attitude of the user match the most. According to Millward Brown, when Anytime Fitness advertised their products on
Pandora for mobile users, they saw a 22% increase in brand awareness, a boosted offer awareness of 44%, and a surge
in signs up well above the expected goal.
v Exploiting audio advertising would allow marketers to engage their customers in an emotionally and
contextually relevant environment in which they can deliver a message that resonates.

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2.2.2.5 Advertising on Music Streaming Platforms
2.2.2.5.1 Spotify Connect brands with the streaming
2.2.2.5.1.1 Spotifys Playlist Targeting for brands generation. - Rossi, 2015
Advertising is a main financial driver for apps and online platforms alike. Companies pitch their platform to marketers
by proposing clean, reliable, first party data (The Drum, 2016). As seen in Table 1 (p.13), each social network is able to
provide basic ad targeting options (location, gender, age, language) but also ad targeting categories specific to their
platform. In that same fashion, Spotify wants to pitch its platform to advertisers by specifying a new ad targeting
option: Playlist Targeting For Brands (Spotify, 2015).
The Drum (2016) explains that playlists with similar music could put the user in different states of mind
depending on the context in which each playlist is listened to. For instance, users listening to a playlist on their
desktop are more likely to be in a relaxed environment and therefore more susceptible to richer native experiences. Ads
would therefore adapt to the listening environment of the user and propose relevant products. Spotifys availability on
multiple connected devices (smartphones, desktops, cars, PlayStations) allows the company to follow the usage
behaviour of a single account, thereafter concluding the natural usage cases of a user and establish a coherent data story.
This, along with the different sets of advertising formats proposed by the platform (Table 2), creates both a
seamless experience for users and multiple, adaptable advertising opportunities for marketers:
Devices on which it is
Format Function When it appears Length Billing
available
Lets users watch a sponsored video in
Sponsored US & Canada: 15 s. Completed
exchange of 30 minutes of ad-free
Session - Mobile and Tablet Rest of the World: views are
listening. Only video spot with branded
15, 20 or 30 s. billed
end card.
During commercial ad US & Canada: 15 or Completed
Video
Video spot with companion display unit. breaks between songs in Desktop App 30 s. views are
Takeover
a music session. Europe: 20 s. billed
Cross platform format comprised of an During commercial ad- Desktop App, Mobile,
30 s. every 15
Audio audio spot, cover art, clickable breaks between songs in Tablet, Web and -
minutes.
campaign name a music session PlayStation
When users are
Display Leader board ads / clickable images Desktop App and Web. 30 s. -
interacting with Spotify
Welcome Back ad: Cant-be-missed Desktop: 2 s.
When users return to the
Overlay large display ad with smaller Mobile and Desktop App. Mobile: Until users -
platform.
leaderboard dismisses the post
Homepage Combination of background skin and
- - 1 day -
Takeover interactive area
Branded Custom playlist with brand logo, custom Desktop App, Mobile,
- - -
Playlist text, link to campaign Tablet, Web.
Advertiser page as microsite on the
Advertiser Desktop App, Mobile,
Spotify Player. Any content present on a - - -
Page Tablet, Web
webpage appears on the microsite.

Table 2: Available Advertising Formats on Spotify (2016)

v Spotifys State of Mind ad targeting category allows marketers to target users based on their emotional state
thanks to the platforms availability on multiple connected devices and a myriad of advertising formats.

2.2.2.5.1.2 Focusing on Programmatic


Programmatic buying is the algorithmic purchase and sale of advertising space in real time, which is more cost-efficient
and better at targeting than traditional ad buying (Media Math, 2013). Spotify wants to dominate programmatic audio
by bringing audio and mobile data insight. Buyers will target listeners with precision advertising of real-time audio
based on what they are feeling, their interests, location, age and other incremental factors using the services own first
party data. Spotifys programmatic approachs main winning point will be to have brands and agencies understand
when to deliver ads to an audience that is most engaged and when it is most likely to convert (The Drum, 2016).

Rossi, Spotifys Global Director of Marketing, said I feel like the industry is in a transitional period; its figuring out
a lot of latent behaviours and I feel like now we are seeing the light at the end of the tunnel, before concluding with
If we target against playlist, age, geography and time of the day, the data becomes immensely powerful.
v Spotify aims to switch to Programmatic Buying in the shortcoming future. This will enable the platform to
significantly grow its advertising business thanks to automated ad buying and selling.

2.2.2.5.1.3 Spotifys Targeting Options


Demographics: Age, gender, location, language, time of the day, device (Spotify prides itself on allowing brands to
continue the conversation and use platform retargeting when users switch devices. (Spotify, 2015)).
Playlist for Brands: Playlist: Workout, Party, Focus, Commute, Relax, Travel, Dining and Romance.
Genre: Pop, Indie/Alternative, Hip Hop and Latino.
v Spotify allows brands to target users based on their mood (determined by a given set of genres and playlists).
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2.2.2.5.2 Soundcloud
Soundcloud released its premium platform in 2016 with Soundcloud Go in order to respond to several labels pulling
their music from the platform for not making sufficient revenue from the songs. What is has always been called The
YouTube of Audio still maintained its free model for most of its monthly 175 million global users in exchange for
ads. Soundclouds website mentions the use of audio, display, native, sponsorship advertising opportunities and
promoted profiles as ad formats (Tech Crunch, 2016). No further information about their advertising model was found,
however it would not be surprising to know it is close to Spotifys.

2.2.2.6 Companies have Money ready to be spent


2.2.2.6.1 Budgeting
The CMO Survey Report (2016) evaluated the marketing budget of B2C product companies at 16.7% of the total firm
budget, compared to a company average of 10.2%. The report also mentioned a +3.1% change marketing budgets for
B2C product companies (7.2% company average) in the next 12 months. Also, by increasing and enhancing the access
to efficient data, analytical tools and targeting options, the social media marketing budget of companies, currently at
11.7%, is expected to grow to 14.1% in the next 12 months and to 22.2% of the total marketing budget in 2020 (28%
for B2C product companies). Finally, the survey also stated that brand building showed a 46% spending lift over the
last 2 years and brand spending will see a +6.3% change in the next 12 months. According to The Next Web
(2016), company spending on social media marketing is typically represented as shown in Table 3.

Task Cost (in $)


Start a Twitter account from scratch (7 to 10 tweets a day) 2,000 to 4,000 per month
Restructure a Twitter account 1,000 to 2,500 per month
PR Agency charges to set up and run a Facebook account (2 to 3
2,500 to 5,000 per month
posts a day, gain relevant followers)
Creating a social strategy with at least 2 social networks 4000 to 7000
Auditing existing accounts 2,000 to 10,000 per month
TOTAL 6,500 per month + 4,000 to 21,500 per month + 7,000
Table 3: Average Social Media Marketing Budget For Companies
With Average Annual Revenue Of $25 Million.

Companies with annual revenue less than $25 million are reported to spend an average of $4000 to $7000 a month on
social media marketing (Small Biz Trends, 2016).
v Companies are increasing their social media marketing budget, which is expected to reach almost a quarter of
their total marketing budget in 2020.

2.2.2.6.2 Company Perceptions towards Social Media


Only 17.4% of marketers in B2C product companies have been able to
prove the impact of social media quantitatively, whilst 54.3% have said
to have had a good sense of its qualitative impact. It is also worth
noticing that just a little more than half of the B2C product companies
have found social media to be a good contributor to their companys
performance with an average score of 3.8/7 (7 being the highest)
(Figure 21). Furthermore, only 45.7% of companies used customer
behaviour data collected online for targeting purposes, just up from
40.5% in August 2013. 55.8% have also said to not be worried about the
use of online customer data (CMO Survey Report, 2016).
With the development of tools that offer insightful analysis on a brands
audience and with social media ROI measurement software being Figure 21: Degree At Which Social Media Contributed
To Company Performance (CMO Survey Report, 2016)
deployed (HootSuite, Google Analytics, Radian6, Brandwatch, Buffer), it
is not surprising to learn that CMOs will continue to increase their
spending on social, mobile and analytics (AdAge, 2015).

v Companies experience low satisfaction in terms of quantitative impact and ROI measurement on social media.
50% are not worried about using online customer data. 50% say social media is a company performance
contributor. With enhanced measurement software CMOs will continue to increase their social media budget.

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2.2.3 Conclusion
v With smartphones becoming more affordable than ever, advertisers aim to expand their mobile advertisements
reach on both developed and emerging countries.

v Decreasing prices in mobile-broadband and the increase coverage of mobile internet is allowing emerging markets
to get online; an unmissibale opportunity for advertisers looking for new mobile consumers.

v Users in both emerging and developed countries are spending more time on their mobile phones than ever before
thanks to increased capabilities in mobile hardware and software, and the growing availability of online tools and
platforms. Mobile has also become the primary device for accessing the Internet, worldwide.

v Social media advertising is a booming market that analysts expect to be an advertising industry changer.

v By continuously spending the most on social media advertisement and social media users, North America appears
to be the most favourable market for social media advertisers.

v Native ads are better for brands and for users. Because Hesli is firstly a mobile application, it is important to make
the ad experience as unobtrusive as possible, which is why the platform will use native advertisement. When the
platform moves to a desktop app, banner will be introduced.

v A new social platform can be successful amongst social media marketers and users alike if it creates an
environment where the content consumption behaviour differs significantly from existing social platforms.

v All the successful social platforms use visual content that is distributed and consumed in different forms, but none of
them use audio-only content with as much significance, or consider audio-only content as an intrinsic part of the
platforms identity.

v Studies have shown that audio-only advertising can have considerable positive effects on sales.

v Exploiting audio advertising would allow marketers to engage their customers in an emotionally and contextually
relevant environment in which they can deliver a message that resonates.

v Spotifys State of Mind ad targeting category allows marketers to target users based on their emotional state thanks
to the platforms availability on multiple connected devices and a myriad of advertising formats.

v Spotify aims to switch to Programmatic Buying in the shortcoming future. This will enable the platform to
significantly grow its advertising business thanks to automated ad buying and selling.

v Spotify allows brands to target users based on their mood (determined by a given set of genres and playlists).

v Companies are increasing their social media marketing budget, which is expected to reach almost a quarter of their
total marketing budget in 2020.

v Companies experience low satisfaction in terms of quantitative impact and ROI measurement on social media. 50%
are not worried about using online customer data. 50% say social media is a company performance contributor.
With enhanced measurement software CMOs will continue to increase their social media budget.

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2.3 MARKET 2: Social & Music Streaming Platforms
2.3.1 Market Overview
Prior to 2015, the recorded music market had experienced 19 years of
consecutive revenue loss. Stream ripping (Market Watch, 2016), music
copyright infringements, and free safe harbour streaming platforms
were blamed for the continuous decrease in physical and download
sales, and forced the music industry to jump onto the digital
bandwagon and reshape itself entirely. The proactive digitalisation of
music, the ever expanding reach of smartphones and the successful
online ecosystems built for legal music streaming has allowed the
industry to experience both its first revenue growth in 20 years and the
current global boom in music consumption. The business reached a key
milestone in 2015 when revenues from digital music outgrew with a
45% share of the global revenues the income generated from physical Figure 22: Global Recorded Music Industry Revenues 2005-2015
sales, which stood at 39%. On the one hand, download, which is (in $ billion) (IFPI, 2016)
responsible for 20% of the industrys global revenue, maintains its
potential despite having experienced a decline of 10.5% in 2015. On the other hand, thanks to the increased
availability of subscription services and connected music enthusiasts switching to licenced music consumption,
streaming has become the markets main source of income and has emerged as the industrys driver of growth. In
2015, 68 million people were paying for a music subscription service, up from 8 million in 2010, and streaming
was responsible for 20% of the global music industry revenue (up from 14% in 2011), bringing in $2.89 billion.
Revenue from all music streaming platforms (ad-supported and premium) were up by 45.2% Y/Y from 2014, and
accounted for 43% of the total digital revenue. This helped increase digital sales by 10.2%, totalling a $6.7 billion
income in 2015, thereafter offsetting the decrease in CD and download sales. Streaming has become mainstream, and
as of early 2016, there were almost 400 licenced music sites available online used by 37% of Internet users.

50% or more of the population in Mexico, Sweden,


Spain, Brazil and South Korea stream music online for
free, whilst 32% of 16-24 year olds pay for premium
an increase of 39% from 2014 (Figure 23). This
increase in user attraction has been explained by the
ease of use, the extensive availability of content, secure
payment, music discovery, access to tailored and
recommended playlists and the legal access to official
music that streaming services provide (Figure 24).

The total industry revenue grew by 3.2% totalling $15


billion by the end of 2015 (IFPI, 2016).
Figure 23: Population Use Of Audio Streaming, Per Country (MCIR, 2016)

Ultimately we are about presenting


the consumer with the greatest music
in the world in the way they want to
experience it.
free paid D. Kooker, President,
Figure 24: User Feedback On Service Offer Choice (MCIR, 2016)
Sony Music Entertainment

v After 19 years of decreasing CD and download sales, the music business experienced its first revenue growth
in 2015 thanks to a proactive digitalisation of the industry and the extensive reach of online audio streaming.
The latter brings efficient solutions to worldwide users and almost half of the population in the industrys 13
leading countries have now opted for these services.

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2.3.2 Music, powered by smartphones
Advancements in smartphone software and hardware have allowed a broader and easier access to the digital world than
ever before. Part 2.2 (p.11) covered the growing dominance of smartphones over computers; a trend that was also
spotted by the Music Consumer Insight Report (MCIR, 2016), which affirmed that smartphones are becoming the
most used device for music consumption in developed markets. Spotify (2014) supported that statement in their
Brand Impact Study by reporting a 74% increase in the use of smartphones by streamers compared to non streamers
for listening to music (only 3% difference in computer usage) (Figure 26). The MCIR also reported that 55% of all
paying music streamers listened to music on their smartphones (the offline usage functionality could be a
contributing factor (Figure 25)), making it the preferred device for paying customers. The 13 leading markets, which
account for 84% of all recorded music, appear to support this trend:

26%
77% 75% More users*
69% 68%
29%
65% 64% More users*
55% 55% 54% 52% 52%
12%
48% More users*
40% 39%

10% increase *Compared to


from 2015 2015 Markets with the most
growth in smartphone
usage for music

Figure 25: Percentage Of Individuals Who Used A Smartphone


2 in 3 of their Internet users To Listen To Music, By Country (last 6 months) (MCIR, 2016)
Use their smartphone to listen to music

Figure 27: Use Of Smartphones VS Computers For Each Service (MCIR, 2016)

Figure 26: Choice Of Device For


Listening To Music For Streamers And
Non Streamers (Spotify, 2014).

The expanding reach of smartphones is allowing more individuals to get online than ever before. With the music
industry becoming considerably digitalised, streaming services aim to become available to all. Thus by combining the
affordability and portability of smartphones, the new distribution models of online music, and the availability of offline
music allows users to enjoy music streaming wherever they are. It is therefore safe to say that the smartphone industry
contributes heavily to the growth of the music sector, and that both industries are likely to grow together.

v Smartphones are taking over as the preferred device for listening to music, especially amongst paying music
streamers. The expanding reach of smartphones is an open door to the Internet for developing countries,
which are yet to discover and enjoy streaming services. Both industries are highly likely to grow together.

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2.3.3 Music, Empowered By Youth
Advancements in mobile technology have changed the way worldwide individuals consume music. Young
demographics have grown accustomed to technology (KPCB, 2016) and both the availability and efficient solutions
provided by legal online music ecosystems have pushed for the highest engagement levels the music sector has ever
seen. Licenced online services have expanded consumer choice and premium conversion is on the rise. Young
consumers use social media to not only create online personas and affirm their identity but to also connect with their
favourite artists. 68% say that music should be free even though 48% purchase music in some form. (MCIR, 2016).
Evolutions in morals, social behaviours and relationship to music show great signs of optimism for the music industry.

2.3.3.1 Millennials The Biggest Generation Alive


2.3.3.1.1 Overview
Millenials have become the biggest generation alive with 1.72 billion members. In the
USA 86% own a smartphone (USA Today, 2015) on which they spend 14.8 hours per
week, just after the 16.4 weekly hours spent on their computer. They spend 19 hours per
week listening to music. They are the most diverse generation of all time with 40% being
multicultural consumers that are also forecasted to become the majority in 2043 in the US.
Multicultural consumers represent 31% of the total spend on music and typically spend
$7 more than the total market on music (Nielsen, 2014). 77% of millennials prefer cool
experiences to cool products, and 29% wish to be reached by brands through social
media, just under the 43% who preferred to be reached by email. 16% opted for online ads. They
also prefer ads that create an emotional connection to ads that include celebrities (Vision Critical, 2015), although
50% will try a brand if a celebrity endorses it.
v By leading the trends in smartphone use, music consumption and social media, millennials have become an
essential and dominant asset to the music industry.

2.3.3.1.2 Relationship With Music


Music streaming is widely accepted: 62% of 16-24s stream music legally; a 39% increase from 2014. Premium
subscription is also growing in popularity with 32% of Generation Yers paying for it. 55% of them also purchase
music in another form, ranging from vinyl to download (with the ubiquitous availability of free music, buying music
is often a symbol of patronage for millennials; an explicit desire to support the artists they respect and connect with
(ViaCom, 2013)). 93% of millennials still go to YouTube to listen to music they already know (81%) and to discover
new music (69%) (MCIR, 2016). They typically spend $50 per year on live music and attend more music festivals and
concerts than any other generation (Coachella has seen a 400% increase since 1999) (Audio Sage, 2014). They also
react more positively to music engagement via brand marketing (Figure 28).

Figure 28: Engagement of Consumers With A Brand (Nielsen, 2014).


v Millennials are widely familiar with music streaming and respond positively to music marketed by a brand.
Paying for music is considered a significant gesture and is done to support an artist.

2.3.3.1.3 Social Relationships


64% also said that like providing new music to their friends, and 58% are willing to post when they receive feedback
(Digital Music News, 2013). The statement is supported by the data collected in our own questionnaire (Appendix
p.70), where 75% said they had already shared a song publicly on social networks, the majority having done it to help
others discover new music. More than 50% said they had done it to share what they were currently listening to and
share their musical identity with the world. In 2013, 53% of millennials said they felt closer to artists who shared
their life on social media and 75% felt a stronger connection with musicians who were open about who they are. Co-
creation is important to young consumers, and they use social Facebook Tour updates and information, formal announcements.
media networks to acquire and exchange ideas with their Twitter Highlights interaction, short bursts of information.
Instagram Direct access to their literal worldview.
favourite artist. Tumblr More intimate access into the artists psyche/vibe.

v Social media affects the consumer/artist relationship within and beyond the online experience. Young
consumers consider important to connect with artists on a personal level through different medias.

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2.3.3.2 Generation Z
2.3.3.2.1 Overview The Always On Generation
Generation Z is defined by members born between 1995 and 2010 (Career Planner, 2016).
Gen Zers are the first generation to be born as digital natives. They are able to multitask on
different screens, are hungry for relevant content and are rapid content consumers.
Polyculturalism is their priority: expressing ones true self is an expectation and music is
used as a powerful medium to both discover and define themselves. Thanks to the growth
and efficient solutions of streaming, members of Gen Z have shown the highest
engagement levels with music amongst all demographics. They are also expected to have
a $200 billion wallet in 2018, which is why it is important to invest in data-driven marketing
and personalised storytelling to promote ads that resonate with them (Pandora, 2016). Post-
millennials are expected to take over Gen Y both in influence and size and have become bait for marketers who have
understood the importance of understanding, embracing, and engaging with them (Vision Critical, 2015).
v Generation Z is a growing demographic with a growing online power. They have embraced streaming but
their needs and mindset have switched from that of millennials, giving marketers a new challenge to overcome.

2.3.3.2.2 An Online Powerhouse


Today the average age of first-time smartphone ownership is 10.3 years (Figure 29) and 64% of 11-12 13-15
years years
youngsters have access to the Internet at home. In the USA 93% own a smartphone (Pandora, 31% 37%
2016), (65% of which are iPhones) on which they spend 15.4 hours a week; making it their
primary device for getting online (Vision Critical, 2015). Social media is also an integral part of 8-10
their lives: 39% of them got a social media account at 11.4 years old. 11% got a social media years
18%
account before they were 10 (Tech Crunch, 2016)). Their attention span is reduced to 8 <8
16-17
No years
seconds, down by 4 seconds compared to that of millenials (Forbes, 2016). Despite having a years Phone 7%
3% 4%
mobile-first behaviour they watch twice as much video content as any other demographic and
enjoy visual displays and storytelling when it comes to marketing. 34% prefer to be reached Figure 29: Gen Zs Age When
by brands through social media. They also care less about material possessions and prefer to Getting Their First Smartphone
spend on experiences they can share on their social accounts. Music is the third most common (Pandora, 2016)
activity performed on their smartphones (Figure 30), thereafter confirming the intimate 79% 68% 60% 50%
relationship between smartphones, streaming and young consumers.
v Generation Z is born with a smartphone in their hands. Music is an integral way of self-
expression and social media is a communication tool used to engage with their friends Text or IM Social Media Music Watch Videos
and favourite brands. They consume multiple-platform content at rapid pace. Figure 30: Top Smartphone Activities
For Gen Z (Pandora, 2016)
2.3.3.2.3 Relationship With Music
Music is a heavy contributor to the teens journey of self-discovery. Youngsters typically spend 4 hours or more per day
with headphones on and listen to 7 different musical genres every week (5 for 26 year olds). They show the highest
levels of engagement with music: 82% of 13-15 year olds engage with licenced music. 54% of them stream music
legally, 26% pay for it, and 52% also purchase music in another form. Also, aside from feeling the strongest about
music with 82% agreeing that it is important to them (72% for millenials), they also strongly believe, with 67%
agreeing with the statement (57% for millenials), that artists should be rewarded for their creativity. Finally, 64%
consider that downloading or streaming music without permission is stealing (54% for millenials) (MCIR, 2016), which
shows a clear evolution in online morals and a beacon of hope to reduce the value gap. When it comes to music
discovery only 51% turn to social media (Figure 32) whilst 75% turn to YouTube and their friends. Their typical
activities while listening to music include:
Spotify 39.3
Pandora 20.9 74% 75%
54% 51%
87% 76% 70% iTunes 12.9
Homework Texting Social YouTube 8.9
Media Other 8 Friends Youtube AM/FM Social
55% 44% 40% 23% Soundcloud 4.9 Media
Eating Video Games Email tv Google Play 4.4

Figure 31: Gen Zs Favourite Music Figure 32: Music Discovery Sources
Apps (Pandora, 2016) (Pandora, 2016)

v Generation Z is expected to contribute heavily to the growth of the music sector. Their morals toward music
rights have evolved, most of them stream music legally and most of them are willing to pay for it. The
availability of music and the portability of smartphones boost music consumption in every day tasks.

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4.0 Music Streaming Industry & Platforms
Service Songs Countries Total Premium Platforms Offline
Strong Points Weak Points Price
Provider Available Operating In Users Users Available On Playback
Available on several platforms No user generated content. iOS, Android, Premium Free with ads
Big catalogue of songs and 1.5 bn playlists Missing high profile artists due to Windows, Users Only $9.99/month
Great Playlists and Discovery: Fresh Finds, Discover Weekly disagreements. Blackberry, PC, Premium
Easy to create and sync your own playlists for offline listening Can only shuffle songs in the mobile app when Mac, Car,
Great Interface using the free version. PlayStation.
Spotify Over 30 100 40 Social features Artists and the music industry dont like
58 Spotify (partly blamed on the free tier).
(Sweden) million million million Running feature
Facebook integration Although applauded, discovery features are
A lot of people on-board quick to propose you typical songs you like.
Hosted Radio with celebrity guests (in response to Apples Deezer is more willing to take risks with their
Beats1) proposals.
API Coming Soon
Large song catalogue No free option (discourages sign ups) iOS, Apple Premium $9.99/month
Radio with in-house DJs Not as old as Spotify Watch, Apple Users Only Premium
Apple Music Over 30 15 11 iTunes Integration No API TV, Mac,
110 Windows, PC,
(US) million million million Exclusive content around artists, plans to pay them well
Established business, here to stay Android.
Human-curated playlists
Exclusive, High Quality Content (Audio and Video) No free option iOS, Android, Premium $9.99/month
Artist Friendly / Owned High cost for Hi-Fi, low demand, requires PC, Mac, Users Only Premium
Tidal Over 25 2.5 2.5 Audio Hi-Fi (CD quality sound) intense connection. Desktop Player. $19.99/month Hi-
46
(US) million million million Strong ties with music industry for exclusive content. Bad UI, too much information on screen Fi
No API and Discovery is non-existent
Bad search engine and curated playlists
Free tier Official songs are only accessible for premium iOS, Android, Yes Free with ads and
Over Sharing options through social networks. users due to licensing issues Soundcloud previews for
Soundcloud Over 110 website. official music
- 175 n/a Good User Interface Monetization
(Sweden) million
million User-generated content + official content Presence of bad audio quality $9.99/month
Big audience Soundcloud Go
Strong and straightforward design, great mobile experience. No free option iOS, Android,, Premium $4.99/month
Rhapsody / Social inclusion Desktop app feel disorganized Xbox360, Users Only $9.99/month with
Over 35 3.5 3.5 Windows Phone
Napster 34 Small community and not as popular mobile
million million million
(US) Cheaper than other MSPs
Bad sound quality
Google Play Imports the users existing music library seamlessly, unlike Not great for discovering new releases. iOS, Android, Premium Free with ads
Over 35
Music 63 n/a n/a Apple Music. the Web Users Only $9.99 Premium
million
(US) Comes with YouTube Red when subscribing to family plan.
Biggest global reach Not as fast as Spotify in terms of innovation iOS, Android, Premium Free with ads
Deezer Over 40 6.34 3 Man-made curated playlists Not available in the US Website. Users Only $9.99/month
186
(France) million million million Live sports commentary Premium
Deezer Flow feature
Amazon Integrates all the music ever bought on Amazon 1 year long commitment at once Website No $99/year Amazon
Prime Music 1 million 2 n/a n/a Comes with the Amazon Prime Package Limited music library Prime
(US) subscription
SAAVN Over 20 20 Extensive library of Indian music Heavily invested in Indian music, not as much iOS, Android, Premium Free with ads
200 n/a
(US) million million is other genre. Windows Users Only $3.99/month
Award Winning User Interface Not as popular as the main players iOS, Android Premium Free with ads
Guvera 26 14 Users Only
20 n/a Focuses on emerging markets Legally unstable Premium, coming
(Australia) million million
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Table 4: Comparative Table of Music Streaming Platforms
(Spotify, 2016), (Apple Music, 2016), (Tidal, 2016), (Soundcloud, 2016), (Google Music, 2016), (Guvera, 2016), (CNET, 2016), (Digital Music News, 2016),
(The Guardian, 2016), (Forbes, 2015), (Digital Trends, 2015), (Yahoo, 2015), (Tech Radar, 2013), (Toms Guide, 2015), (Rude Baguette, 2013)
2.3.4.1 give me a feature to love you
Napster were the first to come up with the concept of streaming music back when they launched their service in 2001.
Seven years later, Spotify and Deezer, two of the industrys biggest players, launched their own platform. However
despite 14 years of existence the concept reached mainstream status only in 2015: on one hand the industry had
experienced its first growth in 20 years thanks to the increase in digital sales boosted by streaming, and on the other
Apple had launched its own music streaming service; thereafter spreading massive awareness about the concept,
boosting adoption. Today 400 licensed music services operate online, however 4 of them seem to have captured the
heart of most music enthusiasts: Spotify, Deezer, Apple Music and Soundcloud.
Several key success features were combined as they were identified as what made those 4 services todays favourites:

EXTENSIVE MUSIC LIBRARY GREAT DESIGN EFFECTIVE MUSIC DISCOVERY


To find and listen to your favourite artist To have a hassle-free experience To discover new music and artists

OFFLINE LISTENING INTEGRATION OF PREVIOUS MUSIC A FREE TIER


To save data when listening on the move To have an all-in-one listening experience To try before you buy

AVAILABILITY ON ALL DEVICES SOCIAL FEATURES ARTIST FRIENDLY


To have your music wherever you are To share your music with the world To offer fair financial support for artists

Spotify credited its free tier for its gain of a loyal community. The Swedish Expense Cost (in $k)
service says that 80% of its premium subscribers started on the free tier. It Royalty, distribution and other costs 1,633,289
also declared that 80% of its revenue came for premium subscriptions. In Streaming content expense 14,987
2015 only $219 million were made from the free tiers advertising (61 million Personnel costs 243,366
users, or $3.59 per free tier user), compared to $1.95 billion generated by Travel costs 21,785
premium accounts (28 million paying subscribers in 2015 (representing 41% of Advertising and public relations 87,335
all paying audio streaming users across all services), or $69.64 per premium External consulting fees 49,136
user) (Music Business Worldwide, 2016). The low revenue generated per user Facilities fees 33,389
Other expenses 15,703
on a free tier is one of the reasons why Apple decided not to offer it. It is worth Depreciation and amortization 30,832
mentioning that the tech giant highlights its artist-friendly image by raising the
Total 2,129,822
artists royalty rates, which in turn requires significant income. 84% of Spotifys
total revenue went back into the music industry as royalties. Spotify has been Table 5: Spotifys Expenses By Nature
(Music Business Worldwide, 2016)
able to enlarge its free tier subscribers community and maintain its leading
position (despite young generations showing higher-than-ever support for artists) by offering an efficient solution to not
only individuals, but to also, and despite its outcry in regards to low royalties, the industry.
v Leading platforms share several key features that include great design, extensive music libraries and a
seamless listening experience. A free tier access promotes community growth, however free tier users do not
generate sufficient revenue for the music industry.

2.3.4.2 its Raining laws: The value gap issue


Even though the music industry has been strengthened by its global digitalisation, a fundamental weakness remains: the
value gap. What lies at the heart of the value gap has been defined by the IFPI (2016) as the misapplication of
legislative safe harbour rules that allow some services [] to effectively circumvent the normal rules of music
licensing and use of copyrighted music content to build their business without fairly remunerating rights holders. In
essence, despite music being consumed at record levels (300 billion streams in the USA alone), artists are still not
remunerated fairly due to user upload services (which altogether count 900 million users) such as YouTube, that cut
artist remuneration rates to a minuscule amount in spite of the high traffic the artist-produced content may bring to their
platform. In turn, this has forced legal music streaming platforms to keep their artist remuneration rates to a
minimum as they compete with the free, law-circumventing platforms to acquire customers. Consequently, the
value gap is reflected in the mismatch between the volume of played streams and the reward generated for the artists. It
is worth mentioning that the user-upload digital platforms are part of the ad-supported sector: they generate $634
million annually, which accounts for only 4% of the total revenue of the music industry.
With 93% of 16-25s having accessed YouTube to listen to already known music in the last 6 months, the platform
appears to be going strong, however legislative laws have started to close the advantages of safe harbours rules which
involve unfair negotiating situations, ineffective takedown systems and unfair payment to rights owners, the cancelling
of which will rule in favour of legal streaming services and the music industry in general (IFPI, 2016). It is also worth
noting that, in a 2015 study, the European Commission (2015) claimed that every 47 streams cancelled 1 illegal
download, yet another sign that streaming promotes the reduction of piracy.
v Music-streaming platforms and legal bodies aim and contribute to closing the problematic value gap between
the high volume of played streams and the low revenue generated for the artist.

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2.3.4.3 Money Makes the World go round. Stream money doesnt.
Spotify (2013) claims to be generating an average of $41 per user (free and premium tiers combined), compared to just
$25 per average US listener every year, making Spotify users 1.6 times more financially valuable than the average
non-Spotify consumer. To this date, the service has generated more than $3 billion in royalties to the industry, and
claims its royalty rates increase as its revenue
expands.

They also explain that, contrary to the popular


belief that artists get paid on a fixed revenue-per-
stream model, an artists revenue depends on
several factors such as the country in which their
content is being streamed, the deal that has been
negotiated with master owners (own the recorded sound) or Figure 33: Spotifys Royalty Formulae (Spotify, 2013)
publishers (own the composition) (Right Clearing, n/a) or
the royalty formulae (Figure 33).

If backward-engineered, and by combining both the free and premium tier, publishers and rights holders make
between $0.006 and $0.0084 per stream on Spotify. Pay-out is generally higher if the stream is played by premium
subscribers. This, however, does not represent what signed artists make, as a high percentage of the pay-out is taken by
the label (Figure 34) before paying the artist (in 2015 James Blunt tweeted he made $0.0005 per stream, or between
8.3% and 11.6% of the money paid out by Spotify per stream, and for a total of 3.5 million streams (Twitter, 2015)). It
is why many artists have pulled their music from the service and why streaming platforms are causing outrage.

Figure 34: Typical Percentage Cuts For Signed And Unsigned Artists (Information is Beautiful, 2015)
It is important to highlight that mega-star and mainstream artists who generate millions of streams represent 1.1%
of all signed artists in the world (Digital Music News, 2014)). It is therefore fair to say that making a living solely out
of streaming is often an unrealistic expectation for many. Information is Beautiful (2015) found the number of streams
required per service for signed and unsigned artists to make the monthly US minimum wage equal to $1260:

Plays Needed To Artist Revenue Per 1M Revenue Per 1M


Artist Unsigned /
Platform Reach US Revenue Per Streams for Streams for
Status Signed Ratio
Minimum Wage Play (in $) SIGNED Artists UNSIGNED Artists
Signed 172,206 0.0073
Google Play 7,300 17,900 2.5
Unsigned 70,391 0.0179
Signed 180,000 0.007
Tidal 7,000 43,000 6.1
Unsigned 29,302 0.043
Beats / Signed 420,000 0.003
3,000 18,000 6.0
Apple Music Unsigned 70,000 0.018
Rhapsody / Signed 663,158 0.0019
1,900 12,100 6.4
Napster Unsigned 104,132 0.0121
Signed 1,117,021 0.0011
Spotify 1,100 7,000 6.4
Unsigned 180,000 0.007
Signed 1,260,000 0.001
Deezer 1,000 13,000 13.0
Unsigned 96,923 0.013
Signed 4,200,000 0.0003
YouTube 300 1,800 6.0
Unsigned 700,000 0.0018
Table 6: Number Of Streams Required To Be Played On Each Service For A Solo Artist To Make A Minimum Wage
Worth Of Revenue (After Distributor & Label % Cuts) (Information is Beautiful, 2015).
This confirms previous hypothesis as to how the different streaming platforms value their artists, with Tidal offering
artist revenue close to 7 times that of Spotify and twice that of Apple Music. It is also interesting to compare
independent and signed artist revenue: unsigned artists make an average of 6.6 times the income of signed counterparts.

Despite recent and radical changes within the music industry, which have resulted in the highest recorded levels of
music consumption worldwide, a new and surprising fragment has evolved: low artist pay-outs. The few high-profile
outrages that have spread across press and media are a clear sign of the systems economic instability. It is therefore
safe to say that changes within the music value chain and/or business model are expected to take place in the near future
in order to reach a satisfactory system agreed by all parties.
v Streaming users have more value than average listening consumers: subscription money, especially premium,
raises the artist pay-out. Artist-dependant bodies take the lions share before leaving an unrealistic percentage
to the artists. This is a fragment in the music streaming market and leads to expected changes in the model.

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2.3.4.4 REVOLUTION: A New Music business model
Record labels, 60% of which are dominated by Universal Music Group, Sony Entertainment and Warner Music Group,
typically manage an artist, coordinate production, take care of manufacturing, promotion, marketing, scouting talent,
developing bands and broadening an artists consumer base. They also use their financial resources to put artists in a
recording studio with a good producer and take advantage of their contacts with powerful PR companies that have
strong promotional power and expansive reach. Major recording labels also act as filters and reference for standard,
quality and artist talent (Village Voice, 2013). However, despite all the advantages a label can offer, several downsides
and more efficient practices were noted:

The artist/label relationship is often challenging. Technological advancements promote artist independence.
Labels often edit an album, artwork or song if they believe Artists can make a high quality recording with inexpensive
the product will sell better. This frustrates artists who think equipment. YouTube and Soundcloud are sufficient to build a
this practice alters the message behind their work. loyal following and attract press. Social media can be used for
promotion and events.
Distribution is easier than ever.
Distributors were hired to get a song on a radio or a CD in a Labels take a high percentage cut from revenue.
store, however fewer artists feel the need to produce their CD and legal download sales are down whilst streaming
music in a physical format. Digital distribution is also easier consumption is booming. Streaming pay-outs are low, and with
than ever with the ubiquity of online platforms dedicated to labels taking a large percentage cut, small revenue is left for
music. However, distribution remains a viable business for artists.
niche markets with demands for vinyl (The Balance, 2016).

It is therefore surprising to know that independent labels are still being created, which is explained by the fact that not
all artists can manage their careers by themselves and that having access to financial and human support is always
helpful. These labels tend to be more artist-friendly and more generous in their deals with 50-50 royalty rates. As
mentioned above, labels invest their money in being filters and in remaining a stable reference for audiences looking for
a certain genre, a standard of musical quality, and artists worth taking the time to listen to (The Metropolist, 2016).
v Despite technological advancements that allow artists to record their own work and gain audience reach with
few online resources, record labels maintain their power as music filters and keep their role as providers of
financial and human support for starting artists.

Three solutions apply to increase both the artists income and the markets economic stability:
Become independent or join an artist-friendly label that offers fair royalty deals and financial and human support.
This could help increase the royalties acquired by the artist, however acquiring the necessary amount of streams to
make a decent income will require tremendous efforts. Successful artists have a varied income stream. To be
successful they need structure and an experienced support team (Billboard, 2012).

Expand an artists reach by distributing catalogues to numerous music streaming platforms.


A solution that would apply well to all music creators. However this is not a viable solution for upcoming streaming
companies as acquiring song catalogues requires considerable financial advancements. It is said that Spotify gave
18% away to major labels in exchange for music. Furthermore, established companies with humongous resources
are already dominating the streaming marketplace.

Increase generated revenue by turning established streaming platforms into distributors.


A possibility that the market is witnessing. Artist pay-out will increase by increasing the number of times a song is
played on a streaming service and by increasing the streaming services revenue. In order to maximise song
exposure, legal streaming platforms, which are in possessions of huge catalogues of songs, could switch from B2B
customers to B2B distributors by lending their catalogues to other apps that use music as content in exchange for
revenue. This would drastically increase artist revenue since the distribution would be taken care of by the service
rather than by the labels. From a legal standpoint, this is not yet legal because of the deals signed with the labels.
However, Spotify and Deezer have been trying to create a music eco-system by acquiring music apps and
integrating them into their app store despite those apps not being profitable yet (Rude Baguette, 2013). In other
words, it is safe to expect that big music streaming companies will start to distribute their music to independent
developers who will use music creatively in their product and boost the market economically.
v With the global rise of smartphones and the global rise of music consumption through streaming,
distributing music as content to developers will create an entirely new market place.

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Figure 35: Expected New Music Business Model

2.3.4.5 Music Streaming Markets are growing

LATIN AMERICA ASIA


+11.8% GROWTH +5.7% GROWTH
o Highest level of growth in recorded music revenues o +5.7% in total revenue thanks to a 29.5% increase in
o Digital revenue rose 44.5%, 4 times the global average streaming
o Streaming revenue rose by 80.4% o +2.1% in downloads sales
o Brazil and Argentina are the biggest markets o +1.0% in physical sales
o Japan: +3%, market heavily invested in physical sales
o Australia: +6.1% / South Korea: +12.4%

EUROPE NORTH AMERICA


+2.3% GROWTH +1.4% GROWTH
o +2.3% in revenue o +4.3% in digital revenue
o +43.1% in streaming o Streaming revenue grew by 46.6%
o In Sweden, streaming accounts for 67% of the market o Download decreased by 12%
o In Germany, CDs remain the main format sold and physical o In the US (largest market) streaming became the primary
sales represent 60% of the total revenue revenue source. Grew by 1%. Digital accounts for 66% of
total market in 2015.

v Music business growth in all major markets stimulates positive perceptions in regards to the current
business model and optimistic expectations towards the speculated, extensive one.

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2.3.5 Social Music Apps

Platform Launched Available on What does it do Music Source Website


Syncs devices to create a powerful sound system between Soundcloud, Songza,
AmpMe 2015 Android, iOS www.ampme.com
friends local music library
Flo Music 2015 iOS Syncs nearby phones and creates a social playlist Soundcloud, Spotify www.flomusic.com
Helps people find music they like from people they trust. Now
YouTube, Spotify,
Noted 2016 Android, iOS works with Spotify integration. The app finds the equivalent on www.noted.fm
Apple Music
YouTube for those who are not on Spotify.
Swipe to vote music whilst musicians create lasting fans through
Next 2014 iOS 1 on 1 communication. Listen to 30 seconds video clips and Own platform, YouTube www.yaynext.com
swipe left or right. Visual music discovery.
Location-based social music network that connects you with
PlayMeet 2015 iOS YouTube www.playmeet.me
people who share the same musical interests. Has events details.
Apple Music, Spotify,
See and play everything your friends are listening to, all the
Soundshare 2016 iOS Soundcloud, YouTube, www.soundshareapp.com
playlists they make, no matter which music service they use.
iTunes, Deezer
Spotify, Deezer, Apple
Soundsgood 2014 Web Create universal playlists for your audiences Music, Tidal, www.soundsgood.co
Soundcloud, YouTube
Rormix 2013 Android Tinder for music videos. YouTube www.rormix.com
Table 7: Current Popular Social Music Apps

The wave of opportunities that came with the creation of music streaming platforms has passed, with several of
those services being en route to dominating and changing most of the music industry. The next wave of
opportunities within the sector, and one that music tech start-ups born between 2013 and later are trying to exploit,
lies in the use of the music collected by the streaming services - which are gradually taking the role of digital
distributors - and create a new, creative way to consume that music. This varies from the unification of those
streaming services into a single music ecosystem where all music enthusiasts, independently of their music service
of choice, are able to create collaborative cross-curated playlists, to finding location-based music, following what
ones social circles listen to, discovering new music more efficiently and sharing ones music with the world on
popular social platforms. The full access to music is no longer enough; users want to experience music differently,
socially and publicly. Combining available features present in recently-born music tech start-ups and the needs
found in the results of our questionnaire (Appendices, p.70), the ideal platform would include:

CROSS-PLATFORM PLAYLISTS POSSIBILITY TO SHARE ON SOCIAL PLATFORMS GREAT DESIGN

GREAT MUSIC DISCOVERY DEVICE SURROUND SOUND SYNCHRONISATION EXTENSIVE LIBRARY


ACCESS TO ESTABLISHMENTS PLAYLISTS FAIR ARTIST REMUNERATION SOCIAL FEATURES

AVAILABLE ON MOBILE COLLABORATIVE PLAYLISTS ACCESS TO FRIENDS PLAYLISTS


For
users MUSIC METADATA CONSUMPTION & BEHAVIOUR DATA LIVE DATA For
Marketers

If people are real fans of the artist they will want something that expresses who they are
and that they can put on the shelf as part of their collection
G. Barros, President & CEO, Concord Music group.

With the gradual availability of smartphones, the expanding Internet infrastructure, the change in music consumption
within young generations, the rise of streaming amongst global populations, the urgent need to better remunerate artists,
the growing number of start-ups looking to use the extensive music libraries under different distribution models and the
streaming platforms embracing those new start-ups by including them in respective up and coming music app stores are
clear indicators that a new wave of post-streaming-services opportunities is taking place within the music sector.
v The music industry is going through a post-streaming-services wave of opportunities. Streaming platforms
are turning into digital distributors and will eventually supply independent platforms with music in order to
boost revenue within the sector.

Latest News: Music Week (2016): Soundcloud has reached an agreement with the pan-European licenser ICE, giving it
permission to distribute its premium and free tiers across European territories (previously only UK and Germany),
meaning that apps using Soundcloud will likely experience growth.

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2.3.7 Conclusion
v After 19 years of decreasing CD and download sales, the music business experienced its first revenue growth
in 2015 thanks to a proactive digitalisation of the industry and the extensive reach of online audio streaming.
The latter brings efficient solutions to worldwide users and almost half of the population in the industrys 13
leading countries have now opted for these services.

v Smartphones are taking over as the preferred device for listening to music, especially amongst paying music
streamers. The expanding reach of smartphones is an open door to the Internet for developing countries,
which are yet to discover and enjoy streaming services. Both industries are highly likely to grow together.

v By leading the trends in smartphone use, music consumption and social media, millennials have become an
essential and dominant asset to the music industry.

v Millennials are widely familiar with music streaming and respond positively to music marketed by a brand.
Paying for music is considered a significant gesture and is done to support an artist.

v Social media affects the consumer/artist relationship within and beyond the online experience. Young
consumers consider important to connect with artists on a personal level through different medias.

v Generation Z is a growing demographic with a growing online power. They have embraced streaming but
their needs and mindset have switched from that of millennials, giving marketers a new challenge to overcome.

v Generation Z is born with a smartphone in their hands. Music is an integral way of self-expression and social
media is a communication tool used to engage with their friends and favourite brands. They consume multiple-
platform content at rapid pace.

v Generation Z is expected to contribute heavily to the growth of the music sector. Their morals toward music
rights have evolved, most of them stream music legally and most of them are willing to pay for it. The
availability of music and the portability of smartphones boost music consumption in every day tasks.
v Leading platforms share several key features that include great design, extensive music libraries and a
seamless listening experience. A free tier access promotes community growth, however free tier users do not
generate sufficient revenue for the music industry.
v Music-streaming platforms and legal bodies aim and contribute to closing the problematic value gap between
the high volume of played streams and the low revenue generated for the artist.
v Streaming users have more value than average listening consumers: subscription money, especially premium,
raises the artist pay-out. Artist-dependant bodies take the lions share before leaving an unrealistic percentage
to the artists. This is a fragment in the music streaming market and leads to expected changes in the model.

v Despite technological advancements that allow artists to record their own work and gain audience reach with
few online resources, record labels maintain their power as music filters and keep their role as providers of
financial and human support for starting artists.

v With the global rise of smartphones and the global rise of music consumption through streaming, distributing
music as content to developers will create an entirely new market place.

v Music business growth in all major markets stimulates positive perceptions in regards to the current business
model and optimistic expectations towards the speculated, extensive one.

v The music industry is going through a post-streaming-services wave of opportunities. Streaming platforms are
turning into digital distributors and will eventually supply independent platforms with music in order to boost
revenue within the sector.

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Jean-Philippe Serhal PRIVATE & CONFIDENTIAL February 2017

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