Competition heats up as music streaming booms

Spotify looks set to hit 30 million subscribers before the end of May (Reuters)
Spotify looks set to hit 30 million subscribers before the end of May (Reuters)

Sometimes competition can be good for everyone. At least that seems to be the case in the battle between streaming services Spotify and Apple Music.

Spotify looks set to reach 30 million paying subscribers within the next three months.

Sources have told The Financial Times that Spotify had 28 million paying subscribers at the end of December, up from the 20 million it had last June.

That is a significant milestone for Spotify because it means it has added eight million subscribers since the high profile launch of Apple Music on June 30.

Apple says it has 11 million subscribers and is on track to reach 20 million by the end of the year.

It appears the more people have talked about - and listened to - Apple Music, the more they are also talking about and listening to Spotify as well.

What is unclear is what has happened to Spotify's total user base. It operates a two-tier system. People can pay a monthly subscription, or they can listen for free if they are prepared to listen to ads as well.

In October Spotify said its total user base was 75 million users and it expected the numbers to have grown to 100 million by the end of last year.

Spotify and Apple Music are not the only players in the streaming market.

Pandora had 78.1 million "active users" in October of last year, down from 81 million in 2014.

French streaming service Deezer announced in September that it had 6.7 million users.

Jay Z's Tidal had one million users by the end of September. Presumably those numbers will have grown this week with its exclusive release of Kanye West album The Life of Pablo.

Tidal leapt to number one in the Apple app store earlier this week.

But it did not take long before The Life of Pablo was being illegally downloaded. TorrentFreak reported more than half a million illegal downloads within 24 hours.

The challenge for Tidal and every other subscription streaming service is holding onto users after their initial free trial period ends.

Rdio has gone out of business and there is talk that Jay Z and Tidal's other owners have looked at selling.

Exclusive releases are one of the ways that the streaming sites are trying to attract new users.

The other trend is that increasingly the streaming sites are opting to pursue the subscriber model, rather than simply relying on advertising.

There has been plenty of controversy about the royalty rates that Spotify pays artists. This has centered particularly on the part of the service that relied on ads rather than subscriptions.

But Spotify Chief Executive Officer and co-founder Daniel Ek is adamant his site is saving the industry. He appeared at a Q&A session this week hosted by Quora and was asked how he responded to some artists’ claims that music streaming services are harmful to the industry.

"Look, we pay the great majority of our revenue back to the music industry. And as we grow, that revenue is really making a difference. Many people don't realise that the music industry was in decline throughout all the download years (with a one year exception in which it was basically flat). Now, finally, after years and years of decline, music is growing again, streaming is behind the growth in music, and Spotify is behind the growth in streaming. "

He answered questions on a range of topics and his full comments can be read online.