Analyst: Streaming music may already be hitting a ceiling

Subscription services like Rdio, Mog, Rhapsody and Spotify promise to restore stronger growth to the music industry. The model’s best hope, Spotify, has four million paying subscribers.

But what are the real prospects for the sector? Music industry analyst Mark Mulligan, presenting at Future Music Forum in Barcelona on Thursday, sounded a note of caution…

“There is a natural ceiling of adoption of the people who are willing to pay $9.99 a month for music they don’t own.

“If you look at growth from launch, Spotify is – at best – on par with where we should be. The likes of imeem were the future of the music industry once, too. The most Vodafone (UK) got to was about 600,000 customers – Spotify’s (UK) paying subscriber count is about 600,000 to 800,000.

“This market should be much more dynamic than where we are now. It’s a niche proposition. The majority of mass-market consumers are still not interested in that pricepoint.”

Mulligan said he was not discrediting the efforts of music streaming services that are currently facing off against each other. Indeed, “It took Rhapsody 11 years to get to one million users, it took Spotify nine quarters.” But Mulligan noted the difficulty they will have in taking the model mainstream beyond early unlimited-access fans:

“Spotify has to work really hard to get to where it wants to be.

“Spotify is having to acquire 1.9 million new customers a month in order to retain 400,000. It’s a huge, huge marketing problem. The average pay TV service would want to see churn rates in the low single-digit percent.

“They’re having to work so hard to keep where they are – like a duck: it may look serene under water, but underneath it’s legs are going like the clappers.

“What it shows us is that streaming clearly isn’t a for everyone.”

Subscription services would, doubtless, see this a little differently. A plethora of new devices and carriers would seem to offer them a significant opportunity to gain new customers through bundled distribution. That is significantly different today from the days when imeem was struggling and from when Vodafone was offering its music subscription service to Vodafone customers alone.

But, with many of the music services vying for the same bundling partner candidates, there may only be so much sea on which all their boats will rise.

Downloads have not given the industry “hockey-stick” digital growth, and streaming has a natural ceiling, said Mulligan, who advised conferences delegates to start offering a brand new packaged music experience including artwork, lyrics, band chats and other engagement in one format that people will pay for.