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"Valuing Music Streaming Services: Apple vs Spotify vs Tidal vs Amazon" in Humanizing Tech

Booker Dean for Bang & Olufsen, lounging to the H8 wireless cans.

Yesterday I tweeted some quick thoughts out about how I would value Apple Music in comparison to its major competitor, Spotify. I thought it might be interesting to provide a bit more in depth analysis of the situation for readers here.

So, a few facts from each of the major providers are below, along with a valuation chart based on their monthly paid subscriber growth.

1. Spotify: Original Market Leader

  • Spotify has raised nearly $1.6B since their first raise in 2008
  • Spotify has 30 million paid subscribers (100 million total users, which is about a 30% user to subscriber conversion rate)
  • Spotify had 20 million subscribers one year ago right before Apple Music launched so they grew by 10 million subs over the last 12 months
  • Spotify had 10 million subs in 2014
  • So, over the last 24 months Spotify is growing at (30M - 10M / 24 months) 0.8M subs per month
  • It took Spotify 10 years since being founded in April 2006 to get to 30 million subs and 100 million users
  • Spotify’s 2015 fundraising valued the company at $8.5B
  • They raised $1B in debt in March 2016 with an unknown valuation
  • Spotify is getting into video streaming to help keep subscribers engaged, as well as partnership with Uber to listen while driving

2. Apple Music: Major Fast Follower

  • Apple has 15 million paid subscribers
  • It took Apple 1 year since the Beats acquisition and launch of the newly branded service to get to 15 million subs
  • Apple Music is growing at a rate of 2 million subs per month, which puts them at about 30 million subs by the end of next year, nearly in line with Spotify
  • Apple Music is getting into video content creation and streaming as well to run alongside streaming music (it could be part of the Beats content creation arm of Apple)

3. Tidal: Small Artist Exclusives

  • As of March 2016, Tidal has 3 million paid subs
  • When it launched in the US in March of 2015, Tidal had 0.5 million subs
  • Thus, they’re growing at about (3M - 0.5M / 12) 0.2M subs per month
  • Most of the subscriber growth is due to exclusives by major recording artists like Jay Z, Kanye West, Rihanna, and Beyonce

4. Amazon Music: Late Entry Bundler

Amazon is also reportedly getting into the music streaming business. My guess is they’re going to add it as another feature to Prime. That means when you sign up for a membership at $11/month, you get free faster shipping, video streaming with movies and TV shows, and now music streaming. Coupled with the Amazon Echo, it makes a lot of sense.

They’re going to take a page out of the T-Mobile playbook and keep adding things until you have zero reason to not switch to them. But what they can’t ever add is a mobile phone, wireless headphones, or a wearable (Apple) or maybe artist exclusives (Tidal).

Based on some rumors around the start of 2016, we believe that Amazon has about some 50 million Prime members, though they don’t come out and tell us.

If we figure Apple Music has 1 billion active devices and most people have 2 devices on average, then you’ve got 500M people with 20M that became subscribers (20/500 = 4% conversion rate to a paid subscriber if you own a device).

Use the same 4% conversion rate for Amazon and you have 50M * 4% = 2 million paid subs by the middle of 2017 if they launch now. Then figure they grow at a faster clip because people don’t have to pay extra if they’re already a Prime member so maybe a little more than Spotify but less than Apple because it’s not native on device. So peg paid subscriber growth at about 1.0 sub / month, or 12 million subs in the first year.

Comparing that to Apple it might be a little agressive but we’re just looking for major elements here and shouldn’t get too bogged down in the valuation details because there are going to be more assumptions made.

The Winner

Taking all that into account, it looks like Apple Music will become the market leader next year based on it’s face-melting growth rate of 2 million subs per month.

Estimate that Apple Music will be neck and neck with Spotify next year based on current growth rates.

And here’s the data chart for good measure:

I did a very rough valuation calculation, with assumptions as follows:

  • Increased Spotify valuation slightly from last year’s $8.5B to $10B based on their $1B debt raise (I don’t believe that had a down round) because they are growing faster with Apple Music on the scene.
  • Value per Sub is based on 2017 paid subscriber estimates because a true valuation includes all information, that of today and expectation of the future (including subscriber growth). I also did that in order to get Amazon’s expected future paid subs in the mix.
  • I set Apple Music valuation equal to Spotify because they will have the same number of subs by next year based on their respective growth rates. Thus, value per sub is about the same at $250.
  • Tidal used to have a valuation of $250M last year, but recently insiders pegged it based on a potential Samsung offer of $100M due to financial troubles. So I put it at $100M which gives about a $20 value per sub.
  • I set Amazon’s future valuation similar to Spotify’s $10B due to a similar expected paid sub growth rate, but discounted it based on total number of expected future subs by 30% (12M paid subs for Amazon / 40M paid subs for Spotify in 2017 = 30%)

Consumer Choice

Almost all of the music streaming services are going to have the same size of libraries (about 30 million titles) due to the content rights agreements in place. That is, except for SoundCloud because artists upload mix tape tracks that they don’t charge for and so exist outside of artist deals with studios. Thus, they’re at about 100 million titles, but I’m not featuring them here.

However, we don’t care so much for breadth as we do for quality and having the most popular artists. To that end Tidal is best positioned for a hip-hop and R&B focused listener, due to their exclusives. But the problem with that is it will only be an exclusive for a short time because these tracks will always get released on the bigger services with a wider audience that can make more revenue for the artist.

So, what’s the upshot of all this for consumers? It means you need to make a choice between other features:

  1. Spotify: Uber and Social integrations
  2. Apple Music: iPhone + Apple TV
  3. Tidal: exclusives from Jay, Kanye, Rihanna
  4. Amazon: Prime music + movies + shipping + Echo

Me? I’m sticking exclusively with Apple Music because native and because ecosystem and because pockets and because user experience and because Music + Wireless Ear Pods + Apple Watch + Gyroscope fitness and health tracking. It’s a no brainer.

— Sean


Valuing Music Streaming Services: Apple vs Spotify vs Tidal vs Amazon was originally published in Humanizing Tech on Medium, where people are continuing the conversation by highlighting and responding to this story.

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