MBW Reacts is a series of analytical commentaries from Music Business Worldwide written in response to major recent entertainment events or news stories. MBW Reacts is supported by JKBX, a technology platform that offers consumers access to music royalties as an asset class.
Spotify and some other music streaming platforms have enjoyed tremendous growth in the US in recent years, but that growth is now likely to start slowing – as annual increases in subscribers inevitably decelerate in the market.
According to the RIAA, the US was home to 92.0 million music streaming subscribers in 2022.
That figure was up 8 million year-on-year (vs. 2021), but this annual jump was smaller than that seen in previous years (+8.5m in 2021; +15.1m in 2020; +13.5m in 2019; see below).
Meanwhile, also according to RIAA data, US paid subscription streaming revenues grew by +$616.2 million in 2022, less than half the +$1.59 billion growth seen in 2021 (see below).
Simply put, we’re getting closer to the point in the US market where almost everyone who could be paying to stream music is already doing so.
Everyone, that is, except for one notable demographic – the Baby Boomers.
Boomers remain a largely untapped market for music streaming, a fact clearly illustrated in a recent report from Edison Research (‘The Infinite Dial’), which found that US citizens aged 55 and above consume far less online audio than other age groups – and they aren’t (so far) particularly fond of Spotify.
In a survey carried out in January of 2023 (based on a national telephone survey of 1,500 people) Edison found that 75% of respondents in the US said they had listened to online audio in the past month.
However, among respondents aged 55 and above, that figure stood at just 53%.
That compared to 89% among 12-to-34-year-olds, and 85% among 35-to-54-year-olds.
The percentage of 55+ year-olds listening to digital audio in the US is growing, but not very fast – up just one percentage point YoY (from 52% to 53%) in Edison’s latest survey.
Among the 34-to-54 crowd, listenership jumped four percentage points YoY.
Looking at how all of this pertains to Spotify – ahead of its quarterly earnings tomorrow (April 25) – is interesting.
Spotify is already very well positioned among younger US listeners, according to Edison’s report: 56% of the 12-to-34-year-old age group (who have previously used any online audio brand) say that SPOT is the audio brand they use most often.
But among the 35-to-54 crowd, that percentage drops to 26%.
And in the 55-plus crowd, it stands at a lowly 17%.
Remember: nearly nine out 10 under 55-year-olds in the US are already listening to online audio, according to Edison’s survey.
Growing this market for companies like Spotify will inevitably, therefore, be harder in the years to come.
But little more than half of over 55-year-olds are using online audio today, suggesting a market ripe for expansion.
It’s intriguing to note that, amongst the over 55s in Edison’s survey, the most popular streaming platform is YouTube Music (in terms of ‘online audio brand used most often’, with 28%).
As far back as 2019, professional services firm Deloitte noticed Boomers’ reluctance to enter the streaming world, and it suggested a potential solution.
“While only 25% of boomers own a smart speaker, they tend to value it more than the average consumer,” Deloitte said in a report.
“The implication is clear: music streaming companies could grow their subscriber bases by working with smart speaker manufacturers to target Boomers.”
Could this be a factor in YouTube Music taking the lead amongst the Boomers in the States?
NOT A LONG-TERM SOLUTION
All that is not to suggest that wooing the Boomer crowd should be Spotify’s sole model for success going forward. Rather, it’s a strategy the DSP could employ to ensure continued strong subscriber growth over the medium term.
To see why this strategy might not last in the long run, one need only look at Spotify competitor, Pandora.
In Edison’s report, Pandora’s user base looks like the inverse of Spotify’s.
The 55-plus crowd represents its strongest demographic: 22% of online audio users in that age group say they use Pandora more than any of its rivals.
That figure drops to 18% in the 35-54 age group, and 14% in the 12-34 group.
Yet, in general terms, Pandora’s situation is far direr than Spotify’s today: Witness the near-halving of Pandora’s monthly listener base in the six years from Q4 2016 (81.0m) to Q4 2022 (47.6m).
Arguably, Pandora’s poor prospects may be a reflection not just of the tough competition it faces from Spotify and ambitious smaller players like Amazon Music and Apple Music, but the inevitable result of an aging user base.
By contrast, Spotify is well positioned to convert its free users to paid subscribers as its youthful demographic ages and earns more money.
Nevertheless, a 2021 Insider Intelligence/e-marketer forecast predicted a significant slowdown in user growth for Spotify in the US – from an annual increase of 12.1 million users between 2019 and 2020, to just 3.2 million new users between 2024 and 2025.
The winning formula here would seem to strike a balance between Spotify’s success with the youth demographic and Pandora’s success with the older crowd.
The data makes one thing clear: The DSP that can manage to convince Boomers to come on board with streaming music will give itself a big leg-up in the coming years.Music Business Worldwide