Innovation

The Sound of Disruption: Innovation in Music Streaming

Nasdaq changed the financial world when it created the first all-electronic stock market in 1971. Since then, the company has led, supported, and championed innovation and disruption though it’s various business operations (Equities Trading, Corporate Solutions, Market Technologies, NASDAQ Private Market, and the Nasdaq Entrepreneurial Center). As such, Nasdaq is proud to sponsor the 2016 CNBC Disruptor 50 List, which features innovative companies making strides in their respective industries. Among the 50 disruptors on the list are Deezer and Spotify – two companies that are growing fast and have shown that they are leaders in the music streaming market.

Music Streaming

Lex Baxter, the 20th century composer, once said “Any good music must be an innovation.” Music, like any technology—such as the automobile or the personal computer— has the potential to shape and alter people’s lives. Therefore, it is no surprise that throughout the centuries human beings have worked tirelessly to make it easier to enjoy music. Music streaming is the latest disruption in mankind’s musical evolution.

Music streaming allows people to listen to music in real time without having to download a file to their computer or music player (think Mp3s type devices). Not only is music streaming easier than downloading but it is also more cost effective since listeners aren’t required to pay per song or album. The popularity of music streaming has resulted in a steep decline in CD sales (music streaming revenue surpassed CD sales in 2014) and music downloads. Music streaming services have seen their revenues grow by almost 30 percent to 2.41 billion dollars. This increase in popularity has resulted in an increase in competition. As revenues increase, more companies, like Deezer, are using original features as leverage to get a slice of the growing pie, while larger companies with better name recognition such as Spotify are continuing to innovate in order to secure their market share.

Spotify

In a decade Spotify has transitioned from a small Scandinavian start up into a global music streaming service with over a 100 million users and an estimated valuation of $8.5 billion*. In total, the company has raised $2.1 billion** in venture funding, boasting backers such as Technology Crossover Ventures and Fidelity Investors.

What set the company apart from its main competitor, Pandora, when it first launched was the fact that it allowed listeners to choose the songs they want to play and create their own playlists. Reporter Morgan Brown put it this way:

Options for accessing music online were limited prior to Spotify—consumers could listen to streaming services like Pandora, though they couldn't actually pick their own songs.

The Stockholm based company operates under a “freemium model” in which basic services are offered for free and premium services, such as ad-free listening, are available for nearly 10 bucks a month. Currently, the company has 30 million paying customers.

In addition to its impressive growth and reach, the company’s adoption of new services illustrates the company’s innovative spirit. According to CNBC, the company has announced that its service is now available on Amazon’s Echo, “a wireless speaker and voice-command device that responds to the name Alexa.” If listeners want to enjoy Space Oddity all they have to do is say, “Alex, play David Bowie.”

Deezer

Deezer has been around the block for a while (see: company’s story) despite its recent launched in the U.S. on July 19th. The Paris based company was launched in 2007 and currently serves 16 million customers across 180 countries***. For $9.99 a month Deezer costumers have access to a library of 40 million tracks****—the largest collection in the world. Like Spotify, Deezer operates under a freemium model. Despite their relatively small customer base, the company has a lot to offer. As Deezer CEO Hans-Holger Albrecht pointed out in a recent interview:

"Over the last year our user base has grown by 66%, which demonstrates a clear demand for Deezer as an alternative to what else is on offer,” Albrecht told Fortune. “By not adopting a ‘one size fits all’ approach we are therefore able to create more value and to meet the individual needs of the consumer – whether defined by geography, demography, use or musical genre.”

One feature that makes Deezer stand out is FLOW, the most personalized soundtrack that intuitively knows exactly what listeners want to hear, including favorites as well as new tracks. FLOW is designed with discovery in mind and delivers personal recommendations through a combination of algorithms, music experts and contextual information.

The Future of Music Streaming

Considering the explosive growth of music streaming over the course of the past few years, it seems safe to say that Spotify and Deezer have pretty bright futures. Data from the RIAA (Recording Industry Association of America) reveals that streaming now represents the largest share of U.S. music revenue; it beat out music downloads for the first time by .4 percent in 2015. And that divide is projected to grow and grow. Companies such as Spotify and Deezer are cementing that growth.

Learn more about Nasdaq's history of Innovation and Disruption here >


Frank Chaparro
The information contained above is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security, sector, or an overall investment strategy. Neither Nasdaq nor any of its affiliates makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Statements regarding sector performance and specific companies are not guarantees of future performance. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investors should undertake their own due diligence and carefully evaluate companies before investing. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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