Music streaming expected to decimate iTunes Australia

Music streaming expected to decimate iTunes Australia

PUBLISHED: 29 JUL 2013 00:05:00 | UPDATED: 29 JUL 2013 07:53:30


First it was compact discs. Then downloads. Now music labels are facing another challenge to their business models, with revenue growth from iTunes in Australia expected to halve this year as more consumers take up new streaming services such as Spotify and Pandora. Record company and commercial radio executives say music faces more structural change from a maturing market for download-to-own music services such as iTunes, competition from non-Apple device manufacturers and platforms that allow users to stream music for free through an ad-funded service or by paying a ­­sub­scription fee.“It’s early days for most of these [streaming] services but we are starting to see it accelerate,” said Cathy ­O’Connor, chief executive of DMG Radio group, which owns the Nova and Smooth networks. The Lachlan Murdoch-owned DMG struck a 50-50 equity joint venture last year with San Francisco-based Rdio, the only such equity partnership for Rdio worldwide. Rdio was created by Skype founders Janus Friis and Niklas Zennstrom.

“When we launched Rdio here in 2012 we saw very little growth,” Ms O’Connor said. “What we’ve seen in the past three months is certainly an acceleration point. My sense is that it will be increasingly accepted as a way of consuming music. We’re just starting to understand the potential of cross-promotion and how broadcast [radio] and Rdio can support each other.”

Record companies would not talk publicly about the issue for fear of fallout from Apple but confirmed revenue growth had slowed significantly compared to 2012. “If you asked any label this time last year, they would have expected at least 25 per cent growth from iTunes for 2013,” a senior music industry executive said. “The fact is iTunes is now growing somewhere between 8 and 12 per cent. But iTunes has been growing at 20, 30, 40 per cent for a long time, depending on which [music] company you are.”

Apple did not return calls. iTunes is likely to be hit by more smartphone users adopting phones with Google’s Android operating system – Apple’s main competitor – as well as the rapid rise of streaming services which also include Nine Entertainment Co’s Songl and Telstra’s Mog. Record labels earn less from these platforms than download-to-own service such as iTunes.


Apple has already identified the potential threat from new streaming music services, announcing plans in June to launch its own version, iTunes Radio. Some estimates have iTunes controlling up to 75 per cent of the $9.3 billion global digital music market. Apple reported a 25 per cent lift in iTunes revenues for the March quarter although these figures bundle revenue from music, TV shows, feature films, apps and e-books on iTunes.

According to PwC’s Entertainment and Media Outlook report, digital music is forecast to grow 20.8 per cent this year in Australia to $290 million, rising to $381 million by 2017. Research group Telsyte predicts 30 per cent of all music consumed in Australia will be from music streaming services in less than two years.

Nine Entertainment Co and Songl showed more evidence of how established media companies plan to cut themselves into the burgeoning music streaming market, promoting Songl in the new series of Big Brother which launched on Sunday. Big Brother will promote contestants’ Songl playlists inside the show each week along with other content initiatives for the service as part of a revenue sharing deal Songl has with Nine. Songl’s parent, Digital Music Distribution (DMD), is a joint venture between Southern Cross Austereo and record labels Universal and Sony.

“Everyone is trying to future-proof their business,” said DMD chief executive Mark Shaw.

“It’s why iTunes is launching a streaming service. Apple is seeing that trend and trying to get to the next horizon. We are having a very good run at the moment after our launch four months ago.”

None of the streaming services would disclose their subscriber numbers although Pandora Australia managing director Jane Huxley said in April that it was aiming for 1 million Australian users by year’s end (it has 180 million registered users in the United States). Ms Huxley said it was still “too early” to claim that any decline in growth for iTunes was due to music streaming services, although mainstream consumer awareness about different music listening options was rising quickly.

“I don’t share the surprise about iTunes,” she said. “When you watch the end user, the signs have been around for some time now, particularly in the US. We are starting to see listeners move from music ownership to a rental or lease model. Whoever has a business which caters to that shift is likely to pick up numbers just by being in the right place at the right time. When we talk to people, they are talking less about owning music through iTunes and more about listening through streaming. But I guess I would say that.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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