When Will Music’s Celestial Jukebox Go Mainstream?

Music’s new wave of unlimited-access services is now supported by most labels, who dearly hope that new subscription payments will make up for slowing download sales. But when will that happen?

Warner Music Group’s new CEO recently even went as far as saying: “You will eventually see those lines cross.”

But that is optimistic in both the near- and mid-terms. Globally, digital music subscriptions rose 64 percent to 13.4 million through 2011 (source: IFPI) – but that is just three percent of UK industry revenue. Downloads, dominated by iTunes Store, shipped 1.1 billion singles in the U.S. alone in 2010 (source: Nielsen SoundScan).

“For streaming to go mainstream, we need to hit somewhere like 10 times that,” MusicWeek editor Tim Ingham told a MusicTank industry seminar on the topic last week.

And industry analyst Mark Mulligan said: “We need to get to the next level of scale before ARPU (average revenue per user) actually matters to artists as well as labels.”

Spotify, which currently leads the sub-sector with three million subscribers amongst 10 million active users, has stated its aim to reach 100 million users all by itself. On its current free/premium conversion ratio (20 percent of active users), Spotify could bring labels some 20 million paying subscribers by the time it hits its target.

A hundred million subscribers would change the game completely for artists and managers,” Ingham said.

But how will Spotify and its peers, like Rdio, Mog, Rara and WiMP, get there?

Each has had growing but relatively little success selling direct to customers. Many are revelling in the extra exposure brought by their recent Facebook connection. Mobile has been the thing to drive the business for everyone so far. But each ultimately wants to be offered through bundling deals with telcos and ISPs.

*Time* and again, online economics show one way to achieve scale is to become part of the fabric of the internet. Many talk about Spotify’s API, the technology rules which allow developers to make new products from Spotify’s platform – but, right now, the offering is notably limited for such a high-profile service and has gained few adopters.

“If Spotify goes to scale in the way Tim was talking about and gets hundreds of millions of people using it, Spotify could end up becoming effectively an API for music,” industry analyst Mark Mulligan told MusicTank’s seminar.

We should be at hockey stick growth rates by now. CD lifted off, downloads never did that, streaming hasn’t yet either.”

Beggars Group strategy director Simon Wheeler said: “I think we need around 60 to 70 million premium music subscriptions for that to be replacing our business. For semi-interactive service like Pandora (NYSE: P), we need to increase that still further.

“In the last year or two, streaming revenue has become significant to our business. Give it another year or two.”

[dataset id=”723582″]