Rise of streaming signals a sea change in music

 

Apple’s entry into the subscription-based service signals a move from the margins to the mainstream

 
 
 
 
‘In my tenure in the streaming music space more has happened in the last 14 weeks than in the last 14 years and really the prime mover and the catalyst has been Apple Music,’ said Sonos co-founder and CEO John MacFarlane.
 

‘In my tenure in the streaming music space more has happened in the last 14 weeks than in the last 14 years and really the prime mover and the catalyst has been Apple Music,’ said Sonos co-founder and CEO John MacFarlane.

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SANTA BARBARA, Calif. — When Sonos co-founder and chief executive John MacFarlane sketched out a design on a piece of paper 13 years ago for a digital speaker system that would make music as pervasive in homes as electric lights or running water, early adopters in Canada were downloading digital music but many people were still buying CDs.

It would be another year before Future Shop would add online digital music sales.

The digital music revolution was underway but it is only now that MacFarlane’s vision of streaming music by subscription is moving from the margins to mainstream.

What has changed?

Apple.

After years of holding to its online sales model for music, Apple has added flat-rate music streaming on demand, and early adopters of the service are just coming to the end of their initial free, three-month trial. While the company is entering a field that already has a number of participants, MacFarlane likens it to the early days of MP3 music. It wasn’t until Apple entered the fray that the frenzy really began.

Apple, says MacFarlane, is a company that can change habits.

“In my tenure in the streaming music space more has happened in the last 14 weeks than in the last 14 years and really the prime mover and the catalyst has been Apple Music,” he said at a recent media preview of the company’s new flagship Play: 5 speaker and Trueplay speaker tuning software.

“I think this is a once in a lifetime moment in music,” he said. “Streaming music will become a global phenomena just like the Internet was in 1995/96.”

MacFarlane, an engineer who founded the web messaging software company www.software.com in 1993, which merged with Phone.com in a US$6.4 billion deal in 2000, co-founded Sonos with Craig Shelburne, Tom Cullen and Trung Mai. They first called it Rincon Networks, after a well-known surfing spot near Santa Barbara, and their office was above a Mexican restaurant there. The company launched in 2002, and in 2005 their first products shipped.

But the recording industry moved at a glacial pace, loathe to give up the lucrative CD model while it waged war on illegal downloaders. There was no way, though, that the musical genie was going to be stuffed back in the bottle and music listeners started proving that given a convenient and affordable option, they were willing to pay for music online.

For some time in Canada options were particularly limited. Licensing restrictions meant that the pioneering Swedish music streaming service Spotify wasn’t available for Canadians for years after it was first released and some services, like Pandora Radio, have never made it to Canada. There was a dearth of online music services here. But at the same time, illegal downloading didn’t carry the draconian fines being imposed on students, single moms and others who ran afoul of U.S. copyright laws.

However, eventually Canadians started to gain access to more services, with Rdio perhaps the first commercial service that offered ad-free listening, as the Spotify model does, for customers who pay a monthly fee. And it’s still possible to get music free through ad-supported free service from Rdio, Spotify, Songza, YouTube, and other online sources.

Apple Music delivers access to more than 30 million songs for $9.99 a month, or $14.99 for families, delivering music on demand as well as curated radio.

Mike Darlington, co-founder and CEO of Monstercat, an independent music record label based in Vancouver, said he is seeing streaming revenue climb.

“In the last two or three years our streaming revenue is starting to overtake our iTunes revenue,” he said. “They’re almost equal.

“I’d give it another two to three years for streaming revenues to outpace digital sales revenues from sources like Amazon and iTunes.”

Darlington said the difficulty has been in getting people to pay for something they have been accustomed to getting for free.

“It’s about developing the mentality that you should be paying a monthly subscription fee,” he said. “It’s difficult for people to stomach because they spent so many years pirating, or maybe only buying an album every couple of months.”

However, some former movie pirates have been persuaded to pay a monthly fee for Netflix movies and TV shows. And Darlington said services like Apple Music and Spotify are “like the new Netflix.”

“Eventually everyone will have that subscription. It’s slowly getting better. Hopefully over the next couple of years more and more people will start to pay for their subscriptions.

“It’s a growing industry, I’m very excited about it.”

MacFarlane sees Apple Music as the catalyst that will transform music in the home just as the iPod took digital music from somewhat-unknown to ubiquitous. In Canada, streaming music has been rolled into telecom services, most recently with Rogers offering Spotify Premium accounts under its Share Everything wireless plans.

The growth in streaming music is good news for Sonos, a company that is staking its small but carefully crafted and designed selection of wireless audio speakers and associated products on a model in which consumers “listen out loud.”

It’s also good news for Canadian music fans who now have a much wider range of listening options. While Spotify didn’t make it to Canada until 2014, some six years after its launch, Google Play Music, Apple Music, Deezer and others weren’t faced with the similar lag time as music labels started to adapt to the new global online world.

“In 2002, if you just walked into a label there was no global licence that could be had,” said MacFarlane. “There was no global licence for a label, they were all local.”

So streaming services would have to get licensing deals for each label in every country, an onerous undertaking that effectively left Canada and many other countries without a lot of streaming options.

“If you looked at their original structure, in 2002 compared to now, it has completely changed,” said MacFarlane. “In fact, labels are pushing the streaming companies to go globally.”

The first half of this year marked the first time that revenues from streaming music services topped sales of physical media such as CDs and vinyl records in the U.S., according to a report by the Recording Industry Association of America. Revenues from streaming music climbed over US$1 billion, up from US$834 million in the first half of 2014.

Canada, our home and land of early adopters, is among the top five countries leading the music streaming trend. Sweden’s music fans top the charts, with 92 per cent of digital music revenue in that country coming from subscription streaming, compared to five per cent from permanent downloads — that is, music purchased and downloaded instead of simply borrowed in the Netflix-type model of streaming music subscriptions. The online streaming can be ad-supported or paid monthly.

In Canada, streaming subscriptions account for 83 per cent of digital music revenue, compared to eight per cent from music permanent downloads. Despite the fact streaming music services were slower to come to Canada, we are still far ahead of the U.S., where only 55 per cent of digital music revenue comes from subscription streaming.

“Canadians are good early adopters,” said MacFarlane. “As a percentage of the population, Canada has more paid-on-demand users than the U.S. has.”

Patience has paid off for Sonos, a private company that, 13 years in, still has the air of a start-up, albeit a successful start-up on track to tally $1 billion in sales this year. Coinciding with the growth of streaming music options, the company has just announced its newly redesigned and revamped flagship wireless speaker, the Sonos: 5, along with Trueplay, a new speaker-tuning software that can turn the most audio-unfriendly space into a listening room regardless of how the speakers are placed.

Wireless sound systems are putting stereo sound within the reach of ordinary consumers, who have neither the means nor the inclination to renovate their home around a hi-fi system so they can listen to different songs in every room of the house.

“When we got into this business, an eight-room system cost $20,000,” said Sonos co-founder Tom Cullen. “Now it’s as little as $1,600, $200 a room.

“Our mission is to hunt down every silent home and fill it with music.”

gshaw@vancouversun.comvancouversun.com/digitallifeGillian Shaw’s airfare and accommodation to a Sonos media preview was paid for by Sonos. The company did not see the copy before publication.

 
 
 
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‘In my tenure in the streaming music space more has happened in the last 14 weeks than in the last 14 years and really the prime mover and the catalyst has been Apple Music,’ said Sonos co-founder and CEO John MacFarlane.
 

‘In my tenure in the streaming music space more has happened in the last 14 weeks than in the last 14 years and really the prime mover and the catalyst has been Apple Music,’ said Sonos co-founder and CEO John MacFarlane.

 
 
 
 
 
 
 
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