Wednesday, Apr 20, 2022 • 11min

With Netflix losing subscribers, is music's own streaming party over? (Talking Trends)

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Welcome to the latest episode of Talking Trends, the weekly podcast from Music Business Worldwide https://musicbusinessworldwide.com/ (MBW) – where we go deep behind the headlines of news stories affecting the entertainment industry. Talking Trends is supported by Voly Music. http://www.volymusic.com/ On this episode, MBW founder Tim Ingham analyzes the news the Netflix's global subscriber base fell quarter-on-quarter in Q1 2022 – and ponders whether leading music streaming services like Spotify will soon face similar headwinds. Netflix lost 200,000 subscribers in Q1 https://techcrunch.com/2022/04/19/netflix-shares-down-more-than-20-after-losing-200000-subscribers-in-first-quarter/ meaning that more people unsubscribed from the platform in the quarter than actually subscribed to it. Ingham sifts through Netflix's new letter to shareholders https://s22.q4cdn.com/959853165/files/doc_financials/2022/q1/FINAL-Q1-22-Shareholder-Letter.pdf in which the video streamer explains why it thinks these subscribers left its platform. Says Ingham: "One very convincing take on Netflix's poor Q1 results is that the [macro economic] sluggish economic growth and increasing inflation [in the world today] are actually the only factors that really matter here. "Inflation in the US, for one thing, hit a very scary 8.5% in March, according to the Consumer Price Index. "That 8.5% was the highest US inflation rate we've seen since 1981: that's over 40 years ago. This is once in a generation stuff. "So it's no great shock that people are starting to worry very seriously about their cost of living, versus the salary they have dropping into their bank account every fortnight or month. "And they're making sensible cutbacks of goods and services they can ultimately live without." The Music Business Worldwide Podcast is supported by Voly Music https://www.volymusic.com/

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Tim Ingham

00:00

Is the party over for the music industry's rapid growth in streaming subscription. My name is Tim Ingham, the founder of Music Business Worldwide and welcome to talking trends where we once again boldly go behind the headlines to look at what's really going on in today's music industry.

Break

Tim Ingham

00:57

So, cast your mind back to spring 2020 when the uncertainty around the pandemic was at its height, when the stock markets had started to tumble and when the future looked pretty bleak. To put it mildly. At that time, I received a couple of phone calls from senior people at major music companies in the states.

01:18

On both of those calls, these people explained that their previous very healthy projections for the growth of their annual recorded music businesses in 2020 had understandably gone out of the window forecasts of double-digit growth were suddenly put on pause and panic was setting in because the major's new millions of consumers were bound to tighten their belts in preparation for the unknown and the worry was that streaming subscriptions would be the first thing people would cancel in the end despite a wobbly quarter or two for the majors.

01:53

This doomsday situation didn't actually play out If we just focus on the us for a second. Recorded music industry revenues grew 9.2% in the states. In 2020, according to the

RIA

. And last year in 2021, they shot up by a whopping 23%. Everything looked very much back on course for what

Goldman Sachs

told us was going to happen after the pandemic.

02:19

So in April last year,

Goldman Sachs's

music in the air report forecast that by the end of 2021 there would be 527 million paying subscribers to music streaming services globally. And that was roughly accurate.

02:33

But

Goldman

also forecast that this figure would grow by another 170 million won seven million new subscribers by 2023 by the end of 2023 And would actually more than double to over a billion music subscribers by 2030. Now, however, a new threat is emerging to cast that kind of optimistic forecast for music streaming into doubt.

03:00

Yesterday April 19

Netflix

released its latest global subscriber number for Q one, That number was down by 200,000 subscribers. Quarter on quarter. In other words, more people unsubscribed from

Netflix

in the three months to end of March than actually subscribed to

Netflix

in that period. In a surprisingly upfront letter to its subscribers.

03:25

Netflix

admitted that it had previously underestimated how much its growth was going to slow down in this shareholder's letter which issued yesterday with its results,

Netflix

highlighted four key factors that it said in the short term were dragging its business down to summarize those four factors included a couple of things very unique to the streaming film and tv market, namely the adoption of connected TVs and certain territories and the growing competition that

Netflix

faces from the likes of

Disney

plus amazon prime

Hulu

and other rival tv streaming platforms.

03:60

But there were two other factors highlighted by

Netflix

that are definitely applicable to the music market.

04:09

The first of these factors, and I'm quoting here from

Netflix's

shareholder letter regarded the number of accounts being shared by

Netflix

customers so that's one person paying for a subscription and their friends or family dipping in and using that account rather than paying for their own access.

04:25

Netflix

has just suggested that in addition to 222 million paying households that it reaches globally. There are also over 100 million additional households who are using accounts paid for by someone else.

04:40

Netflix

says this means it's harder to grow membership in many markets close quotes and it's hinted that it will clamp down on the problem for now.

Netflix's

solution is a positive one.

04:52

It's launching a quote paying to share close quote feature in chile

Costa Rica

and peru under which those paying users who are sharing accounts outside their households will be encouraged to pay just a little extra on their tariff to cover their account sharing friends and families.

05:09

This account sharing issue is a problem with direct parallels in the music industry but the likes of Spotify and

Apple

music have arguably done a better job than

Netflix

in terms of pushing paid multi user subscription plans especially discounted family plans.

05:26

But it's

Netflix's

fourth problem. That's a much bigger issue for everyone in the commercial sector, including music's biggest streaming services and the major record companies.

05:40

I'll quote again here from

Netflix's

shareholder letter issued this week.

Netflix

calls this fourth problem a collection of quote macro factors close quote including quote, sluggish economic growth, increasing inflation, geopolitical events such as

Russia's

invasion of

Ukraine

and some continued disruption from

Covid

06:01

Close quote, If you ask me this is all rather being glossed over by

Netflix

which seems to want to spend more time in its explanations in this shareholder letter dealing with obstacles that are in its control rather than these so called macro factors.

06:19

But one very convincing take on

Netflix's

poor Q1 results is that the sluggish economic growth and increasing inflation are actually the only factors that really matter here inflation in the U. S. For one thing hit a very scary. 8.5% in March according to the Consumer Price Index that's 8.5% was the highest U. S. Inflation rate. We've seen since 1981. That's over 40 years ago.

06:47

This is once in a generation stuff, so it's no great shock that people are starting to worry very seriously about their cost of living versus the salary they have dropping into their bank account every fortnight or month. And they're making sensible cutbacks of goods and services.

07:03

They can ultimately live without adding credence to the idea that it's actually these economic concerns. Driving

Netflix's

subscriber decline is a new survey that came out of the

this week from

Kantar Worldpanel

. And in that study, Cantar quizzed

households on their video streaming habits.

07:26

They found that an estimated 1.51 million video service subscriptions were canceled in Q one this year in the

, That 1.51 million figure was up from around one million in the prior quarter and from around 1.2 million in the prior year quarter. But here's the important bit.

07:46

Around a third of those 1.51 million subscription cancelations over half a million said this survey were motivated by money saving all of this poses a serious danger not only to

Netflix

but also to music streaming future growth too. At what point household economics going to bite severely enough for folks to begin canceling Spotify subscriptions or

Apple

music subscriptions on mass.

08:16

Now there are a couple of strong counter arguments as to why music May be more protected from consumer cuts than

Netflix

or it's streaming video rivals. One argument that I read from Darren hemmings in the excellent motive unknown news this week is that consumers might be more willing to cancel a subscription to

Netflix

than to Spotify or other music streaming services.

08:40

Because in the film and tv world there is far more exclusivity of content on each platform. And that means that fans could have been paying for multiple services in order to get a satisfactory range of content and now looking at their outgoings and pinching their pennies, they're starting to cancel the services whose programming they feel they need the least enter

Netflix

In music.

09:05

Things are different because 99.9% of all music ever made is available on all of the services. This lack of differentiation is something that's been right for criticism in the past, but it might actually be something of a bull walk against a consumer exodus from services like Spotify.

09:25

In other words, consumers May see a Spotify subscription as much more essential to their lives than a

Netflix

subscription because Spotify offers access to pretty much the entirety of recorded music history as opposed to just a segment.

09:40

There's also the argument that for a long time services like Spotify have been Harang by major music rights holders for not upping the consumer price of subscriptions far above that classic $9.99 per month. Price tag.

Netflix

, on the other hand, has famously raised its prices multiple times with an individual

Netflix

subscription in the us now costing $15.99 per month.

10:07

With consumers clearly feeling far more price sensitive than they were even a year ago. It could actually work to music's advantage that it's leading streamers have kept their prices low despite that rampaging inflation rate, meaning that $9.99 is going to be worth significantly less in real terms even by the end of this year than it was in January Music Business Worldwide.

10:33

Talking trends will be back soon with more insight into today's global music business. Thank you.

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