Whether or not I constitute the status of “industry veteran,” I definitely am not as blown away by the Play button as it seems many other people happen to be.

“That’s annoying. If the play button is on the page, all we should have to do is hit play.”

The US has about 270 million people with internet access. 30 million active users in the US would mean little over 10%. Can be done if you ask me.

Always interesting point of views and highly valid insights from you!

Best
Hans Peter

Alternatively, we are seeing the usual pattern experienced by Freemium services being somewhat truncated by “forced retirement.”

Free users sign up, experience the service for some time, and then retire. The service may actually be compelling, but the price points in the market are too high to convert these free folks.

In the case of Spotify, the retirement is somewhat forced give the six-month “up or out” policy in place. A number of users who might remain, cannot. And whether these users somehow re-register is up for grabs.

And so, the “active user” pool unnaturally decreases in size, resulting in a bit of an over statement of the paid conversion rate—unless you look at Registered Users as well.

My sense would be that in the US the impact of streaming services upon iTunes revenues, in the near term, would be nominal. Particularly at the present price points. We have had streaming services here since 2003/4. As the number of subscribers to these services has slowly but steadily increased, so to have iTunes sales increased.

The best test of the above statement is not the present market of streaming services—Spotify, Rhapsody, MOG, Rdio, Muve—but rather would be in the launch of a subscription service from Apple/iTunes. Or, significant changes in the price points at which these services operate.

It is far more likely that any stabilization or decrease in iTunes music market would be simply due to the maturity of that market overall. Essentially, tapping out the pool of individuals looking to pay 99cents per track, or $x.xx for an album. That market is only “so big,” and we are probably approaching that ceiling.

Regardless, each new premium subscriber to a music service is worth more to the music industry (at large) than each new iTunes customer, over the period of a year.

The above statement is obviously conditioned by the concerns of some artists that each new subscriber is worth less to an artist than a sale.

Very interesting analysis. Moreover, the underlying assumptions does also seem plausible, save for one thing.

I do not think that iTunes revenues will remain unaffected by the increasing presence of Spotify in the US market. Rather, a quasi monopoly as held by iTunes will – all other things equal – see (substantial) churn when (a) new substitutable operator(s) enter the market. Consequently, I predict that iTunes will experience a fall in revenues in the US over the comming years.

So the question is whether Sean Parker’s statement on Spotify’s growth took an iTunes decline in revenues into consideration or – as you have – iTunes’ revenues today!?

Whereas a decrease of 10% in iTunes revenues does not change much a decrease of 20% or more does – in my view – substantially change the likelyhood of Spotify reaching Sean Parker’s target.

What are your thoughts on this aspect. What will the streaming servcies and thus the changed competitive situation in the US online market entail for iTunes revenues over the next two (perhaps four?) years? Or perhaps put in another way, how do you see the development of the value of the overall online market in the US over the same period?

I think you are seeing the playing out of a well known trend in subscription economics. The early adopters are the heavy consumers and then as progression slides down the adoption curve consumption declines. Eventually you reach a point where “late” adopters do not see value and don’t purchase. ie eventually you will see spotify/deezer ofer lite-plans – perhaps by genre rather than by volume.

A further complication is the Telco-bundling strategies that Orange are playing with Deezer – they are “giving” the service away for high spending consumers. So they count as a Deezer subscriber and they might be buying the Orange plan for other reasons eg unlimited voice calls.