Want to Invest in Online Music? Listen to These Stats

The online music streaming space is evolving quickly, and new players seem to pop up constantly. So how can Foolish investors know where to put their money? You can start with where people are actually going to listen to music.

Living the stream
Take a quick look at these stats showing the popularity of digital music and online streaming:

  • 64% of teenagers prefer listening to music on Google's (NASDAQ: GOOGL  ) YouTube than from any other service.
  • 53% of teens prefer Apple's (NASDAQ: AAPL  ) iTunes to other music destinations.
  • Pandora (NYSE: P  ) streamed 13 billion hours of music in 2012. That's right, billions.
  • SiriusXM (NASDAQ: SIRI  ) has more than 25 million subscribers.
  • Warner Music Group received 25% of its digital revenue from music streaming last year.
  • According to NPD, online radio services make up 23% of music listening for people ages 13 to 35, compared to 24% for AM/FM radio.

But those are a just a few simple statistics -- the overall streaming market is about to get much more complicated.

In May, Google launched it's own music streaming service, called Google Music All Access. The All Access option costs $10 a month, and gives users unlimited skips on the online radio -- the free version acts more like a music storage and playback feature for Android and web users. If you believe the rumors, Google is also working on a separate streaming option that it'll launch through YouTube.

Apple used to dominate the digital music space with iTunes, but has since fallen behind the streaming trend. It aims to make up for lost time when it launches iTunes Radio this coming fall. The service will be ad-supported, but users can ditch the ads if they sign up for iTunes Match -- Apple's cloud-based service that stores music purchases and songs imported from CDs.

In addition to megatech companies Apple and Google having their own streaming services, Amazon.com is rumored to working on it's own service that will build on its music locker feature.

But not all of the competition is coming from public companies. Popular streaming service Spotify already claims 24 million users – with 6 million paying subscribers – and many companies see it as the main streaming service to compete with. Smaller players, like Rdio, also offer streaming services, and Beats Electronics is launching its own service in a few months, called Daisy, and is talking to AT&T for a deal to pair the service with the phone carrier's data plans. While the smaller companies don't pose a threat right now, they can serve as distractions to users from paying for online services from the bigger players.

Shutting out the noise
With all the streaming services out there, and more coming down the line, it's tough for investors to find the right service to invest in. Pandora has over 200 million users, but only 2.5 million subscribers. The company put a 40-hour listening cap on free music back in February, and said it gained 700,000 subscribers in fiscal first quarter 2014, in part, because of the cap. According to NPD, Pandora is the top streaming music service, with iHeartRadio and Spotify taking the No. 2 and No. 3 spots. But rival Spotify has more paying subscribers, and investors need to see if Pandora can continue to get users to open their wallets to the service, or if they're opting for Spotify's offering.

SiriusXM has enjoyed some good subscriber growth as of late -- 19% over the past two years -- but its future rests heavily on the automotive sector. There are many more options for pairing mobile devices to in-car infotainment systems than there once was and, as these options become more prolific, I can't imagine users paying the high SiriusXM subscription fees over low or no-cost streaming options like Spotify or Pandora.

As for Apple and Google's streaming services, I think Apple has the advantage right now, even though it's showing up late to the game. Apple customers are heavy users of their devices, which could give Apple a leg up over Google and its Android users. The problem for Apple is the same problem most streaming companies face -- tons of competition. Pandora and Spotify already have lots of mindshare, simple subscribing options, and multiple ways to listen that aren't tied to specific devices. Apple will likely keep a tight reign on iTunes Radio and the devices it streams from, which will only hurt the company's potential to garner paying subscribers.

If I had to invest in online streaming now, I'd wait to see if Spotify goes public. It's hard not to recognize Pandora's popularity, but I fear that Spotify's gaining traction, and may eventually overshadow Pandora's great service. 

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 12, 2013, at 10:39 AM, 67vair wrote:

    You can't imagine users paying the high SiriusXM subscription fees over low or no-cost streaming options like Spotify or Pandora. Try imagining the fact that Sirius will go much higher. People will pay NOT to listen to commercials or what amounts to just a jukebox. In a car, I can't imagine listening to Pandora or Spotify, because of the poor and lost reception. P.S. Sirius is not high priced for the value and content.

  • Report this Comment On July 12, 2013, at 10:50 AM, SRNoyes wrote:

    "Apple used to dominate the digital music space with iTunes, but has since fallen behind the streaming trend."

    With Apple pulling in about 65% of the digital download revenue in the US and about 80% worldwide, Apple is still dominate in the digital music arena. This would have much better been written:

    "[While] Apple [is] dominate [in] the digital music space with iTunes, [they have] fallen behind the streaming trend."

    This is important distinction since Apple's entry into streaming brings in the 800 lb Gorilla making Pandora's, Spotify's and others continued existence much more difficult. It will be hard to compete with a company gaining 250-300 million customers over-night once iOS 7/Mavericks and the new iTunes start shipping in September. Likewise, being able to go "ad free" for $2/month will be hard to beat.

  • Report this Comment On July 13, 2013, at 6:02 PM, Sk3ptic1 wrote:

    For the past 5 years there has been a small minority screaming loud that the sky is falling on Sirius because no one will buy a SiriusXM sub with the emergence of Pandora and all of the other free options in the dashboard BUT SiriusXM has done excellent and subs are continually growing. Pandora was said to be the death of SATRAD but now Google and Apple are said to be the death of Pandora, yes things are evolving but the true constant is SiriusXM is still a strong stable cash cow with a pipeline of new customers and ever growing popularity and clearer fundamentals then ever before.

  • Report this Comment On July 15, 2013, at 10:25 AM, DarrellGood wrote:

    This doesn't surprise me. Ever since I started streaming music (I use Torch Music) I've been totally addicted to the thing. I mean, I listen to my playlists almost everywhere, it's makes my work day go by so fast!

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