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.
Fool contributor Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, Google, and Pandora Media. The Motley Fool owns shares of Amazon.com, Apple, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
More from The Motley Fool
Uranium Stocks: What to Watch in 2018
Investors in uranium stocks can look forward to better days ahead.
3 Biotech Stocks That Soared This Week: Are They Buys?
Celgene appears to have lit a fire beneath all three of these small biotech stocks.
General Dynamics Doing Booming Business in Tanks and APCs
And there aren't many products that are more profitable for GD to produce than tanks.