A round black thin disc with circular grooves was avant-garde in the 1940s. Placed on a bulky instrument called the phonograph, it would magically play music for a few swaying generations. Vinyl records were trendy then. Today, they’re quaint at best. And archaic, in truth. Over the last few decades, technology has changed all aspects of the music industry, including how people listen to it. You hardly play music anymore, for instance. You stream it. At the forefront of this streaming revolution is a Swedish company you know of as Spotify.
Since it was set up in 2006 by entrepreneurs Daniel Ek and Martin Lorentzon to combat the growing problem of piracy in the music industry, it has grown to become the leading player in the global streaming industry, with 345 million users and 155 million paying subscribers across 178 markets.
In the Indian market, too, which has around 10 players, Spotify has managed to hold the third spot behind Gaana and JioSaavn, according to a Kantar-Vtion study. What is more remarkable is that it has achieved this in just two years. In fact, by the time Spotify entered the country in February 2019, Indians had already warmed up to music streaming services like JioSaavn, Wynk, and Gaana. But the late entry has proved to be “more of a boon”, says Spotify’s India MD Amarjit Singh Batra. “I would call it the late mover advantage because we’ve been able to see what’s working and what’s not,” he points out. “We’ve learnt that what we thought was a mature market… is not yet mature enough. We’re educating people about streaming and that is something nobody invested enough in while the market was expanding.”
The “homework” the company had done before launching in India has paid off. As Gustav Gyllenhammar, vice president, markets and subscriber growth at Spotify Worldwide, puts it: “We knew that we needed to provide something differentiated and really tailored to the market in order to win. There were already a lot of local as well as global players but we needed to provide something that was more global than the local players as well as more local than the global players.”
So as with all the other markets that it operates in—including the 80 new markets it plans to enter this year—Spotify put localisation at the core of its strategy to make headway in a short span of time. Consider that of the 36 new languages that it recently launched in, 12 are Indian. These are Hindi, Gujarati, Bhojpuri, Kannada, Malayalam, Marathi, Odia, Punjabi, Tamil, Telugu, Urdu, and Bengali.
The proof of success is in the numbers. In its latest letter to shareholders, Spotify said, “In Q4, we added 25 million MAUs (monthly active users) and benefited from faster growth in India, the U.S., and Western Europe, with India serving as a notable source of upside vs. our forecast, driven by successful marketing campaigns.”
Gyllenhammar’s strategy of being both accessible and aspirational is evident in Spotify’s freemium service which is a combination of free (supported by ads) and premium (or fully paid by the subscribers) as well as in a variety of subscription packs for different sets of audiences. There are over 15 plans, including mobileonly, annual, mini, weekly, and daily plans—and India is the only country to have such a differentiated offering. It also provides Spotify Lite to customers with unreliable Internet connectivity, helping it penetrate deeper into tier 2 and 3 cities.
Experts believe that the company has hit the right spot in terms of a product-market fit. “Spotify is the highest growth player compared to any other player in the market,” says Nikhil Dalal, senior consultant, RedSeer. “It has successfully targeted people who are between 20 years and 25 years, who happen to be the heavy users of the Internet in the country. Their recommendation engine, too, is one of the strongest so far.” As Gyllenhammar puts it, “One of the things we’re proud of is how we’ve been able to combine algorithmic experience with editorial experiences.”
The country is certainly ‘listening’. Within a week of its India launch, Spotify managed to garner one million unique listeners. Meanwhile, global competitor YouTube Music, which entered the country within a month of Spotify, said it hit a 3-million-downloads record in the first week. According to data firm Statista, the Indian music streaming market will be worth $663 million in 2021 and jump to $1.1 billion by 2025 at a CAGR of 14.2%.
That’s the size of the opportunity, and also the reason why players like Spotify are ramping up their regional play. After all, “India is not one market,” says Gyllenhammar. “It’s a vast region with cultures and languages and different socio-economic realities and we need to invest in a way that… even if we start by mostly winning the big cities, we need to rapidly follow on by winning the tier 2 cities.”
Both international as well as homegrown players know that regional music, which comprises 39% of all streams, is the way to win. For Times Internet-owned Gaana, a decade-old music streaming service, regional music contributes over 35% of total consumption. “We have seen more than 30x growth in absolute consumption in the last three years, and we will continue to focus on smaller cities and towns for wider adoption,” Gautam Sinha, CEO, Times Internet, says. “While we have concentrated on tier 2 and 3 markets in 2020, we aim to set foot into tier 4 markets and increase our footprint over the next five years.”
The largely advertising-driven audio OTT businesses are looking at other forms of monetisation, and one of the avenues they have chosen is podcasts. “Podcasts are the perfect storytelling medium, and our streaming numbers clearly point to its rising popularity. It’s a matter of time before branded podcasts become a rage,” Sinha says. Gaana podcasts have increased 2x in the second half of 2020 after it partnered with global players Libsyn and Triton Digital to expand its podcast library of 15,000 shows.
Bharti Airtel’s Wynk, with a current user base of 65 million, regrets missing out on the early podcast band wagon. “While we pioneered music streaming, we did not pioneer podcasts which has such a close adjacency to music. Why weren’t we there? Because I don’t think we were listening to our audiences,” admits Adarsh Nair, Wynk CEO and chief product officer, Bharti Airtel. “We were so busy on the music treadmill, we did not listen to this hunger of podcast emerging. But today, we’re catching up.”
As the highly-fragmented audio OTT market grows in India, consolidation is inevitable, points out Nair. “In the next three-five years, consumers will lead the reign of consolidation. It’s going to be an intensely-fought battle and differentiation is the way forward,” he says.
The move towards consolidation has already started. In 2018, JioMusic and Saavn joined forces to become the biggest player in the market, with over 100 million MAUs today. “Our integration with JioMusic has allowed us to achieve a scalable presence across the country,” Vinodh Bhat, president, chief strategy officer, and co-founder, JioSaavn, says. “The competitiveness of the Indian market has helped us mobilise growth and foster innovation, allowing us to stay ahead of even the most established and capitalised global players.”
The company is targeting Indian audiences with what it calls its “mass premium” positioning. “We differentiate ourselves from other services with our product offerings and personalisation. In 2021, we are likely to see more people looking at audio beyond music,” he adds.
Industry experts agree. They believe that exclusive content, gamification, and innovations like karaoke will be key differentiators—and with the launch of services like Clubhouse, a live audio streaming app that boasted of 8 million users even before its official launch, JioSaavn is leading the way. Spotify, too, has acknowledged the trend after acquiring Betty Labs, the company that runs Locker Room, a social networking platform for live audio conversations where real-time discussions, debates, and ask me anything (AMA) sessions can be hosted.
Another aspect of the music streaming industry that is gaining momentum, particularly due to the Covid-19 pandemic, are online performances and concerts. “The music streaming industry made great use of ‘Live Streaming’ concerts from the comfort of their homes given the guidelines and safety protocols,” says Sinha, who launched Gaana Originals for this purpose. This rise of online performances has also led to artists interacting with their audiences on a more regular basis, leading to stronger online fan communities.
All of this points to the need for differentiators beyond music, says Nair. “If you look at emerging media, podcasts, game streaming, short video formats, mix-media, etc., I think exclusivity is the play. Now which OTTs wake up to this trend is to be seen,” he says.
What should be music to OTT players’ ears is this: Indian Music Industry (IMI), a body that represents record labels in the country, says that paid subscriptions ($42.32 million) were a large part of the total streaming revenue of $109 million last year. What will be a challenge is to get the value proposition right. “They need to think about the balance between ads and premiumness. Too many ads and the customers will tune out and too less ads, they won’t be inclined to pay,” says Dalal of consulting firm RedSeer. “Whosoever has their ears to the ground wins.”
Having already made early inroads, Spotify India is priming for that victory by going big on localisation. “Our strategy here is like how rings spread on water,” Gyllenhammar says. “We really want to be present in the big metro areas where a lot of culture is being created. Then, like concentric circles, we’re using all the vectors to expand into the next phase with different languages and regions to work with more creators.” If it sounds like a long-term plan, then it is. Because, as he tells Fortune India, “We’re in India for the long run.” Fortune India