Music streaming – Fall of the radio star.

Streaming goes after broadcast radio.

• Spotify has launched a radio-like product that is a niche add-on for now but if successful will challenge the existence of broadcast radio in the USA.
• The new product is called Your Daily Drive and is part of the offering made to premium subscribers only.
• It comes in the form of a Spotify playlist that combines curated music, news and talk shows that emulates what a user would typically listen to in the vehicle.
• Despite its age, radio is still by far the dominant form of media consumption in the vehicle.
• RFM research has estimated that despite a smartphone being present for almost every journey, 66% of all media consumption in the vehicle is still broadcast radio.
• This is declining with the rise of streaming, podcasts and so on, but this transition is happening very slowly.
• RFM research has concluded that the transition is slow for two reasons.
  • First, user experience: The traditional user experience of radio is best in class.
  • Much of the time, the user gets into the vehicle and the radio plays automatically when the vehicle is switched on.
  • Furthermore, changing station and changing the volume is extremely simple with physical controls.
  • By contrast, streaming is a convoluted and often frustrating experience where even pairing a phone with a vehicle using the audio profile can prove very challenging.
  • However, the more streaming apps are embedded in the infotainment unit, the more this problem begins to recede increasing the competitive threat for radio.
  • Second, local: Every country has many thousands of radio stations, the vast majority of which, focus on news and issues that are relevant to their location.
  • This is an important part of the radio experience and is something that listeners value and keeps them listening to the radio.
  • There is still no other medium available that can match this content profile which is a big reason why it remains so popular.
  • However, this might not always be the case as a natural evolution of the Your Daily Drive would be curation on the basis of both location and user preference.
  • This would make it much more like a local radio station.
• Your Daily Drive at the moment is a simple product that has no chance of challenging radio.
• This is because it does not address either of the two reasons that I have highlighted above, but this could easily not always be the case.
• Spotify has the best algorithms for the categorisation and recommendation of music meaning that it can easily provide a better slate of music for the listener than radio can.
• At the moment the spoken part consists of short-form podcasts from the Wall Street Journal, NPR and PRI none of which provide any local colour.
• However, if this proves successful, there is no reason why Spotify will not be able to use the location of the phone or of the vehicle to customise the spoken part of its offering, making it more local and thereby emulate the best parts of radio.
• Assuming Spotify can get access to local spoken content and it becomes embedded in the dashboard, then the two things that have kept radio differentiated from other forms of media in the vehicle will diminish.
• There is also nothing preventing Spotify from offering an advertising-supported version of Your Daily Drive that would compete head to head with free to air radio.
• Radio advertising is currently an $18bn market in the USA making it an attractive target for Spotify and Apple Music to go after.
• The economics for the streaming services will not be as attractive as it is for the broadcasters as the music royalty payments are very different, but the streaming services are already set up to deal with this.
• Hence, I think that if Spotify gains traction with this initial experiment, it will accelerate its efforts to replace broadcast radio with streaming.
• Apple Music is likely to follow with iterations of its Beats radio product.
• Broadcast radio needs to act soon because the barriers that keep it safe from technological progress are beginning to crumble.