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What market structure best fits the music streaming market?

Jonny Clark

25th March 2018

During our revision workshops over the last 2 weeks we have been challenging students to find the best market structure that fits the worldwide denim industry. Using data and other information we've been asking students to go beyond just the straightforward answer of applying their market structure characteristics and challenge some of the assumptions placed in front of them (more workshops are available post-Easter but with very few places left!).

This interview with Apple Music executive Jimmy Iovine, where he discusses music streaming, talks about how all of the major providers offer pretty much the same service at almost identical prices.  In the UK the major firms include Apple Music, Deezer, Amazon Music and Spotify.

All the evidence suggests a description of an oligopolistic market - a few large providers with high market share, interdependence based upon pricing (chance for a kinked demand curve to be drawn, if your awarding body still uses that model!) and only slightly differentiated products.

The issue for Iovine is that the pricing model does not allow for a sustainable growth in the number and breadth of musicians willing to take risks.  In short, the model is stunting creativity in a market where creativity is vital for continued profitability.

In the long run we may find that some of the services close as they can't maintain a profit.  Musicians may give up their jobs as they are unable to make a sustainable living based upon what the streaming services are paying.

So, not only may the level of competition decrease but the quality of the service may also diminish.

Iovine's answer appears to look to other similar markets - he suggests that streamers offer a clearly differentiated product by having more and more original content (like Netflix, Apple and Amazon have achieved in the movie streaming market).

Paid-for music-streaming was almost non-existent 5 years ago.  In 5 years time it may be very different to these halcyon days of 40 million songs for £9.99 a month!

Jonny Clark

Jon Clark has been teaching economics and business studies for over 25 years primarily in the Further Education sector. Before joining tutor2u, he was a senior manager at South Cheshire College in Crewe.

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