Youtube is going up against Spotify in streaming music — and it's going to be an uphill battle

Youtube is starting its own streaming-music service, and it's pricing is right up there with Spotify's.
The streaming-music market is growing, and data- and advertising-based tech companies want to capitalize.
Goldman Sachs analyst Heather Bellini thinks YouTube can compete with Spotify in music streaming, but warns accomplishing competitiveness won't be easy.
If YouTube can't hit it big in music streaming, it can still use the new service in value-added ways.
Watch YouTube's parent Alphabet trade in real time here.

YouTube is taking Spotify head on with a brand new streaming-music service called "YouTube Music."

Goldman Sachs analyst Heather Bellini says the new offering looks a lot like Spotify and Apple Music and that the service "could closely mirror Spotify’s current product in offering on-demand access to 'millions of songs' for paid users and providing a subsequent ad-supported offering." The premium product will be priced at $9.99 a month — the same as Spotify.

But achieving competitiveness could be an uphill climb for YouTube. "We believe it will be challenging for YouTube music to drive subscribers away from the service," Bellini said. That's in large part because Spotify creates an almost unbreakable cycle. It learns what users like to listen to and creates a very customized user experience, which in turn creates user loyalty. She noted that the amount of user data Spotify has accrued enables it to perpetuate that cycle.

Still, Bellini said not to count YouTube out, as it could conceivably compete. "YouTube’s music offering has the opportunity to drive significant growth in the market for ad supported radio and further consolidate share of premium music subscriptions," she wrote.

Spotify is the current global streaming-music leader, with 60 million paid subscribers, according to Statista. Apple is a far second at 30 million.

Music Streaming Statista

But many players in the tech and digital-media space want to cash in on what is perceived to be a growing market. As noted previously, Apple's subscription-music service is underway. Streaming-music revenues grew more than 60% year-over-year in 2016, which is part of a rapidly increasing uptrend for the industry segment, according to IFPI Consumer Research.

Screen Shot 2018 05 21 at 2.45.21 PM

But if YouTube can't be wildly successful in music streaming, it can still leverage the new service for it's broader business of collecting consumer data and selling advertisements.

"With streaming content availability largely commoditized, YouTube has the broader opportunity of leveraging a customer’s video viewing and other data to recommend content," Bellini said. This synergy "could provide significant value in an environment where services differentiate based on discovery and personalization."

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