Apple Music Considering a Serious Price Drop, Sources Say

Will Apple Music undercut their competitors?

What’s the ‘sweet spot’ price that will get streaming music to a billion subscribers? Maybe Apple Music will finally figure that out.

Apple Music may be preparing for a major price drop, according to a pair of sources working closely with the streaming service.  If implemented, the drop could be as much as 20%, which would put the final monthly price below $8.  The change, if implemented, would allow Apple to minimize any damage from a seriously undercutting Amazon Music.

The sources are not inside Apple, but have been working closely with the Apple Music service since its launch.  They also emphasized that the changes are still under discussion, albeit ‘under serious discussion’.  Still, there are valuation debates underway, and the price chop may not be implemented.

But how much are we talkin’ here?

Currently, the Apple Music streaming service is priced as follows.

  • Regular rate: $9.99 a month
  • Family package: $14.99 a month
  • Student rate: $4.99 a month

That could soon be slashed by a $2 discount across regular and family tiers, according to details leaked.  That would amount to discount of more than 20% and change the picture to this:

  • Regular rate: $7.99 a month
  • Family package: $12.99 a month
  • Student rate: $4.99 a month

The move could come as soon as this Christmas, and possibly start with a holiday promotional discount.  Currently, Apple offers a three-month trial window for users, which automatically rolls into the $9.99 monthly tier.  That formula would be altered, with those subscribing before Christmas enjoying the slashed rate by March or April.

Specifically, the three-month trial window would roll into a $7.99 rate, or a $12.99 family rate.

Other short-term actions could include discounts on upgrades from regular to family plans.  Of course, for a limited time.  “Act now!”…

Sorry, no back-payments for early subscribers.

Importantly, the plan would not pay current, full-priced subscribers any compensation for their earlier months of higher payments.  But, those users could be transitioned into the lowered rate, if it becomes permanent.  That would help to stem ‘churn,’ or subscription cancellations, not to mention defections to Amazon Music.  Or, whatever lower-cost competitor comes along.

Thanks, Amazon.

Amazon appears to be the biggest motivation for the pricing discussions.  The reason, unsurprisingly, is that Amazon Music is pretty damn cheap compared to their competitors.  The full-blown, just-launched Amazon Music Unlimited subscription is currently $9.99, though that price drops to $7.99 for Prime subscribers.

But there’s a huge sweetener in this: a free, ‘Prime Music’ option for more casual music listeners.  That, more than anything, presents a major threat to Apple Music’s growth arc, with Spotify also under pressure to adapt.  And the reason is dead simple: why pay $9.99, or even $4.99, when it’s already bundled into your existing Prime account?

Boom.  Game just got changed.

Get read for ‘disguised discounts’

Onlookers are quick to point out that Spotify is already offering drastic discounts.  The only difference is that they are in disguise.  Spotify boasts 40 million paying subscribers, but how many of them are paying $9.99 a month?  That’s difficult to know without access to Spotify’s data, but the company has been offering drastic student discounts.  Not to mention massive upgrade deals to shift users to paid accounts.

It’s working, but not at $9.99 across the board.  Instead, the average monthly access price at Spotify may actually be closer to $5 than $10, based on loose estimates.  All of which raises the important question: what’s the right price for a monthly streaming service?

And more importantly, what price will get the music industry from 100 million paying subscribers to 1 billion paying subscribers.  And an entirely new business?

More Than 100 Million People Now Pay for Streaming Music Services

Major label? No love.

Now, here’s the bitter pill Apple would have to swallow.  It looks like any price drop would require Apple to directly pay the difference to major recording labels Warner Music Group, Universal Music Group, and Sony Music Entertainment.  In other words, the majors are not subsidizing any pricing research, even if it makes them billions down the road.

That’s the game now, with Amazon already rumored to be paying for its juicy discounts.  But those label demands could present a golden opportunity for Apple to steer out competitors like Spotify, a company strapped with debt and heavy pressure from investors.

Apple has yet to respond to an inquiry on the possible price drop.

Image by Christopher Sessums, licensed under Creative Commons Attribution 2.0 Generic.

 

 

25 Responses

  1. Nicky Knight thoughts

    Well this would be a move in the right direction.. remember, most people in the world would rather spend nothing (unfortunately..), and as I’ve discussed previously here on DMN I think the sweet spot is $36 to $48 a year ($3 to $4 a month) which I realize is a lot less than what streamers are currently asking.

    If you can get millions upon millions of people spending $36-$48 a year on a music streaming subscription it suddenly becomes a huge amount of revenue.

    If streaming is the future then really it has to be markedly cheaper than video content streaming services and offer content that’s not freely available on YouTube & Spotify web player + mobile free tier..

    Reply
    • Anonymous

      Indie labels still aren’t paying out streaming royalties. That scam needs to stop or any faith in the music “industry” will disappear.

      Reply
      • In the know

        I am sorry, but your statement is seriously not correct!
        I know plenty of Indie labels that do pay out for streaming royalties…

        Reply
      • A-J Charron

        Indeed, Indie labels do pay streaming revenues. If you aren’t getting yours, that’s a problem with your label, not with Indie labels.

        Reply
  2. Good.

    $9.99 is way to expensive for mass adoption. There should be limited-ads or other usage/catalog limitations for as low as $3.99.

    Reply
  3. Cognitive Distortion

    When it will be lowered to 7.99$ , studies will show that the majority of people find it too expensive.
    The price will be lowered to 4.99$ , then studies will show that the majority of people find it too expensive.
    Then the price will be lowered to 1.99$ ,then studies will show that the majority of people find it too expensive.
    Then the price will be lowered to 0.99$ ,then studies will show that the majority of people find it too expensive.
    Then the price will be lowered to 0.99$ A YEAR ,then studies will show that the majority of people find it too expensive ,
    Then ….

    Do you get it yet ? It’s not a price problem. Anything less than totally free will be perceived as too expensive. People’s brains have been re-engineered to immediately respond in a pavlovian way to the words” Music” and “Cost” : “Too expensive”. While spending inordinate amounts on cigarettes, beer, candy, services that don’t deserve even 1/100000 of what they charge for.

    It’s not a price adjustement we need, it’s re-marketing music ( a polite word for re-engineering people’s perception of the cost of music )

    Reply
    • Versus

      Agreed.
      Any survey asking people how much they want to pay for anything at all will give the same result:
      “We want everything for free”.

      Reply
    • Econ 101

      Cognitive Distortion’s observation is just plain stupid, as is Versus’ agreement.

      Of COURSE if you simply “ask what people want to pay” – for ANYTHING – they will say “nothing.” Who DOESN’T like getting stuff for free?

      But that doesn’t mean that many, many, many people don’t pay for things they would like to get for free, like Netflix, cable TV, SiriusXM radio, cell phone service, etc., etc., etc.

      In the real world, where people do agree to pay for things, ALL THE TIME, it’s about at what price do you get significant adoption. Where people are willing to pay the price because it seems reasonable, to them.

      No music retailing business is just going “survey” it’s customers, hear that they want music for free, and then price their music service for free, in response. You are NOT going to be able to “re-engineer” people’s perception of what they will pay to access music.

      What we are trying to do here, is find the price at which a very large number of people would be willing to pay for the service, so that it can SCALE UP. As other commenters have noted, 500m subscribers at $5 per month is a lot more revenue than 30m subscribers at $10 per month.

      This is basic economics (something that you, and the record and music publishing companies obviously have yet to figure out).

      Reply
      • Cognitive Distortion

        “What we are trying to do here, is find the price at which a very large number of people would be willing to pay for the service”

        And how do you intend to find that unicorn… hmm.. I meant that magical price ?

        Reply
      • Econ 101

        Wow! What an unbelievably insightful question that exposes how difficult it would be to find the “magical price” that consumers will pay for a product or service.

        It’s simply NEVER been done before!!

        I mean, no one was EVER able to figure out the acceptable price for say, cell phone service, in order to get 260 million people paying for them. No one has yet to figure out the right pricing for cable service, so that 100 million people subscribed. No ISP has EVER cracked the code of what a consumer would pay for internet service, since they would like to get it, for free.

        It’s a unicorn!!!

        There’s just NO WAY for any business to ever arrive at a pricing structure that allows scalability of their business. They just CAN’T figure it out, if customers say they want to pay less.

        SMDH.

        Reply
      • Versus

        “You are NOT going to be able to “re-engineer” people’s perception of what they will pay to access music.”

        That’s exactly what has to be done. That perception has been downgraded through theft; and it needs to be upgraded again.

        Reply
      • A-J Charron

        I work at an Indie label, when one of artist’s plays a good show, people have no problem whatsoever dishing out 20$ to buy a CD. None. So agreed, the whole package needs to be remarketed.

        Reply
    • Versus

      Sounds “about right” for a limited music service, either limited plays, limited selection, putting up with ads, or some combination thereof.

      Reply
  4. Versus

    So if this race-to-the-bottom discount scheme happens, indie labels are going to subsidize the major labels?

    Reply
  5. Nicky Knight's thoughts..

    to “Cognitive Distortion”, I saw the interview where this was stated and I don’t agree with the premise..

    Firstly.. How do you know?
    Let’s face it.. you’re guessing just as much as everyone else is .. (incl. me) and of course people will say they want it for free just as they want ice-cream for free.. but if free ain’t available then they will have to eventually put their hand in their pocket and pull out their wallet if they want some ice-cream .. and same for recorded music.

    But ten bucks a month for an audio streaming service when you can get Netflix with unique and original audio/visual content for about the same price.. suddenly audio-only doesn’t look to be such a bargain after all..

    Historically the general public would spend X dollars a year on movies and DVD rentals and X dollars a year on records/CDs

    Now in a download and streaming world the interesting question is how to the ratios
    of willingness to spend compare…

    Reply
    • Cognitive Distortion

      @Nicky Knight : the difference though is that with Netflix you’re only getting a handfull of movies and series, and not recent ones, where with AppleMusic or Spotify , you’re getting ALL the music made in the world made since the dawn of recorded music.
      How can that be perceived as having less value ?

      Reply
    • Apples vs. Oranges

      Minor quibble: With AppleMusic or Spotify, you are NOT getting ALL the music made in the world, since the dawn of recorded music. Those services do provide a significant portion of the recorded music available within a given territory but it’s not “all the music ever recorded in the world.”

      But the bigger issue is the misguided attempt to compare music with AV, in the say the public perceives their respective values.

      How can AppleMusic or Spotify be perceived as having less value to a consumer than Netflix?

      It’s easy to understand, even putting aside the subjective intangibles.

      Audio-visual material provides a much more immersive experience. It includes visuals, dialogue and multiple levels of engagement, in addition to providing music, as well. It is a far more engaging experience for many consumers. One that they have ALWAYS been willing to pay more for, than just music.

      One can see music’s place in film and TV as a sort of proxy for it’s perceived value as a stand-alone product, in the marketplace. It’s just one – often imperceptible – element that is used to support the greater AV work.

      Reply
    • Versus

      Not exactly a fair comparison. Netflix has limits for that price: many current releases of TV shows and movies are not available until much later, sometimes a year or more later. So if you want the TV show or movie sooner, then you have to pay for it on iTunes or something similar, at $20-30 per TV season, $5 or more to rent a movie, much more to own it.

      Meanwhile, Spotify and Apple Music have most new releases immediately at no extra charge.

      Again, the answer is tiers. You get what you pay for: Pay more, get more plays/month, more access. Pay less, get less plays, less music access (maybe delays for new releases), more ads.

      Reply
    • Versus

      “But ten bucks a month for an audio streaming service when you can get Netflix with unique and original audio/visual content for about the same price.. suddenly audio-only doesn’t look to be such a bargain after all..”

      OK, then don’t pay, and do without the music. Or go with other legitimate options, like buying music and owning what you really love, which allows you to play it as much as you want on your own terms.

      Reply
      • Question

        Why isn’t ad-supported steaming a “other legitimate option”?

        Because YOU think it doesn’t pay “enough”?

        Reply
  6. Nicky Knight's thoughts..

    I think the answer is to charge less ..
    by the way.. iTunes (& Apple Music) has a lot of music content that isn’t available on Spotify.. they’re not all equal as someone suggested..

    Let’s consider the numbers of people who are actually paying for a monthly audio streaming service on the two main platforms..

    Apple – according to statista.com around 15-17 million
    Spotify – according to statista.com around 30-40 million subscribers

    Populations of 1st tier western Countries

    USA ~ 319 million
    CAN ~ 35 million
    UK ~ 65 million
    AUS ~ 24 million
    NZ ~ 4.4 million
    Total 448.4 million
    So what would a good commercial figure be with this sample mix of countries

    Reply
  7. here I go

    Here’s an interesting scenario – just suppose a hacker does a super-massive DOS
    attack on the servers of YouTube rendering it useless and does the same on Spotify
    free-tier… and they were out of action for a whole month.. (yes it would need more than just a DOS attack..) anyway..

    What would happen to iTunes download sales and Apple/Spotify paid streaming subs when there’s no free music (via YouTube/Spotify) on the Internet..

    The real killer of consumer-direct-paid music consumption is the fact that so much is being given away virtually for free already..

    Reply

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