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Want More Paying Subscribers? Then Lower the Damn Price!

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That’s the recommendation of Alvarez and Marsal, a turnaround and restructuring firm that is now taking a very close look at subscriber problems in the United Kingdom and Germany.  And the conclusion?  If subscription services like Spotify simply lowered the price, they’d start to (a) gain more paying subscribers, and (b) generate a lot more incremental revenue.  “Despite music streaming’s huge popularity, no independent streaming providers have been profitable to date,” the report bluntly assesses.

“There are a variety of reasons for this, including high royalty fee payments to music labels, the immaturity of some entrants into the sector, and the low conversion of consumers using the free service offerings from providers to becoming paid subscribers.”

So, sell the Mercedes for half price?  Exactly: in the report, Alvarez notes that British and German streaming subscribers are actually paying more than double what Americans pay on average, even though it sort of looks the same.  “The standard subscription costs across the countries are $10 in the US, £10 in the UK and €10 in Germany,” the report continues.  “Taking into account the exchange rate and the level of disposable income in each country, US customers are actually paying less than half for streaming media than their counterparts in the UK and Germany.”

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The recommendation comes ahead of a looming financial iceberg for streaming music services (and one that only Digital Music News seems to be discussing).  Spotify, the clear market leader, is now subsidizing unlimited free accounts worldwide with hundreds of millions in financial backing, a move that could mint overnight billionaires on Wall Street but may be doing little to secure a long-term, sustainable financial future.  Others, like the financially-struggling, Rdio almost have no choice but the follow suit with free offerings of their own.

The giant problem here is that ad-supported doesn’t support much of anything.  But, who says that dropping the price will work?  Actual research surveys conducted by Harris Interactive, that’s what, and a core component of the Alvarez analysis.  Harris polled roughly 3,000 users across the 3 countries, and found that 40 percent of non-subscribers felt that pricing was simply too high.  “These findings are corroborated by a separate survey conducted by Bloom.fm in the UK, which found that 84 per ent of consumers think the typical cost of £10 per month is too high,” Alvarez continued.  “Particularly as the majority of those polled listen to fewer than 200 tracks per month.”

So, what isn’t too high?

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Comments (40)
  1. Anonymous

    All the people who weirdly focus on per-stream payouts aren’t going to be happy with this.


    Reply
    1. Anonymous

      … though it is ECON101-level supply/demand


      Reply
    2. Yves Villeneuve

      This approach cannabilizes CD and MP3 sales. Why should we cater to fans who infrequently listen to music and give an unnecessary huge price break to frequent listeners? Sounds like voodoo(dumb) economics to me. Why not charge based on how much music one listens so we can optimize revenues and profits more effectively?

      This study is another attempt to devalue music for unrelated corporate profits.


      Reply
      1. Me

        Everyone keeps talking about this or that devaluing music. What exactly is the value of music? Are you coming from an economical standpoint? If so, then the value of products will fluctuate based on supply and demand. If there is higher supply then demand for something, then its value will be pretty low. If you want to increase the value, you have to increase the demand.


        Reply
        1. Yves Villeneuve

          Valuation is based on financial considerations which encompasses things like emotional value.

          A problem with the current low financial valuation of music is the widespread ease of online piracy with little consequences. Take this out of the equation and music valuation will return to normal(higher than it is today). Please don’t try to justify theft if this was your next argument.


          Reply
          1. FarePlay

            This argument that the consumer creates the value is ludicrous. Value is created through marketing and this is the exact reason music is in the toilet.

            You tell people stuff is free for long enough, believe me, you have a serious problem. First it was Free File Sharing, now it’s free streaming. When people stop listening to music, then the customer determines the value of music.

            Until then, it is just an epic failure in branding and marketing. Like them or not, Beats Headphones is a perfect example and probably the reason why Beats Music is taking a shot at promoting paid subscriptions right up front. And makes me believe that Beats Music actually wants to create a viable business. Sirius, Netflix, HBO and Hulu prove that it can be done.


            Reply
              1. FarePlay

                Netflix just reported $48 m earnings for the last quarter and that’s US only. They’re expanding to Sweden, got love that, and France. Obviously, they will be global and they will be a money machine. To your point, they don’t much for content either.


                Reply
              2. FarePlay

                GGG,

                I’m quoting from the CNN link you posted. They didn’t lose money they made money; Netflix made $48m in their last quarter.

                Netflix’s revenues were $1.2 billion in the quarter, up from $1.1 billion in the prior quarter, reflecting gains during the holiday season. Its net income was $48 million, up from $32 million.

                But let’s look at this relatively small profit number to understand the impossibility of Spotify being profitable. Netflix did this with 40m PAID subs. Spotify has less than 7m PAID adding just 1 million last year. And now they have Beats Music to contend with? Spotify is a spoiler, not an innovator. We can thank them for opening the door to unlimited total access that other services now feel compelled to copy and labels seem willing to comply.


                Reply
  2. cjhoffmn

    I love seeing some real data. Paul is the report out there some where so we can see more details?

    A conclusion from this simply might be that streaming simply doesn’t work as a business model. It simply might be that you can’t make enough revenue because while consumers might want the access model they might not be willing to pay enough for it to make it work. Not hard to believe given that they can get music for free because its so easy to pirate.

    We can hand out CD’s of music on the subway and charge $.05-.15 a CD. I bet we’d get some takers too, but I don’t think it would make much sense – most likely we wouldn’t get enough takers to over come the costs. Lowering the price to $.01 probably wouldn’t increase the number of takers or total revenues to overcome the price discount either.

    It’s probably better not to try that technique – and I see that as one interpretation from this data… Sure, lots of people may want streaming, but if you can’t profit by delivering it to them, then its a bad business idea…


    Reply
    1. Yves Villeneuve

      Take this study with a grain of salt. The author’s goal is to increase profits of streaming companies yet the study focuses entirely on revenues.


      Reply
  3. Ostrich

    A useless study as it gives no consideration to cannibalisation and the revenue impact on CD and download sales.


    Reply
  4. Bandit

    So the solution is to become like cable or cellular subscription pricing.

    Have the customer agree to a year or more contract then start low and after a month or two slip in some hidden charges and then continue to raise rates incrementally and hope the customer is to lazy to switch.


    Reply
  5. TuneHunter

    ….and then what?

    25 billion dollar business in 2025? You have to remember that inflation adjusted 1999 is 56B today!

    Let’s have some honor and roll up the sleeves and create discovery based 100B industry by 2020.

    We got all resources to do it lets just assign proper duties to proper players.


    Reply
  6. Danny

    Interesting arguments brought up by the comment section…do we focus on corporate profits to signal the music industry is healthy? Or do we look at financial well-being of the middle class artists?

    Lower rates == more subscribers == higher corporate profits (Wall Street is happy!), but no consideration is given to the artist struggling to get people to buy their album on itunes or purchase their CD…”Why would I buy that? I get all the music in the world for $10 / month! And it’s dropping to $5 soon!”

    Streaming should not be the focus point for a healthy industry. Instead, let’s watch how artists transition to direct-to-fan models and managing their own digital experiences and subscription services.


    Reply
    1. cjhoffmn

      This makes sense to me.


      Reply
  7. Beats Muzic

    Norwegian music sales up 11% in 2013 thanks to streaming

    Tota recorded musicl: $98 million

    Streaming: $64 mil
    Physical CD: $12 mil
    download: $22 mil


    Reply
    1. steveh

      Your point is meaningless because Norway is but a microscopic speck in the world music market compared to major markets like USA, UK and Japan.


      Reply
      1. TuneHunter

        It is also full focus well fertilized showpiece of Spotify.


        Reply
    2. Yves Villeneuve

      That’s fake streaming success. Those subscriptions were acquired through telecom bundles and 90% of these are inactive but continue to pay the subscription monthly fee. Meaning Norwegians registered to try out the music service but never returned.


      Reply
  8. Rdio

    Where is all the outrage for Beats Music $3 a month? $15 for 5 subscribers on a family plan = $3 per subscriber.

    If Spotify does this with Verizon or Sprint or T-Mobile offering $15 for 5 subscribers on a family plan, people would be up in arms. But Beats Music does it, everyone is fine with it?


    Reply
    1. Yves Villeneuve

      Spotify sells the Premium subscription through telecom bundles at 1 Euro per month. It would try the same in the US at $1 per month. The cost is embedded in the monthly mobile/Internet access fee.


      Reply
      1. FarePlay

        Now that I know Beats Music offers full, uncurated access, they are on the shit list.


        Reply
  9. Realist

    Maybe this is not what DMN readers/commentators want to hear but isn’t the customer always right? Pre digital music business economics worked by selling a highly priced product to a relatively small audience. Most people never bought more than a few CDs per year due to the expense and/or interest. The beauty of streaming is that you can massively increase the amount of existing and potential music consumers if you get to a price point they can bear (value) – as borne out from this report. What is holding back the revenue opportunities of the music business are the very people running it, who are attached to an antiquated business model. Lets listen to the consumer or they will continually opt for free. Just think of the revenue that could be generated if we can get the subscription price right in places such as China, India, SE Asia. If not the music industry will always remain a small parochial North American/European concern.


    Reply
    1. steveh

      I am a customer and I demand to buy a new Rolls Royce for $500.

      Does that make me right?


      Reply
      1. Anonymous

        “I am a customer and I demand to buy a new Rolls Royce for $500″

        :)

        Why pay at all? Cars want to be free. That’s why they’ve got wheels.


        Reply
      2. Realist

        You may find a second hand one for $500.


        Reply
        1. Yves Villeneuve

          You call yourself a realist?


          Reply
        2. steveh

          I am the customer and I demand a new Rolls Royce not a damned second hand one!

          I am the customer and I am right.

          Here’s $500 – Where is my brand new Rolls?


          Reply
          1. cjhoffmn

            They are working on figuring out how to stream them now…


            Reply
      3. 3D Printing Enthusiast.

        If you could replicate a Rolls Royce for a cost of, more or less, 0, then sure, you’d be right. Actually, you’d definitely be overpaying.


        Reply
  10. Bill Rosenblatt

    People claiming, in a research study, that they will buy something of the price is lower than it happens to be now. How many times have we heard this before? It was b.s. before and it continues to be b.s. now.

    The solution is not to just lower the price. It’s to experiment with different offerings at different price points.

    If the former is the only conclusion that these guys reached, then the study isn’t worth the paper it wasn’t printed on.


    Reply
  11. Adam

    What a bunch of misdirected morons on this study. If you’re telling me that the difference between getting someone to hand over their credit card or not is the cost of one box of cereal per month or a few McCrapburgers then you are one stupid idiot. $5 per month is not enough to change the mind of an American who is not buying streaming. The idiocy is mostly on the part of the streaming services. You don’t need to make it more free, you need to make it less free. If it can be free, people will not pay. The moral side of society is much smaller than the non-moral side. This is not a matter of $5/month, its a matter of ideology and generations that grew up with free instead of paid.


    Reply
  12. hippydog

    What this “study” basically came up with is to lower prices to hopefully get more subscribers..
    not taking into account all the other issues that are are blocking more subscribers and revenue in the first place..

    1.) Walmart mentality:.. You know how Walmart makes profit? They purchase in bulk, and THEY HAMMER THE MANUFACTURER INTO LOWERING THEIR PRICES.. you know whats going to happen if any streaming service becomes the main music outlet for the people? Thats right, those payouts are gonna be renegotiated and lowered.. Walmart mentality

    2.) Value: Streaming services are competing with the free market of bittorrent, and terrestrial radio with its huge built in infrastructure..
    How many business start up and say “I’m gonna compete with Walmart 1 on 1!”.. Must business owners see that as biz suicide.. You know what does work? Go upscale, provide a niche serves with HIGH VALUE.. Make your product the best, and CHARGE MORE..
    thats the solution they should be going after, the streaming services should be competing on being the BEST, not the cheapest.. PROVIDE BETTER VALUE!

    3.) advertising revenue: Everyone keeps saying that the streaming services cant generate revenue via adverts.. I think its because they simply are not doing it right.. for one, they need to be able to have specific focused ads (by area, by age, etc) like Facebook and Google can, This is the major advantage online ads have over Radio and TV, if the streaming services can not TARGET SPECIFICALLY the people the advertisers want, then their potential advertising revenue is slashed to a minimum..


    Reply
  13. Joshua Hall

    The problem isn’t the price. If people value the service they will pay for it. I don’t value cable television – I don’t pay for it. I didn’t renew my annual membership to Spotify (it was a gift) because I didn’t see the value in it. Some people Donate to Public Radio, why? Because they value it. I imagine certain folks really value the Rolls Royce. People see a value in Netflix, HBO, HULU. People are willing to pay 99cents for a song – people will spend $25 – $50 for a Vinyl Release of an album you can find in the CD budget bin for $5 – why? —-VALUE ADDED.

    Paying for streaming is like paying for radio – a music listening service – and most people (not public radio listeners or satellite radio folks) have never paid for radio – so why start now. The streaming companies need to figure out what the Value of the their service is – how it is unique and why do people “need” it.

    peace.


    Reply
  14. Bleh

    $9.99/ month is too much? That’s less than the price of ONE album. The people complaining don’t deserve music in my opinion. Everything can’t be free. Get off your high horse. How long before another writer’s strike? It seemed to work in the forties..


    Reply
  15. Dunedinmusic

    I don’t think any of us want to be on a race to $0, but when the majors created freemium as a response to something they had no control over they set this in motion.


    Reply
  16. indigoloryn

    $10 a month isn’t a lot to someone who spends at least that much on buying albums each month. If music streaming services lower the price on the subscriptions, then they’re also lowering the expectations for the cost of music in the future. If we keep lowering prices, then eventually, the music will be free anyway. I think streaming services should hold their ground and wait for the public to adapt to them rather than adapting to the public. The market will balance out eventually.


    Reply

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