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.”
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?