Goldman Sachs Acknowledges Paid Streaming’s ARPU Falloff, Predicts Additional Price Increases and Superfan Buildouts

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Photo Credit: Henry Be

A little over one month after issuing an optimistic revenue forecast for the global music industry, Goldman Sachs has acknowledged a steep falloff in paid streaming’s average revenue per user. However, the entity has also touted the perceived potential of further price increases and superfan-marketed offerings to drive continued growth.

Goldman Sachs just recently touched upon the ideas in an analysis of the “major structural change” that it believes is forthcoming for streaming services. For reference, late June saw the Fever investor predict $92 billion in worldwide music industry revenue for 2023 and $151.4 billion in revenue for 2030.

While the astronomical sums reflect income estimates for recorded music, publishing, and live shows alike, it goes without saying that a strong commercial showing from streaming is a must if the predictions are to prove accurate.

Bearing in mind the points, Goldman didn’t hesitate to claim in its initially mentioned analysis that “the average revenue per user (ARPU) on paid streaming music services has fallen by 40% since 2016.”

“The decline in ARPU has occurred as streaming services such as Apple Music and Spotify have introduced family plans, lowering prices for bundled users,” Goldman proceeded.

Though family plans are of course less expensive in terms of their per-user price, it should be highlighted that subscriber costs (including for individual listeners and multi-user accounts) vary dramatically by market. Factoring based upon current exchange rates, Spotify’s family plan costs only $2.59 per month in Egypt and $7.26 per month in Brazil, for instance, against $13.74 in Australia, $16.99 in the States, and $22.88 in the United Kingdom.

Meanwhile, Spotify reported having 52 million “premium subscribers” as of Q1 2017, compared to 220 million subscribers as of Q2 2023. Between Q1 2018 and Q2 2023, the combined paid-user share of Rest of World and Latin America increased by four percent.

In any event, despite the fact that it took a number of years to up the pricing of streaming services’ individual plans in the U.S., Goldman is banking on additional cost increases to heighten revenue.

“We believe that such price increases are not just a one-off,” spelled out Goldman’s Lisa Yang, “and we would expect the industry to work towards implementing price increases on a recurring basis, especially in an environment of higher inflation.”

Lastly, echoing comments that major-label CEOs have made multiple times on the year, Goldman expressed the belief that streaming offerings tailored for superfans “could be a $4 billion opportunity” by 2030.

Expanding upon this position, the entity also addressed the shortcomings of the pro-rata compensation model employed by nearly all streaming services, which distribute revenue as a portion of total (platform-wide) streams.

“Listening to a 31-second song by an independent artist, a full 3-minute song by a popular artist, and 5 minutes of the sound of rain are all treated equally,” wrote Yang, presumably without thinking twice about insinuating that indie acts cannot be popular and are in the habit of releasing 31-second songs.

A user-centric model could be a viable replacement, Goldman claimed, as could “a more flexible artist-centric model that seeks to distribute payouts based on the value an artist creates and provides for the platform.”