[UPDATED] It wasn’t that long ago that the music industry was experiencing its worst slump ever, with streaming seen as a dubious alternative to physical sales. Fast-forward and streaming revenue accounts for 75% of label income. But how will this growth change the medium of streaming itself?
______________________________
Guest post by Bobby Owsinski of Music 3.0
It seems like yesterday that many pundits were scratching their heads about how the music industry could ever reach 100 million paid streaming music subscribers, yet here we are knocking on the door of twice that and more. In fact, Futuresource Consulting has predicted that those subscription numbers will reach 235 million by the end of the year. What’s more, the company goes on to forecast that the number of global paid subscribers could even reach as high as 350 million by 2022.
All this is music to the ears of the music industry, which is finally basking in cash again thanks to that new streaming revenue. As you may or may not recall, many experts had foretold that streaming income would never make up for the decline in physical sales revenue, yet here we are with ear-to-ear smiles all around growing wider by the day. But could this growth also lead to unforeseen changes that might temper the expectations of ever higher profits?
Maybe The Price Isn’t Right
Streaming’s revenue growth is led by the iron-clad prices of $9.95 per month for a single subscriber and $14.95 per month for subscribers to a “family plan.” There’s some wiggle room here but not much, as prices are adjusted for cheaper student plans and different markets, but the fact of the matter is that sooner or later a paying customer is going to be paying the equivalent of $9.95 (or even more as in the case of satellite radio) as dictated by major label licensing agreements.
The voices inside the industry have always said that real over-the-top growth won’t come until the price comes down to the $4.95 area though. The major labels have been able to hold the line on this and keep the prices stable at 10 bucks a month since they hold the keys to the catalog, but one has to wonder at what point the growth is going to slow enough to have the powers-that-be rethink the standard price points.
There may soon come a day when the only way to spur any significant growth is by lowering prices to that almost mythical $5 area. I’m sure any decision will come reluctantly, and if history is any indication, probably way past the most opportune time.
The New Piracy
The new piracy isn’t so much from stealing but deception, and it’s beginning to happen already. It’s what I like to call “subscriber leak” and it means that people are signing onto a family plan even though they’re not part of a standard nuclear family. Spotify has already begun to take steps to shore this up by requiring all members of a family plan to live at the same address, but that brings up a load of new problems in that it assumes a “traditional” family. What happens with a broken home when one spouse pays for the plan but the children live at a different address with the other spouse? What happens with kids away at school who obviously won’t live at the same address?
While these are indeed problems, the bigger one is when someone subscribes to a family plan and then provides the “family” passwords to friends. With a typical family plan of 5 members, that means that each gets a subscription for only $3 per month. A $5 per month tier begins to look a lot better through these glasses.
An Unforeseen Subscriber Leak
What isn’t being counted on though is the fact that many paid subscribers who are in prime listening age now will soon graduate from their fanatical listening periods to adulthood. At around age 27 or so, jobs and family commitments begin to take over everyday life and music falls down the priority scale of attention. Will a whole generation of Millennials decide that the paid tier of their preferred streaming service is no longer required for their current lifestyle, or that the current paid subscription is one bill too many, and decide to downgrade to the free tier?
Get enough of that happening and streaming growth is bound to be stunted both in revenue and listening time.
To be fair, there’s no evidence that mass subscriber downgrades will happen, but it’s a fact that users do hit a consumption wall in their late 20s. To my knowledge, there isn’t any actual data on downgrades and age yet but maybe we’re early enough in the game that no one’s thought to begin measuring that data point.
So the happy days are here for both streaming services and the music industry and every indication shows that the trend will continue for at least a few more years. As this segment of the industry matures, there’s bound to be a new set of circumstances that will influence growth, perhaps in a negative way. It pays to think ahead now.