As Subscription Streaming Dominates Revenues, Free Music Is Coming Under Pressure
Written by djfrosty on May 31, 2024
This week, Sony Music Entertainment CEO Rob Stringer called on streaming companies to charge a “modest fee” for ad-supported streaming. “This would help develop this segment of the streaming business to be more than just a marketing funnel for paid subscription and still be a tremendous value for users,” he said during parent company Sony’s business segment presentations on Thursday.
Stringer’s comments didn’t come as a surprise. In March, after the RIAA released a report on the U.S. recorded music market in 2023, Billboard asked if record labels had become too reliant on subscription services for their revenues. With consumers proving willing to pay for rising prices, free streaming options aren’t producing the royalties to match their popularity.
Now, there’s evidence that subscriptions could become even more important for record labels, music publishers and creators.
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This month, Spotify levied additional price increases in the United Kingdom and Australia on top of a global price hike in July 2023. An individual plan now costs 11.99 pounds in the United Kingdom, up from 10.99 pounds, while a family plan was raised to 19.99 pounds from 17.99 pounds. Spotify has not announced a second wave of price increases in the United States and other major markets, but it’s reasonable to assume the United Kingdom and Australia won’t be alone.
The major labels have welcomed these price hikes as streaming’s importance to their bottom lines continues to increase. In the United States, subscriptions accounted for 59.3% of total recorded music revenues in 2023, up from 57.8% in 2022. Globally, subscriptions accounted for 48.9% of recorded music revenue in 2023, according to the IFPI, up from 48.3% in 2022.
Spotify and other platforms could soon offer a high-priced tier for superfans that would make subscriptions an even more valuable component of the music industry. Spotify first mentioned the possibility of “superfan clubs” in an online post in January. The next month, CEO Daniel Ek listed “superfan things” — as well as audiobook sales — among the products Spotify could offer if Apple did not take a 30% cut of in-app purchases.
In April, Michael Nash, Universal Music Group (UMG) executive vp of digital strategy, said during the company’s earnings call that internal research suggests 10% to 20% of subscribers would be willing to pay extra for a “super premium” tier. Nash wasn’t just thinking out loud: Given how carefully public companies choose their words, it stands to reason that he and other UMG executives are encouraging streaming companies to explore ways to offer an elevated service at a higher price.
Recent subscription price increases could be just the beginning of the sort of regular, ongoing price appreciation already seen in the video streaming market. Warner Music Group CEO Robert Kyncl said on the company’s May 9 earnings that call that it “will continue to advocate for further increases” and “ensure that the value that music provides to these platforms is properly recognized.” Reservoir Media CEO Golnar Khosrowshahi said during the company’s earnings call on Thursday (May 30) the company expects “a regular cadence of price increases” from streaming services.
Subscription price appreciation has put free streaming in a poor light, however. As streaming services have been raising prices, a weak advertising market has made free streaming even less valuable. Free streaming isn’t without value — it provides an opportunity to convert listeners into paid subscribers, just as marketing campaigns do. But labels clearly aren’t content with free streaming acting as a means to attract subscribers.
Goldman Sachs actually beat Stringer to the idea of charging for ad-supported music streaming. In the latest Music in the Air report released in early May, its analysts recommended an “advertising light tier for a small charge” as one way of evolving the ad-supported marketplace and floated the idea of using “content or feature restrictions” to make free, ad-supported streaming tiers a less attractive option, thereby pushing free users to a paid tier.
Concerns about free streaming carry over to short-form video platforms such as TikTok. While TikTok is a powerful promotional vehicle, the royalties it generates for rights holders and creators isn’t commensurate with the time people spend on the app. As Stringer said this week, short-form video platforms “are primary consumption sources and they need to be valued accordingly.”
Free options have their place in the marketplace. After all, not everybody is willing or able to pay for a premium service. Mass market products like broadcast radio exist because they are free to the end user. But free music could come under pressure in the coming years. And between additional price increases and possible superfan tiers, combined with overall weakness in ad-supported streaming, subscriptions are poised to command an even larger share of the industry.