Pricing
Free music streaming shouldn’t be so free, Rob Stringer, CEO of Sony Music Entertainment, suggested Wednesday during a presentation to Sony Corp. analysts and investors.
The value of paid subscription “remains incredible,” said Stringer in prepared remarks during parent company Sony’s Business Segment Meeting 2024. But recent price increases — by Spotify, Apple Music, Amazon Music, YouTube and, most recently, Pandora — have widened what Stringer called the “price gap” between free and paid streaming. Now, Sony wants streaming companies to get more from their free listeners.
“In mature markets, we hope that our partners close that gap by asking consumers using ad-supported services to additionally pay a modest fee,” said Stringer. “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. We have a shared interest in better monetization of free tiers. At Sony Music, we think everyone is willing to pay something for access to virtually the entire universe of music.”
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Free streaming provides an opportunity to attract paying subscribers but returns far less per listener than subscriptions. Even though Spotify has 62% more free listeners than subscribers, advertising accounted for just 10.7% of first-quarter revenue compared to 89.3% from subscriptions. Another round of price increases by Spotify this month in the U.K. and Australia portend additional price increases in the U.S. and other major markets. Further subscription price increases will widen the gap between premium and free streaming, and “even if advertising will become a better part of the story, it’s still a relatively small part of our overall revenue mix,” Spotify CEO Daniel Ek said during the April 23 earnings call.
Charging for ad-supported music would break from a long tradition of providing listeners with a free, on-demand streaming option. YouTube and Spotify are the two largest on-demand, ad-supported platforms that stream music. Amazon Music has a free tier with limited functionality. In the U.S., Pandora has about 39 million monthly active users for its ad-supported internet radio service that has less interactive capabilities than YouTube or Spotify. But paid, ad-supported streaming is common in the video world. Video on-demand services such as Hulu and Netflix offer low-price tiers with advertisements and charge higher prices to eliminate advertising altogether.
Sony Music also wants to extract more revenue from short-form video platforms such as TikTok that command huge audiences but provide relatively few royalties. “Premium-quality artistry drives the appeal of these services, with music being central to approximately 70% of videos created on them,” said Stringer. “These companies play a larger and larger role in music discovery and engagement amongst young listeners. More and more, these are primary consumption sources, and they need to be valued accordingly.”
Stringer, who does not comment during the parent company’s quarterly earnings calls, spoke and answered questions for 40 minutes about Sony Music artists, chart successes, growth opportunities and efforts in emerging markets. After highlighting Sony Music’s efforts in Latin America, India and China, he focused on the newest — and most vexing — technology on the music industry’s horizon. Artificial intelligence, he said, “represents a generational inflection point for music” and Sony Music will take “an active role” in creating a “sustainable business model” that respects the company’s rights.
But Stringer was clear that Sony Music is taking a hard line in the battle to shape AI in music. “We won’t tolerate the illicit training of AI models by reckless and unlicensed misuse of this art,” he warned. “We believe strongly that permission is the only way AI models can be trained with our content, and followed protocols of the EU AI act by sending over 700 letters to AI developers to opt our copyrights out of training.” Sony Music has also issued “over 20,000 takedowns of AI generated soundalikes over the past year,” he added, while working with legislators around the world “to shape policy and rights” on AI issues.
“With the right frameworks in place, innovation will thrive, technology, music will benefit and consumers will enjoy your experiences,” Stringer said. “We have prospered from disruptive market changes before so we are confident we can navigate this chapter successfully.”
Subscribers to Amazon Music Unlimited in the U.S. and U.K. will have to pay a higher price for the on-demand streaming service starting in February. According to Amazon’s customer service pages in both countries, subscribers to both individual and student plans will begin paying more starting Feb. 21.
In the U.S., Amazon Music Unlimited will increase from $9.99 to $10.99 for individual subscribers and climb from $4.99 to $5.99 for subscribers to the student plan. Likewise, U.K. prices will increase from 9.99 pounds to 10.99 pounds for individual subscribers and from 4.99 pounds to 5.99 pounds for student subscribers.
The e-commerce giant’s decision follows Apple’s move in October to charge higher prices for Apple Music as well as other cloud-based entertainment platforms and services. Apple Music also raised individual subscriptions from $9.99 to $10.99 per month in the U.S. It also increased the price of family plans, which offers up to six accounts under a single subscription, from $14.99 to $16.99 per month. Deezer, a small player in the U.S., raised the price of individual plans to $10.99 per month in 2022.
In May 2022, Amazon raised the price of Amazon Music Unlimited for Prime subscribers from $7.99 to $8.99 per month, and from $79 to $89 annually.
Spotify, the largest music subscription service, could soon follow suit. On the heels of Apple’s announcement, CEO Daniel Ek said during the company’s Oct. 25 earnings call that a U.S. price increase “is one of the things we would like to do.” Spotify has not raised its standard price from $9.99 since launching in the U.S. in 2011.
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Apple Music may have opened the floodgates on Monday when it announced that it will raise prices on its Apple Music subscription service, as well as its Apple TV+ streaming video on-demand service and its Apple One bundle of services (which includes Apple Music).
Apple wasn’t the first music streaming company to broadly raise prices. Deezer started raising prices in France in January. In May, Amazon hiked prices for Prime members for Amazon Music Unlimited from $7.99 to $8.99 (or $79 to $89 if paid annually) and for the single-device plan (for Amazon’s Echo and Fire TV devices) from $3.99 to $4.99 per month. And Spotify started testing the waters in 2021 by modestly raising prices on some plans in select markets – 46 price increases in total, according to company executives. In the U.S., the family plan price increased from $14.99 to $15.99.
But Apple’s decision to ask subscribers for more money signals a tide change and will likely embolden competitors to follow suit. Speaking during Spotify’s earnings call on Tuesday, CEO Daniel Ek strongly signaled the company would follow Apple’s lead. A price increase in the U.S. “is one of the things we would like to do,” Ek told investors, and Spotify could raise prices in 2023 after it has conversations “in light of these recent developments with our label partners.”
Prices for music subscription services have remained stubbornly low for the past decade — to the chagrin of rights holders and creators who want higher royalties from streaming platforms. Spotify launched in the U.S. in 2011 at $9.99 per month. Apple Music launched in 2015 with a standard $9.99 individual plan and a $14.99 family plan, the first of its kind to offer up to six subscriptions per account for $14.99. Spotify, Tidal, Amazon Music and the now-defunct Google Play Music followed with equivalent offerings in the following months. Family plans resulted in a lower average revenue per user but helped reduce churn, Spotify has said repeatedly, and has increased the average subscriber’s lifetime value. Those gains obviated the need to raise prices and allowed Spotify and others to focus on growth instead.
Apple and Amazon certainly had incentive to raise music subscription prices. Apple Music and Amazon Music Unlimited offer high-fidelity audio as a standard feature even though licensing deals with record labels for premium audio are more costly for streaming services, according to industry sources. Unless Apple and Amazon raise prices to offset the lower margins, they must eat the higher costs associated with offering better audio quality. Spotify, on the other hand, does not yet offer high-fidelity audio. Plans for just such a product, called HiFi, have not materialized after announcing the project would come out in 2021. Recently, the company has been surveying customers regarding a more expensive package that would include HiFi, as well as other products.
But now Apple has effectively given its competitors cover to raise their prices, too — whether they offer high-fidelity audio or not. Deezer already planned to raise prices in the U.S. and Germany this month and in Brazil in December. Still, its competitors’ decisions to raise prices “makes us more competitive,” Deezer CEO Jeronimo Folgueira said during Friday’s earnings call, and “opens the door for further prices increases down the line.”
Spotify certainly appears confident it can charge more. Thus far, its price increases had results “as good as we would have hoped for,” said Ek said during the earnings call. “We believe we have significant pricing power and we’re offering an amazing consumer value proposition.” Other metrics seem to have convinced Spotify the time is right to raise prices: engagement continues to increase, and Spotify has “the lowest churn of any competitor,” according to Ek. Put another way, Spotify thinks it can raise prices without fear that a significant number of people will walk away.
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