streaming prices
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.”
Warner Music Group executive vp/CFO Eric Levin reiterated the label’s call for streaming services to raise their prices while speaking at a conference hosted by JP Morgan Chase & Co on Monday (May 22).
Levin, who worked at HBO between 1988 and 2002, told the group of investors and Wall Street analysts that, unlike streaming services, the cable network almost annually raised prices during that period because the company knew customers wanted its content enough to pay a premium.
“I think and I am hopeful now that much of the [streaming] industry has done a round of rate increases successfully…that they start to understand that the industry can bear it,” Levin said.
Levin’s comments echo WMG CEO Robert Kyncl‘s previous call to streaming company hold-outs to raise prices, delivered during a wide-ranging presentation in March that touched on WMG’s growth strategy if streaming growth slows as well as its light release schedule in the first two quarters.
An increase in music streaming revenue, the main driver behind WMG and other major music companies’ double-digit growth in recent years, is expected to decline from 10% growth in 2024 to 3% growth in 2029, according to a recent presentation by MIDiA Research. That projection, which is far gloomier than Goldman’s forecast for a 12% compound annual growth rate for streaming revenue until 2030, prompted several questions to Levin about WMG’s streaming revenue expectations and how it may grow even if the streaming engine slows.
“We still have a lot of conviction that streaming has a lot of growth,” Levin said while noting that growth may come from a series of drivers.
“When we went public three-ish years ago, our growth story really revolved around subscription streaming,” he said. “Now … it includes ad-supported streaming [and] emerging [sources] of streaming, social, fitness, gaming, etc. So the facets of growth have really diversified.”
The industry has seen steady growth in subscription streaming since roughly 2015, and growth in that area remains present in all economic forecasts, Levin added.
Other revenue drivers like ad-supported streaming, he continued, are more impacted by “cyclicality based on slowdowns when the economy slows and rapid recovery when the economy is solid.”
Emerging sources of streaming revenue, such as from social media and short-form video apps, have significant growth potential, Levin said, because “you have potential for multiple products per person in a home — people have multiple social media accounts in one home.”
This month, WMG reported its second straight quarter of basically flat recorded music revenue, driven by a slower first half of the year for music releases. Recorded music streaming revenue declined nearly half a percent from the prior year due to the light release schedule.
Pressed to provide greater detail around why the company is experiencing a modest release slate this year, Levin said the May 5 release of Ed Sheeran‘s – (pronounced Subtract) is expected to be the first in a slate of upcoming releases by prominent artists — and indeed, the company is already showing signs of a second-half rebound. Still, he acknowledged WMG has lost ground to its competitors.
“We lost a little bit of momentum, but we fully expect to get it back,” Levin said.
For years, the major labels have been clamoring for streaming services to raise their subscription prices. The publicly stated position of leadership at Warner Music Group and Universal Music Group is that music is undervalued, in part due to artificially low subscription rates. Warner Music CEO Robert Kyncl was recently quoted as saying “We are the lowest (cost) form of entertainment; we have the highest …engagement, highest form of affinity and lowest per hour price. That doesn’t seem right. It should change in an orderly fashion.” As I noted in an April Billboard article looking at both sides of the issue, it’s astounding that I pay about the same amount for my monthly streaming subscriptions as I did for Rhapsody in 2003 — between $9.99 and $10.99 per month. Although Apple and Amazon recently raised prices, even those prices fall below the Rhapsody benchmark of $9.99 per month set in the early aughts once adjusted for inflation. There’s a strong case for price increases.
What if this thinking is wrong, though? Are there reasonable arguments for leaving prices where they are?
In the US music streaming subscription penetration is relatively high, at 41% of internet users over the age of 13. Many who might subscribe have access through family plans while some share account log-ins. Overall about 50% of internet users have access to a paid on-demand subscription music service through direct payment, sharing or trials and that number is even higher if you include SiriusXM.
These statistics are important for two reasons. First, they demonstrate that there is more room to grow music subscriptions in the US. They also reveal an underlying demographic divide. The half without access to on-demand services are older (59% over age 44), less invested in music and likely to be more price sensitive than earlier adopters.
Research that MusicWatch conducted on the economy and music highlighted that younger fans are more stressed about their personal financial situations as well as inflation. Respected music analyst Mark Mulligan of MIDiA Research noted that helping subscribers through difficult economic times might create goodwill for audio services. And he might have a point, especially for the younger demographic who make up a large part of the current subscriber base.
We need to be clear about how this price argument might apply to different consumers. Would services raise prices for current subscribers, who already rate the offer quite highly? What about new subscribers? As pointed out earlier, there is still growth to be had for subscriptions. In the U.S., trials are the primary feeders to paid subscriptions. According to MusicWatch’s Annual Music Study, released in March 2023, the likelihood of moving from a trial to a full paid subscription is slowing. The number one reason triers don’t expect to convert is “I’m watching my money more carefully due to inflation.”
For years the main barrier to converting from a trial to a full subscription has been not using the service often enough. According to MusicWatch surveys, subscribers to paid on-demand services spend 26% more time streaming music than people who are on a trial. They also consider music more important..They are nearly twice as likely to spend money on things like concert tickets, vinyl records CDs and merchandise. And keeping prices low could be more attractive to these potential subscribers now sampling the service through a trial.
There’s also a strong case to be made for increasing audio subscription prices, of course. Stagnant rate adjustments, high loyalty and usage, and outstanding value suggest that reasonable increases would meet modest resistance, if any at all. Those of us with long histories of paying for music subscriptions and passion for our favorite services are unlikely to churn out.
The question is not whether we can grow “ARPU” among current subscribers. It is whether the services can raise prices and continue to grow the subscriber base in the US, especially since that growth would come from later adopters who are older and less committed to music. There are segments of music fans struggling to manage inflation. That may argue for maintaining low prices. It could also argue for a SiriusXM-style strategy that combines low introductory prices with increases upon renewal. Whatever the argument, these questions should be resolved by testing, not proclamation.
Russ Crupnick is the principal at market research firm MusicWatch.
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