The Price Ceiling For Music


Most streaming services keep their price fairly low—Spotify, Apple Music, and Tidal have all set the bar at $9.99 per month—which, considering what comes with that subscription fee, isn’t actually too bad. That may be the case, but for many people, it’s still more than they want to pay. The IFPI (International Federation of the Phonographic Industry) reports that at the height of the music business in 1999, the average music-buying person in the world spent around $64 on recorded music per year. Re/code points out that the $64 figure is only taking into account those who actually bought music. When adding in the millions of adults who never contributed a dime to the industry, that figure goes down to a surprising $28 per person.

That $64 figure was at a time when people had to spend a premium to get the music they wanted. There was no iTunes, and even singles could cost several dollars. If a person was a fan of a certain artist, they were much more likely to rush out and purchase the album before the creation of digital downloads and online piracy. Now that we’ve gone to the end of the spectrum where songs were $0.99 and nobody needed to purchase an album, it’s tough to convince many to fork over $120 a year—twice what they were paying just a decade and a half ago.

I feel a stumbling block is the burden of presenting streaming services in the context of traditional formats (singles, albums, featured artists). The author above notes that $10 “isn’t actually too bad” considering what one gets, and I am sure he’s referring to the convenience, the wealth of choices, and (depending on the service he’s using), a ubiquitous access to the music. These points should be stressed so much more by the services rather than available artists and albums … and we’re starting to get there. Though Netflix is now pitching original content, initially there weren’t specific examples in their offering that were pushed to get folks on board. What sold it was the overall concept, its library in total that was assumed to be massive, and the convenience of loading up a new movie at any time. The value for the service was perceived by many as appropriate to its fee. Of course, movies are very different from music (with movies seen as more valuable), and pricing them equally – or not, as Netflix right now is $7.99 a month – may be problematic.

Linked in the piece quoted above is this interesting 2014 article from Re/Code:

So, the data tells us that consumers are willing to spend somewhere around $45–$65 per year on music, and that the larger a service gets, the lower in that range the number becomes. And these numbers have remained consistent regardless of music format, from CD to download.

Curiously, the on-demand subscription music services are all priced the same at more than twice consumer spending on music. They largely land at $120 per year. This is because the three major record labels, as part of their music licenses, have mandated a minimum price these services must charge. While it may seem strange that suppliers can dictate to retailers the price they must charge end users for their service, this is common practice in digital music. The services are not able to charge a price they believe will result in maximum adoption by consumers.

My experience with the major labels when I was CEO of eMusic was that they largely did not believe that music was an elastic good. They were unwilling to lower unit economics, especially for hit music, to see if more people would buy. Our experience at eMusic taught us that music is, in fact, elastic, and that lower prices lead to increased sales. If the major labels want to see the recorded music business grow again, I believe the price of music must fall.

Getting streaming to the point where a lot more people are hooked, and artists exploit this using their own independent revenue streams, is sounding like the place to be.

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