How I Listen

Is There A Streaming Music Ceiling?

1There's been quite a bit of excited talk lately about how much paid subscriber growth both Apple Music and Spotify have seen, but the reality is that these numbers only represent a small percentage of the music buying public, something which highlights greater underlying issues with paid streaming.


Guest post by Cortney Harding

Based on recent numbers, it seems streaming services are on the march to domination. Apple Music recently announced that it had 10 million paid subscribers worldwide; Spotify reported 20 million worldwide in June and is rumored to be north of 25 million currently. It all sounds very impressive, until you step back and realize that of all the potential music consumers out there, paid streaming has only captured a small fraction of them — and while those subscribers now will probably continue to grow, they’ll eventually hit a ceiling.

The truth is that streaming services don’t make economic sense for the vast majority of music consumers. According to research recently released by Nielsen, the average music consumer spends $153 a year total on all forms of music consumption — and half of that goes towards seeing live music. At $120 a year, paid streaming just isn’t a good value, especially when free options like YouTube and ad-supported Spotify exist. The same research found that 78% of those surveyed were unlikely to subscribe to a streaming service in the next six months, and half of those cited the cost of the service as their reason for choosing not to do so.

The future is beginning to look like it will be a two tiered system — the top group of music fans will pay for streaming and everyone else will buy a handful of albums a year. Think of all the people you know who bought the Adele album, and I’ll bet that for many of them, it was the only album they bought this year. Many of these consumers aren’t all the interested in what streaming can offer them — they are content with hearing new music on the radio, buying one or two albums a year, and perhaps seeing one or two concerts.

For major labels in a post-Napster world, this is as close to an ideal situation as they can get. There are rumors that the labels are trying to limit the number of services in the market — I’ve heard that they’ve started denying licenses to some potential entrants, and the potential entrants are big companies, not fly-by-night startups. By creating the streaming services, they’ve essentially solved piracy — for a music lover, the relatively low cost and high quality of Spotify or Apple Music is a small price to pay for not having to deal with the hassle that comes from using pirate sites. We tend to forget that Napster, as revolutionary as it was at the time, was a pain in the ass to use — downloads took ages and you often got the wrong song (or worse, a virus). Labels got sweetheart deals from the services and realized that they could at least partially regain an audience that had been lost to them.

But the middle-aged woman buying the Adele CD at Target was never downloading music to begin with. In fact, her music consumption patterns probably haven’t changed since the nineties — she bought a few albums a year then, and she buys a few now. But for the labels, that’s not much of a change in terms of revenue — the casual base that buys a few of the big hit albums every year is still there.

In this world, it actually makes more sense for Taylor Swift and Adele to put their music on paid streaming services, as they likely won’t lose all that much in terms of revenue. If you’re already paying $120, you might be hard pressed to spend more on one album, so arguably those artists are losing out on some revenue that they would have otherwise seen from streaming. The issue is that streaming services are taking a hard line against windowing content for paid users only, and the Swifts and Adele’s of the world would likely lose revenue if their albums were on the free tiers as well.

The ones who lose out in all of this are the 99% of artists, the ones whose fans previously would have bought CDs but have largely migrated over to streaming. Undoubtedly, streaming has enabled passionate music fans to discover and hear more new music — but it hasn’t done a great job enabling those artists to monetize it in a way that makes up for lost revenue from the CD-only era. It’s better than the piracy days, but not by much. Paradoxically, one of the solutions would be to drop the price of streaming services and get more users on board, or to strike deals with carriers to include music streaming as a line-item on a bill and something that has to be paid separately. The problem with that is that majors would revolt against the loss of the casual fan revenue that currently goes to CDs and many indie artists have shown an unwillingness to even consider advocating for lower prices.

So, we’re stuck. There’s a fundamental price/market mismatch for the vast majority of consumers, and no one knows how to solve it. Artists can talk about the value of music all they want, but the average consumer seems to have already set their value — and it’s lower than most would like. At their current price, streaming services will draw a limited number of people, but no other alternatives seem to be on anyone’s radar. Streaming services might have solved piracy, but there are a whole host of other issues that don’t have any clear answers.

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  1. Yet musicians still get paid pennies.
    The pie cannot be divided into unlimited streams.
    There must be tiers of streaming. Different tiers give different usage limits (either number of songs or number of hours per month).
    Ad-supported should be eliminated or limited to a certain number of hours, and only certain artists and albums.
    Windowing should be the norm, as it is with movies.
    Unlimited ad-free streaming should be the most expensive tier.
    Pay-outs should have a minimum guaranteed or statutory rate.

  2. Sasha let me posit a question to you for your opinion. What if a site allows musicians to keep all the sales from music, merchandise and ticket sales and by all I mean 100%. The site’s revenue stream is derived completely from advertising. What about that concept. I will gladly appreciate any input from anyone. Thanks

  3. advertising is dead. You will never sell enough of it to pay for the servers and the bandwidth. Ive sold advertising in one form or another my whole adult life and its a dying business. Just ask any radio station ad seller hows business and you will find out for yourself. Im not saying I know the answer but I know you wont convince advertisers to buy enough to cover the cost of what you propose.

  4. and Im not trying to kill your idea its just that everybody in the music business thinks advertising is the savior and its not.

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