The Inevitable Unbundling Of Streaming Music Platforms

One of the obstacles to successfully monetizing streaming stems from the challenge of getting a more casual music listener to shell out $10 a month for extra music they don't especially want, but by offering a greater variety of payment tiers, more fans might be willing to pay for streaming.

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Guest Post by Bas Grasmayer, from the MUSIC x TECH x FUTURE weekly mailingThe launch of Soundcloud’s new premium tier signals the arrival of yet another $10 all-you-can-eat streaming service in an already crowded space. While many people in the music business are happy that they found a way forward, and a way to survive, they’re also worried. As Mark Mulligan pointed out, this represents a pivot. People are concerned that, in having to compete with the established music streaming services, Soundcloud’s indie nature will get snowed under. It’s also not something that people were really waiting for: Soundcloud has always been different, so they expected something different, rather than more of the same.There are structural problems facing the music streaming status quo right now:

Premium users are capped at $10 / month, while they might be willing to spend more;
The most casual listeners, who used to buy CDs occasionally, are only monetized through ads;
There are no good options between $0 and $10, so we’re failing to monetize a large segment.

The concern: tiers with lower prices cannibalise the full premium tiers. The fact that this is a concern highlights that the industry already knows that the premium tier’s pricing is the product of artificial scarcity, rather than than the addressing of consumers’ needs. You can drop the “cannibalise” phrase and translate it to: “if users can get what they want by paying less, we can no longer force them to pay more for subscriptions that include things they don’t want”. If this sounds familiar, you’re probably thinking of those releases on iTunes where you have to buy the whole album to get a single track.These are strategies you may choose to pursue and they can work, kind of.I believe we deserve something better. The idea: unbundle feature sets and types of content. Introduce a $1 price tier for something very simple, like getting to offline sync 3 releases each day. This helps you establish a monetary relation with users and gets casual listeners used to paying for music. It opens up possibilities for upselling: sync extra releases for another $1, a radio app for another $2 per month, full on-demand access to music & videos from your favourite label or set of artists, a playlist building game, Tinder-style dating for music lovers, whatever – countless possibilities. Not only does it open up the way for getting value out of poorly monetized segments, it also gives you a competitive advantage when you can monopolize specific behaviours around music. For a while, Spotify seemed to be heading there with its app platform, but I guess they couldn’t clear it with the labels or it was too much of a distraction, since they have to compete with Google (and later Apple) with ‘infinite’ war chests.What’s next: new formats are creating new opportunities. There are exciting trends in audiovisual experiences, particularly driven by virtual and augment reality, that offer great opportunities for new platforms to emerge, existing platforms to expand, and new monetization models to be pioneered. It means we shouldn’t make the same mistake twice: the music streaming status quo solves one thing for $0 to $10 per user and that is piracy. What comes next will be more feature-intensive formats that are harder to pirate, so we can create a new monetization on top. Perhaps we don’t need all-you-can-eat tiers for this. As a sidenote: when I was Product Lead at Zvooq, a large music streaming service in Russia & CIS, we pursued an unbundled multi-app strategy. We made a $1 and $2 tier app called Fonoteka. We couldn’t get all the major labels on board immediately, but last I heard, the team there managed to get it done. It’s good to see there is room for experimentation with these models, and hopefully we’ll see this move from developing markets with high piracy / low monetization rates, to key markets where the online music landscape is already more developed in terms of revenue.