Wherever you are in the world, the technical developments of recent years have made the streaming of music far more common. In 2013 in excess of 18 billion songs were streamed in the US; an increase of 32% on the previous year (figures courtesy of Nielson Entertainment). In the UK 7.4 billion songs were streamed, which represented an increase of 50% on 2012 (figures courtesy of BPI).
So it would seem that music streaming is only rising in popularity, but that hasn’t resulted in a corresponding increase in revenue. The exception to this is Scandinavia where the subscription music streaming model appears to be working. There are a reasons for independent subscription music streaming being less than successful in many countries; one being the large royalty payments that independent streaming providers have to make. The main problem lies in the conversion of those streaming music from free sources, such as YouTube, to subscription streaming.
Why is it so difficult to convert people to subscription streaming?
In October 2013 market research firm Harris Interactive carried out research on behalf of Alvarez & Marshall. They studied three groups, each consisting of 1,000 people, from three of the top four music streaming countries globally, UK, US and Germany. They asked questions about their music streaming habits and what, if anything, prevented them from converting from a free streaming service to a subscription service. The research also looked at the individuals’ wider lifestyle, including the amount of disposable income they had.
The main finding of this research was that the cost of subscription music streaming was a major factor in reduced conversion rates. It was also established that this was less of a problem in the US which, although it has not reached the level of engagement of Scandinavia, is experiencing significant growth in conversion levels. If you consider the average charges for music streaming (for a subscription that includes availability on mobile devices) you can see why conversion is slower in the UK and Germany than it is in the US. These average subscription levels are currently £10, $10 and €10. After you have taken into account conversion rates and the amount of disposable income, it is clear that subscription music streaming in the US is available at a much lower cost.
What are the solutions to the problem?
If independent subscription music streaming providers in the UK and Germany are to take full advantage of this potential revenue stream they need to look at their pricing models. For instance, it has been estimated that a change in pricing from £10 to £5 in the UK, and from €10 to €5 in Germany would result in a conversion increase from 17% and 9% to 40% respectively. This represents an increase in annual revenue of between £62 million and £95 million in the UK, and of between €202 million and €265 million in Germany.
As well as revising the overall pricing model there is also potential for providers to offer reduced price packages for those wanting to download just a few tracks at a high level of quality. This enables the capture of more of the available market. There should also be consideration of packaging music streaming with that of TV and film packages. This section of the market is still the most popular, and it gives music streaming providers the chance to join forces with other providers to maximize profits as a whole.
As the thirst for music streaming globally continues to rise, the independent subscription streaming providers need to adapt so that, wherever they are geographically, those streaming music can get a high quality and affordable service. By providing this they will also see their own revenue increase.