The Case for Keeping Music Streaming Prices Where They Are (Guest Column)
Most labels and some technology companies think now is the time to raise streaming prices. But what if this is the wrong approach?
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.