The Music Industry Is Forcing Consumers To Choose Between Buying a Lexus And Taking The Bus
It has been an eventful few days for the digital music market with developments such as the launch of a whole new breed of unlicensed Spotify clones using the APIs of Spotify and YouTube, and with Spotify raising another $500 million and targeting an IPO within 12 months. But it is the launch of a new mid-tier music service CÜR Music that has some of the most significant connotations, not because of what it is, but because of what it represents.
When Everything Is A Lexus
Over the last half decade or so the big record labels have developed highly capable data teams with increasingly sophisticated data tools and resources. These guys know all about segmenting and targeting audiences, unfortunately when it comes to licensing streaming music their bosses too often just don’t listen to them. 2015 was really big year for streaming, in fact you could say it was the year that streaming came of age with Spotify growing strongly, Apple entering the market and Amazon also gaining momentum. But with the notable exception of Amazon Prime Music (which is part of Amazon’s free shipping and streaming video bundle) each of the dozens of AYCE streaming services offer the same $9.99 product with the same 30 million tracks. And because $9.99 is more than double what the average music consumer spends, this pricing strategy is the equivalent of every single car manufacturer suddenly being told by some central car tech licensing agency that they all have to start exclusively building and selling Lexus.
So while the $9.99 services grew well enough (though Spotify’s $1 a month promo helped no end) free streaming grew faster. More than just that, YouTube grew faster than anyone else. If the only choice of car is a Lexus then no wonder everyone starts taking public transport.
CÜR Music Illustrates Mid Tier Pricing Deflation
Enter stage left CÜR Music, a premium radio service with pricing starting at $1.99 (mistakenly reported elsewhere as $2.99) which gives limited skips and 8 pinned tracks. The $4.99 tier gives 16 pinned tracks, unlimited skips, offline playback and lyrics. CÜR Music is not breaking the mold with its value proposition (premium radio services like Rhapsody’s unRadio and Pandora’s One account for around 7 million subscribers) and the addition of pinned tracks had already been seen in the now defunct Rdio Select. But the $1.99 price point is significant. Spotify’s $1 for 3 months promo has been a major driver of its growth but in doing so it has impacted consumers’ perception of value. If an AYCE service costs $0.33 a month suddenly $4.99 for premium radio looks like terrible value for money.
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Because the labels are only reluctant supports of free tiers as acquisition drivers in developed markets super-low priced offers are a lesser of two evils for them, which means they’ll stick around for a while. Which means that the downward pressure on pricing is going to a long term market dynamic, not a temporary blip. Hence supporting a $1.99 product in the US – the market the majors are most protective of.
So on this basis you might be forgiven for thinking that the major labels’ business affairs teams have been listening to their insights teams. To some extent they have, but the premium-radio-with-a-little-bit-extra product proposition is simply not compelling enough. In fact it is entirely begat out of what labels have proposed. Last time the labels pushed through their ideas of what products should look like we ended up with hybrid on-demand subscription / download quota models that failed miserably (remember Sky Songs anyone?).
Mid Tier Customers Are No Easy Sell
Low spending, mass market, casual music fans are inherently more difficult to engage than high spending aficionados. The easy answer is to just let them go to free. But free streaming should be the transition path for passive radio listeners not casual music buyers. Pandora IS the future of radio and that model will be the long term future of where passive audiences end up. Right now they’re also capturing a bunch of the engaged mainstream – too low spending for Spotify but into music and tech enough to want a compelling streaming experience. The market needs a rich seam of mid-priced services that deliver something different, that is neither radio nor AYCE. Right now there are remarkably few services doing this, the most notable of which are MusicQubed, Psonar and Digster Playlists and that is because the major labels (one in particular) are wary of building up a vibrant mid tier marketplace. Why? Because they’re scared that a whole bunch of $9.99 subscribers that are actually relatively casual users don’t use them that much. There is a really meaningful share of $9.99 users that stream 50 tracks or fewer a week, not exactly great value for money.
The Prisoners’ Dilemma
Which is why we are where we are. Think of it like a prisoner’s dilemma: the labels are scared that if they empower mid tier services they will lose premium tier subscribers but they are also aware that unless they do so they are abandoning mid tier customers to free. But now with the $1/3 month promo becoming a semi-permanent feature of the landscape the labels are finding their hand forced. What remains to be seen is whether they accept that they must formalize the other consequence, namely mid tier price deflation. $4.99 has no place in the market while AYCE is available for $0.33.
Labels and publishers need to take a long hard look in the mirror and decide whether they want to continue to force their customer base into choosing between buying a Lexus or taking the bus.
POSTCRIPT: Keep an eye out for what the major label backed Now Music app will do when it launches some time soon.