How much are people willing to spend for streaming music?
For
years, thanks to rigid pricing structures at streaming services, the
answer has been stuck at $10 a month or nothing. But that model may soon
be challenged by two giants of online media: Amazon and Pandora Media.
Both
companies are set to introduce new versions of their streaming services
in coming weeks, charging as little as $5 a month, according to
multiple people with direct knowledge of the plans who spoke on the
condition of anonymity because the process was ongoing. The plans will
put pressure on incumbent players like Spotify and Apple Music and offer
the music industry a major test regarding the value of streaming music —
including the crucial question of whether discounts will be enough to
entice people to pay anything when virtually every song is also
available free.
But
many in the business have argued that $10 a month is too high for
casual listeners. At $120 a year, it costs more than most people have
historically paid for music. According to MusicWatch, a market research
firm, the average music customer in the United States will pay about $67
this year on recorded music, up from $55 last year but down from $80 in
1999, around the peak of the CD market.
“Even
with the presence of free, you can still get tens of millions to pay
for streaming services — and possibly much more — in the event that you
get the price much lower,” said David Pakman, a venture capitalist and
former digital music executive who has long argued that lower prices would lead to greater sales over all.
The
streaming market is divided between internet radio services like
Pandora, which offer songs tailored to listeners’ tastes but do not let
them choose exactly what songs to hear, and so-called on-demand
services, like Spotify and Apple Music, which let users pick specific
songs and create playlists.
Pandora
is expected to make the first move by unveiling, perhaps as early as
this week, an expanded version of its $5 subscription platform. That
service, which is currently limited to removing ads on its internet
radio streams, will soon begin offering customers new features like the
ability to skip more unwanted songs and store several hours’ worth of
playlists online, according to three people with direct knowledge of the
company’s plans.
Amazon’s ambitions may pose more of a challenge to the existing services. The company already offers
a limited catalog of on-demand music to members of its Prime program,
which costs $99 a year for free shipping, streaming movies and other
perks. But in coming weeks, Amazon is also expected to introduce a music
service with a full catalog, charging $10 a month or about half that
amount for customers who use the Echo, Amazon’s voice-activated speaker
system, according to several people who have been briefed on the plans.
For
both companies, the new streaming offerings represent variations on the
existing models, with a mix of new features that are intended to entice
casual listeners into paying a minimal fee without eroding the ranks of
customers who are willing to pay more.
Amazon
and Pandora have spent months negotiating new licensing terms with
record companies and music publishers to allow their new streaming
offerings, and they are close to completing those deals, according to
the people briefed on the plans. Representatives of both companies
declined to comment.
To
some degree, these deals reflect a new willingness among the major
record companies to experiment with pricing and shore up a wide field of
competitors. Just last year, when Apple was negotiating with record
labels over Apple Music, its streaming service, the company wanted to
charge customers $8 a month. But the labels balked and held out for $10, giving Apple no price advantage over competitors like Spotify, Rhapsody and Deezer.
That
episode, technology executives say, was a window into a
little-understood reality of the streaming business: that prices are
indirectly enforced through the licensing contracts that services sign
with record companies.
Yet
while the headline prices have been stuck at $10 a month, analysts and
music executives say that a range of discounts and promotions has made
it difficult to gauge what customers are really willing to pay. Most
offer family plans, student discounts and introductory trials.
Other
services have also made brief and inconclusive attempts to offer online
music at lower prices. Last year Rdio, a struggling streaming outlet,
introduced a $4 subscription plan that let users listen to 25 songs of
their choosing each month. But by the end of the year the company had gone bankrupt, and its assets were acquired by Pandora.
Another
service, Cür Media, announced its intentions this year to introduce
limited streaming plans for as little as $2 a month. But by the summer,
it appeared that the company had been unable to raise the $15 million
that it said it needed for expenses like licensing deals with record
companies. Last month, in filings with the Securities and Exchange Commission,
Cür Media reported that it had laid off all of its employees, and that
its chairman and chief executive had resigned. Attempts in recent days
to reach any representatives of the company were unsuccessful.
Major
corporate players like Amazon and Pandora do not face such basic
questions of financial viability. But there are still doubts about
whether lower price points will make any difference to consumers.
YouTube makes virtually any song available free, and, much to the
chagrin of the record companies, it is widely considered the most
popular online source for music around the world. Spotify, in addition
to its $10 premium service, also has a free version supported by
advertising.
Russ
Crupnick, the managing partner of MusicWatch, the market research
company, said his research showed that subscribers to premium services
like Spotify were pleased with the product and willing to pay.
Furthermore, such customers were also likely to pay for other media
subscriptions, like to Netflix, Showtime and so on.
But
for less engaged consumers, he said, particularly those who are
satisfied with radio or free streaming on YouTube, it may take much more
to get them to buy a subscription.
Sisario, Ben. "Amazon and Pandora to Gauge Music’s Value in the Internet Age." The New York Times. 2016. Accessed September 11, 2016. http://www.nytimes.com/2016/09/12/business/media/amazon-and-pandora-to-gauge-musics-value-in-the-internet-age.html?_r=0.