Friday, March 28, 2014

Former eMusic CEO Tackles Music Revenue, Pricing, and Streaming

Will the recorded music industry ever grow again? Since 1999, the industry has been in rapid decline as CDs became unbundled into downloaded singles. The digital download market never came close to the size of the physical music market. Now we are in the midst of another format transition, this time from downloaded singles to streaming.
David Pakman takes a look at recorded music revenue, and it's pretty interesting. As many people without vested interests in the contrary have realized for a while, the biggest culprit in the decline of recorded music revenue wasn't Napster or like piracy services, but Apple - or, more specifically, iTunes. It's something I've written about myself; Pakman refers to it as "unbundling": when you aren't paying $18 for an entire CD, and can buy the one or two songs you actually want, there's bound to be a decline in revenue.

Pakman also notes that "[annual] spending is slightly higher among P2P music service users." This is something that Mike Masnick at TechDirt has been saying for some time. He argues that it comes down to a service issue, because people who want your products are your biggest fans and are - or could be, if you let them - your biggest customers.

The most interesting part of the article was the numbers on streaming services. These services, such as Spotify, are simultaneously vilified and seen as saviors: people actually use them, and they are revenue streams via either advertisements or paid subscriptions, but many argue that they pay out too little to be of any use. The study looked at by Pakman shows that consumers spend, on average, between $45-65 per year on recorded music. However:

the on-demand subscription music services like Spotify, Deezer, Rdio and Beats Music are all priced the same at more than twice consumer spending on music. They largely land at $120 per year (although Beats has a family-member option for AT&T users at $15 per month.)
Streaming services are all currently priced well above what customers are willing to pay, which may be why subscriptions have taken a relatively long time to get off the ground. Pakman concludes that the solutions to this are for customers to suddenly decide they want to pay twice as much per year for music, which seems unlikely, or record labels work to lower the prices of the services - which, in my opinion, is just as unlikely.

The whole article has much more information and several graphs and charts, and is worth a full read.

via Re/code

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