How is Music Streaming Working Out?

The future of music streaming services looks incredibly promising. However, the journey to that future and which services will come out on top are still up in the air.

Just like video streaming, the main strategy for music streaming has been to gather as many subscribers as possible, whether they pay or not, and to stock up on content, with the focus on profitability coming later. This approach has worked so far, to an extent. But how can these services turn their subscribers into a profitable venture?

There are significant costs involved in gaining new subscribers, and even bigger costs in acquiring content and maintaining the systems to support them. Up until now, music streaming services have been hesitant to raise prices, but that’s starting to change.

Goldman Sachs, in their June report, pointed out that music streaming is one of the most under-monetized forms of entertainment in the music industry. The report highlighted that consumers are spending 40% less on music today, as a percentage of their total entertainment budget, compared to the peak spending in 1998.

This led Goldman Sachs to conclude: “This supports our belief that any price increases can be passed onto consumers with minimal churn.”

Recently, music streaming services have started to increase prices, citing reasons like inflation, licensing fees, and the cost of delivering high-quality content. For instance, in October, Apple Music raised the price of its individual subscription in the U.S. from $9.99 to $10.99 per month. Spotify is also considering a similar move.

Will these subscription price hikes cover the costs of operations and acquiring new music catalogs, podcasts, and audiobooks? And with ongoing price increases and inflation, will subscribers leave to find a better deal?

One solution is for music streaming services to gain more control over the data on how customers use their services. This would allow them to create more sophisticated business models and pricing plans, beyond the current ad-based services, flat-rate subscriptions, and family plans.

With a flat-rate subscription, when usage goes up, operating costs also rise, but revenue doesn’t. By having full control over customer usage data, services can offer better deals to customers who use the service less, and charge more to those who use it a lot.