• Dmitri Vietze

Streaming Emerges but Consumers Adopt Slowly: Part 4 of the Music Streaming Debate


Part 1

Part 2

Part 3

When radio emerged, as a society, America decided to allow radio stations to trade radio airplay for record promotion for record labels. Thousands of potential music fans would find out about new recordings through radio airwaves. The recording studios and labels would profit from those sales. The radio stations would profit by selling advertisements around that music and other programming.

When Pandora emerged as a leader of streaming music, their model felt similar to radio, but with customizable stations. However, in the case of Pandora, the “broadcaster” was required to pay for the use of music. Rights holders saw the writing on the wall as sales were declining and industry trade groups lobbied for legislation to change the dynamic of this new form of “airplay.” Labels understood that without a physical recording market, airplay does not create demand for a product; it is the product.

Yet, music fans were not accustomed to the idea of paying a monthly subscription to music, the way they do for cable TV, Internet, or cell phones. So Pandora moved bravely forward with an advertising revenue model. They introduced a monthly subscription model to remove ads and get more skips.

Similarly, Spotify emerged as a leader in interactive streaming (meaning you can play songs on demand, as opposed to hoping the artist or song you want to hear plays) and settled on a model in which you have limited functionality and on air advertisements for free, or subscribe for more functionality (including unlimited on-demand songs, offline use, unlimited song skips, and no advertisements). However, since you could now play tracks on demand, it truly feels like a replacement for purchasing a physical recording or digital download. This on-demand functionality has put a lot of pressure on companies like Pandora since the fan gets a more customized experience. If they are willing and able to put in the time of searching for artists, albums, songs, or playlists, fans can hear exactly what they want, when they want. Furthermore, this newly emerged “access model” to music, gives the music fan access to a catalog of millions of songs without taking up any physical or digital storage space. This “celestial jukebox” is a new benefit that was never available under the prior “physical only” and terrestrial radio model.

In spite of all the benefits of the streaming model, as a whole, consumers have been slow to adopt the idea of paying for subscriptions for music.

It’s important to note that the Apple Music streaming service launched after Spotify and Pandora paved the way for consumer perceptions of streaming as a model. Apple Music is growing quickly and may be on pace for surpassing Spotify in paying subscribers. Google Play is a legitimate streaming provider with significant market share and creating a seamless experience for those in the Android ecosystem. YouTube Red is another horse in the race. Amazon Prime has a basic streaming service but has recently announced plans to get into the premium streaming subscription game. And there is room for companies like AccuRadio, the fastest-growing Internet radio provider, serving an older demographic tied to their desktops with an ad-supported only model. Furthermore, Pandora acquired Rdio and is expected to announce their own interactive streaming service this year.

Adoption of subscriptions is still growing and there are many providers working to grow the market.

Competition will continue to keep prices low and to force innovation of features. I suspect that over time the industry will move to a model in which non-interactive streaming will lean towards ad supported and interactive streaming will lean towards paid subscriptions. Since all the leading providers have both types of services, a free less customizable service can drive consumers to a paid more customizable service, which makes non-interactive streaming feel more like traditional radio and interactive streaming feels like the product to sell.

Continued next week in Part 5: Streaming Emerges by Consumers Adopt Slowly

Dmitri Vietze is the founder and CEO of rock paper scissors, a music and tech public relations firm.

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