This week, the CEO of Sony Music Entertainment Rob Stringer called on streaming companies to charge a “small fee” for ad-supported streaming. “This would help grow that part of the streaming business to be more than just a paid subscription marketing funnel and still be a huge value for users,” he said during the parent company's business segment presentations Sony on Thursday.
Stringer's comments came as no surprise. In March, after the RIAA released a report on the US recorded music market in 2023, Advertising sign asked if record labels are too dependent on subscription services for their revenue. As consumers prove willing to pay for the rising prices, free streaming options aren't producing the royalties to match their popularity.
Now, there's evidence that subscriptions could become even more important to record labels, music publishers and creators.
This month, Spotify imposed additional price increases in the UK and Australia on top of the global price increase in July 2023. A single plan now costs £11.99 in the UK, up from £10.99, while a family plan increased to £19.99 from £17.99. Spotify hasn't announced a second wave of price increases in the United States and other major markets, but it's reasonable to assume that the UK and Australia won't be alone.
Major companies have welcomed these price increases as the importance of streaming to their bottom lines continues to grow. In the United States, subscriptions accounted for 59.3% of total recorded music revenue in 2023, up from 57.8% in 2022. Globally, subscriptions accounted for 48.9% of recorded music revenue in 2023, according to IFPI, from 48.3% in 2022.
Spotify and other platforms could soon offer a level of premium pricing for superfans that would make subscriptions an even more valuable part of the music industry. Spotify first mentioned the “superfan clubs” feature in an online post in January. Next month, CEO Daniel Ek lists “superfan things” — as well as audiobook sales — among the products Spotify could offer if Apple didn't cut in-app purchases by 30%.
In April, Michael Nash, Universal Music Group's (UMG) digital strategy executive, said during the company's earnings call that internal research shows 10% to 20% of subscribers would be willing to pay extra for a “super premium” tier. Nash wasn't just thinking out loud: Given how carefully public companies choose their words, it makes sense that he and other UMG executives are encouraging streaming companies to explore ways to offer high-end services at a higher price.
Recent subscription price hikes could be just the beginning of the regular, continuous price appreciation already seen in the video streaming market. CEO of Warner Music Group Robert Kyncl he said on the company's earnings call on May 9 that he would “continue to support further growth” and “ensure that the value that music brings to these platforms is properly recognised.” CEO of Reservoir Media Golnar Khosrowshahi said during the company's earnings call on Thursday (May 30) that the company expects a “regular pace of price increases” from streaming services.
However, the hike in the subscription price has put free streaming in a bad light. As streaming services raise prices, a weak advertising market has made free streaming even less valuable. Free streaming has no value — it provides an opportunity to convert listeners into paid subscribers, just like marketing campaigns do. But labels are clearly not content with free streaming as a means of attracting subscribers.
Goldman Sachs beat Stringer to the idea of charging for ad-supported music streaming. In the most recent Music in the Air report released in early May, its analysts suggested a “light tier of advertising at a small fee” as a way to evolve the ad-supported market and embraced the idea of using “content or feature restrictions” for free ad-supported streaming tiers are a less attractive option, thus pushing free users to a paid tier.
Concerns about free streaming carry over to small-format video platforms like TikTok. While TikTok is a powerful advertising vehicle, the royalties it generates for rights holders and creators are not proportional to the amount of time users spend on the app. As Stringer said this week, short-form video platforms “are prime sources of consumption and should be valued accordingly.”
Free options have their place in the market. After all, not everyone is willing or able to pay for a premium service. Mass market products like broadcast radio exist because they are free to the end user. But free music could come under pressure in the coming years. And between additional price increases and potential superfan levels, combined with overall weakness in ad-supported streaming, subscriptions are poised to take an even bigger share of the industry.
