Music Sales Fall As Subscription Because Flavour Of The Day
At a retail level, the industry showed growth in total recorded music revenue of 9.7 percent on 2012 claims PWC in their new report on the state of the Consumer Electronics Industry.
PWC said that owning music is no longer a necessity in a world where easy access has taken priority. Even Apple, with its iTunes powerhouse, launched iTunes Radio in 2013, indicating it sees streaming services as a clear threat to digital ownership.
It cemented that view when it paid $US3 billion for Beats Music and Beats Audio in May 2014, a streaming music service and audio equipment company which launched its subscription-based music service only in January 2014.
With more than 20 different providers such as Spotify and Pandora, Australians have a wealth of choice in streaming services. But in a sign that a period of consolidation is beginning, Deezer closed its Australian headquarters in early 2014, instead choosing to direct Australia and New Zealand operations from its Singapore and Paris offices.
The offer of unlimited access to a broad library of tunes for the same price as buying a handful of digital singles is an attractive proposition for music lovers. Many subscription companies entice users with an entry-level free service that offers an easy mix of favourite tracks and the option of discovering new artists.
Music video streaming and internet radio services are increasingly successful because of the same formula: they allow fans to watch and listen to music for free and to discover new talent. The ease of legal access to music has great potential to steer consumers away from the treasure-hunting experience of piracy and illegal downloading. Converting them into paying customers will be the challenge.
While streaming is popular among cost-conscious consumers, artists continue to express mixed emotions over the royalty structure of streaming services. Some lesser-known acts see streaming as “worth its bandwidth in gold”2 while higher-profile artists have bluntly rejected it.
Radiohead frontman Thom Yorke has dismissed Spotify and sees a greater future in the model his band chose for its self-release In Rainbows, in which fans set their own price for the download.
“When we did the In Rainbows thing what was most exciting was the idea you could have a direct connection between you as a musician and your audience.,” he said. “Then all these [others] get in the way, like Spotify suddenly trying to become the gatekeepers to the whole process.”
A challenge for many streaming services is that their business model doesn’t reward scale. Royalties are paid for every tune played to each listener, therefore costs scale as listeners do. Spotify, which in May 2014 had 40 million users, 25 percent of whom were paid subscribers, says 70 percent of their revenue goes to royalties. They are yet to achieve profitability.