December 17, 2013
Similar to how CD sales gave way to download sales, digital downloads are now giving way to on-demand music streaming. But despite their surging popularity, streaming services such as Pandora and Spotify are having a difficult time getting their listeners to pay for subscriptions. The overwhelming majority of subscribers would rather put up with ads for the free version than shell out money for unlimited, uninterrupted music.
“When Spotify, the digital music company of the moment, announced this week an exclusive deal with Led Zeppelin and free access on mobile devices, it also reported impressive numbers,” reports The New York Times. “Its listeners have streamed 4.5 billion hours of music this year, and it has paid more than $1 billion in music royalties since its founding.”
But it’s a small percentage of the service’s users that actually pays for those streamed hours. According to NYT, Pandora “delivers about 1.5 billion hours of music each month to more than 70 million users, but only about three million of them pay. The rest listen free but must endure advertising.” The article notes that even though Pandora’s market value is $5 billion, it has yet to turn an annual profit.
“Several analysts doubt that streaming companies can attract enough paying customers with only recorded music, citing a sharp drop in music sales over the last decade and abundant free music online,” the article explains. “And they say it will be difficult for them to survive on advertising alone.”
To music industry consultants and strategists like TAG Strategic’s Ted Cohen, the current fluctuating market climate is an opportunity to retrain consumers to pay for temporary use of music, as Netflix subscribers do with movies.
“There is this irrational resistance for people to actually plunk down their credit card for streaming services,” Cohen tells NYT. “We’re 13 years into the Napster phenomenon of ‘music is free,’ and it’s hard to get people back into the idea that music is at least worth the value of a cup of Starbucks coffee a week.”