There is little correlation between the level of development of an online music market and the number and type of services available. For example, Hungary, which has a weak online music market, has only a few services, but two of them are subscription services, which are considered a newer business model. The number of services in a country also reveals little about the maturity or value of a market. Brazil has over 20 music services but is still a small online music market.
The three most developed online music markets – those in the UK, the US and Japan – all look very different regarding the availability of services. In Japan, over 90% of music services are a la carte, with few subscription services. In the US, two-thirds of services are a la carte and one-third are subscription. Many of the subscription services launched in 2009, but some, such as Rhapsody and Pandora, have been established for several years. The UK has the most diverse music market of the three, with a la carte, ad-funded streaming, bundled and subscription services available. However, the majority of all services are still a la carte.
There is no clear development path whereby as a market matures new services of one type are launched. This is probably because of the national differences in royalties and the strategies of the four major music labels, which do not have a blanket digital policy. Europe is likely to see some homogeneity in the near future as the European Union attempts to make it easier for providers to get Pan-European licenses.
A la carte services dominate
Globally, a la carte is the dominant business model for music services. For Japan and Belgium, over 90% of music services are a la carte. The countries with the lowest proportion of a la carte services are Spain, Poland and Hungary. Single tracks cost close to US$0.99 for most services. In several European countries, this is the lowest price that can be paid for a single track. In the UK, where several new entrants are large companies from other industries, some tracks cost only US$0.46.
South Korea and Russia are the countries in which single track cost the least: between US$0.11 and US$0.52 in South Korea and between US$0.28 and US$0.79 in Russia.
Album prices range between just over US$6 in Russia and more than US$30 in the Netherlands. The most common low price for albums is between US$7 and US$8. There is no single price point for which the majority of albums can be bought for globally.
No homogenous price for subscription services
Subscription services are the second-most-popular service type in many countries. France has the largest number of subscription services relative to total available services, while the US has the largest number of subscription services overall.
In contrast to Japan, where a la carte is the prevalent business model, over half of South Korean online music services are subscription-based. These services offer prices between US$2.18 for 40 songs to just under US$27 for unlimited downloading.
With the publicity that has surrounded it, it is often assumed that Spotify has set the de facto price for music-subscription services, at €9.99 (US$13.50). And although it might be true that some new entrants have copied that price, there is still a real divergence in pricing across this market segment (see fig. 4). Cost of a subscription to streaming services in the US varies from US$3 for ad-free use of Grooveshark and US$5 for unlimited streaming from Napster to US$15 for MOG’s premium service, which includes streaming to the mobile phone.
In the countries where it is available, eMusic’s premium service, US$29.79 in Europe and US$24.99 in the US, is the most expensive. In countries where both are present, eMusic’s €11.99-a-month basic package is more expensive than Spotify’s Premium service.
Bundles and ad-funded streaming yet to make an impact
With services including TDC Play and Touchdiva, Denmark has the highest percentage of bundled music services in countries tracked. With only two services, it is far from being the dominant business model, and few are likely to want to compete with the established TDC service.
Despite TDC Play’s success, bundling a music service with a broadband service is something only a few other operators have done. Part of the reason for this is music labels’ reluctance to allow operators in larger markets to provide a similar service. In the UK, Virgin announced it would offer an unlimited service, but it has failed to bring the service to market a year after the announcement. Telefonica is among the few other incumbents to offer a music service that is bundled with its broadband service, though it also offers the service to nonsubscribers.
Nokia’s Comes With Music service is the only bundled service from a mobile phone vendor. Despite the service’s mixed success, Nokia continues to introduce it in new countries. Other handset vendors are unlikely to follow, but some PC vendors, through partnerships, are launching similar services in 2010.
In the countries tracked, there are only seven pure ad-funded streaming services. Weakened ad spending and the inclusion by established providers are the two key factors. Spain and France have the highest prevalence of ad-funded-only streaming services. But one of Spain’s largest players, Yes.fm, had to close its service because it found that ad revenues could not cover royalty payments. It has since re-launched as an ad-funded service with a subscription tier available.
Music & Copyright is a fortnightly research service published by Informa Telecoms & Media.
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