UK subscription music revenues to hit £350 million in five years? Surely not

If ever there was a perfect example of a new business model failing to achieve in the real world what looked so good on paper it is the subscription model of music consumption. Gaining access to all of the world’s music for the price of an album (plus a few extra bells and whistles) is a business model that has all the credentials to succeed but has so far failed to deliver.

To begin with, subscription download services attempted to promote their worth on the premise that they could provide access to millions of music tracks instantly. Consumers could download an unlimited number of tracks for a fixed fee. But the services failed to deal with consumer concerns that access to their downloads would be lost once their subscription lapsed. Subscriber numbers to such services, such as Rhapsody and Napster remain low. This is despite the fact that their service offering compares very favorably with other digital music services. Napster, for example, has now evolved from a subscription download service to one that offers a range of options. For example, in the UK it now offers three tiers that allow for unlimited streaming of approximately 10 million tracks but also includes a number of track downloads to keep depending on the subscription tier taken.

But it remains in the shadows of Spotify, which continues to attract significant media attention in the countries it operates. Spotify recently introduced a new lower-priced tier in all its seven European markets. For £4.99/€4.99, subscribers are provided with streamed music with no advertising but at a lower bit rate than the most expensive tier. Mobile access is also not offered and there is no offline facility. However, the new price brings Spotify into line with its main UK competitors. We7 added a £4.99 option to its advertising-supported service at the beginning of this year and Sky Songs, the subscription service from UK broadcaster BSkyB, quietly lowered its pricing to £4.99 in March.

The premium price point in the UK for PC-only streaming is clearly settling at around £5 per month with PC and mobile access at around £10. While the rollout and level of consumer interest in streaming in the UK is certainly not a blueprint for the rest of Europe, the popularity of music shown through high per capita spending in the country suggests that the UK is a market which will provide a good indication of the likely future success of music subscriptions.

At the moment, UK consumers favor the music-to-own model. According to “Evolution of Digital Media”, a survey conducted by OpinionMatters for the technology manufacturer Hewlett Packard (HP), 73.3% of those surveyed (respondents were aged 16 years and over) said they could not envisage a time when they would shift their consumption of music totally to a subscription model. However, 14.8% of respondents said they could envisage making a full switch to subscriptions within five years. If that actually happened, that would mean close to six million people in the UK would be using a subscription music service. If they were paying £5 per month, total annual retail revenues would be around £350 million. Compare this with subscription trade revenues in the UK last year, which totaled about £12 million, with advertising supported service revenues contributing a further £8 million.

Precise interpretations of these findings are, of course, very speculative at best, particularly as they are based on a very small sample of the UK population. Moreover, the survey contained no details on how much respondents would be prepared to pay for a subscription service and why the majority of respondents would not entertain using subscription services at all. The findings of a separate report, published by the law firm Wiggin and Entertainment Media Research, suggested a significant number of consumers would be willing to sign up to a subscription service if it was priced between £3.00 and £3.50. However, even at this lower rate, subscription revenues would generate in the region of £210 million to £250 million a year.

Is this going to happen? Probably not. Opinions given in surveys may provide an interesting and sometimes illuminating snapshot of consumer behavior at any one time, but, like subscription services, their findings look good only on paper. However, there is one factor that could affect the subscription success. Apple is rumored to be launching a subscription service and will make an announcement to that effect at its World Wide Developer Conference later this month. Prior to Apple’s launch of iTunes, a-la-carte downloading was almost as unpopular as subscription services are today (anyone remember MyCokeMusic?). Apple has subsequently become dominant in digital music retailing and its entry into music subscriptions could have the same effect. Watch this space.

Music & Copyright is a fortnightly research service published by Informa Telecoms & Media.