Uniformity makes it tough on music-streaming startups

Mobile is the value-add that attracts the highest premium in streaming services. According to sources at the US streaming service Rdio, the majority of its subscribers take the top-premium mobile-access plan.

Rdio’s pricing model – US$4.99 a month for ad-free streaming on PCs only or US$9.99 a month with mobile access added in – essentially copies that of Spotify, which launched in the US last July with the same prices. In its home territory, Europe, Spotify charges €4.99/€9.99 a month (£4.99/£9.99 in the UK). The difference with Rdio is that Spotify also offers a free, ad-funded entry-level service – which proved a major bone of contention with the labels when trying to extend the service’s licensing agreements to North America.

Others in this new breed of music-streaming services, such as Deezer and Mog, offer exactly the same pricing and pretty much the same service. It is a remarkably uniform offering for such a nascent sector with an unproven business model – unproven both for the providers of the services and the labels and artists from whom the music is licensed.

Why such uniformity?
Some in the industry blame the labels for this uniformity, claiming that they are forcing the same pricing and service models on all new entrants wanting to license the labels’ catalogs. Not only do the labels expect the same pricing in all territories, regardless of whether it is Scandinavia, southern Europe or the developing world, but they also demand that new services stick to the same kind of offering as existing ones. This imposed uniformity not only makes it virtually impossible for new entrants to differentiate themselves, but it also undermines the viability of streaming services in lower-per-capita-income countries.

Labels do not comment on these complaints. But with the labels only just beginning to become comfortable with the Spotify business model, it wouldn’t be that surprising if they were cautious about embarking on further experimentation just for the sake of tweaking the model for new players. The labels have taken a giant leap of faith in licensing music to the likes of Spotify – a move for which they are getting continued flak from artists, who complain of seeing little return from the number of “plays” they get on streaming services.

The math of streaming services
Estimates vary on the value of streaming to artists. Some have suggested that it takes about 700 plays on a music-streaming service for an artist to earn the same amount of money they would from just one download on an a-la-carte service. That sounds like a bad deal, until you compare it with radio and YouTube, each of which requires infinitely more plays to earn the same money.

Would the artists who have pulled out or threatened to pull out of streaming services also pull out of radio and YouTube? It’s unlikely in the case of radio, which artists have been using for decades for exposure. The argument for streaming services is that they provide artists not only with a legal, and monetizable, alternative to the popular file-sharing sites from which they get no money at all, but also with a richer channel via which their music can be discovered and around which they can build a fan base. But this argument is unlikely to persuade the many artists who suspect that streaming is cannibalizing download revenues.

On the pricing front, although it is true that the 4.99/9.99 pricing model is applied uniformly across the euro zone, the UK and the US, because of exchange-rate differences, the cost does vary somewhat from currency to currency (for example, £9.99 is US$15.85). Yet, if you look at Rdio, which launched in Brazil in November in partnership with carrier Oi, there seems to be little or no compensation for the big drop in per-capita-income between the US and Brazil. The Oi Rdio service costs BRL8.99 (US$5.20) a month for the Web-only version, which actually exceeds what it costs in the US, and R$14.90 for the mobile-access version, which is not that much cheaper than in the US.

Emerging services in emerging markets
One service that does seem to have broken the pricing mold is Zvooq.ru, focused on Russia and the CIS. It charges the equivalent of US$5 a month for unlimited streaming to a PC or mobile phone. The former Soviet Union has proved virtually impregnable for the Western labels, because of rampant piracy and the logistical complexities of doing business there. ITunes has no presence there yet, for example. So that would explain why Zvooq might have been able to license tracks at a more competitive rate than other streaming services.

Assistance for this blog was provided by the Informa Telecoms & Media analyst Guillermo Escofet

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