Music-subscription services are in the headlines for one reason or another on an almost daily basis. The leading services are either hailed as the savior of the recorded-music industry or are criticized for not paying artists enough for the use of their music. Arguments and differences of opinion will most likely rumble on for years to come until the next big thing emerges promising a brighter future for all.
What should be remembered is that despite the rapid rise to dominance in some northern European countries, the subscription model is still in the early stages of development. Plenty of artists initially held off from making their music available to download stores, but virtually all of the big-name holdouts have now relented. It is also worth noting that subscription services have only just scratched the surface of what they can offer. Take the latest deal between the Norwegian music-streaming service WiMP and the Olav Thon Group (OTG) announced this week. WiMP is to provide unlimited music for users of the OTG’s hotels and restaurants across Scandinavia. If that sort of deal became common elsewhere in the world then subscription revenues would start to look pretty healthy and the doomsayers just might change their minds over the benefits of streaming.
What is interesting is the way music-subscription services have gone about trying to tempt consumers into changing the way they access recorded-music in the same way pay-TV providers did for TV viewing in the early 1980s. Pay-TV services attracted subscribers by providing access to more channels. In most developed countries the launch of multichannel TV coincided with a number of technology developments, such as the use of remote control and the ability to record TV programs. The advent of the VCR meant viewers did not have to stick to rigid broadcast schedules but could record a program and watch it at a later date.
Flexibility over what to watch became a central feature for pay-TV providers, and they responded by introducing on-demand services. Changes in programming also became more prevalent, since the ability to deliver more channels meant producers could target specific audiences. This led to the introduction of a range of subscription packages and channel tiers based on genre, such as movies, sports and documentaries. The transition from analog to digital resulted in better-quality pictures and even more choice for viewers, not only in the number of channels available but also in the choice of delivery systems.
The rise of pay-TV around the world since 1995 has been charted by Informa Telecoms & Media. In 1995, there were 206 million pay-TV subscribers worldwide, up from virtually zero 15 years earlier. At end-2012 that total had increased to 750 million and is expected to hit 933 million in 2017
In terms of revenues, global consumer spending on monthly and annual subscriptions, short-term contracts, pay-per-view and video-on-demand stood at US$39 billion in 1995. In 2012 the spending figure had increased to US$180 billion and is forecast to top US$225 billion in 2017.
Imagine if music-subscription services could achieve similar results?
It is worth noting the vast difference in the size of the pay-TV and music-subscription sectors. According to the IFPI there were 20 million paying music-service subscribers globally at end-2012. That figure is less that 3% of the pay-TV subscriber total in the same year. But interest in streaming is growing fast.
If each music service subscriber paid US$100 last year the total spend on music subscriptions would have been around US$2 billion. If music subscriptions grew at the same rate as pay-TV sign-ups did at the equivalent stage of development then in five years time music subscriber numbers will be nearing 100 million. At the same annual spend rate as 2012, total music subscription spending in 2017 will be close to US$10 billion.
If today’s music-subscription services follow the same path trodden by their pay-TV cousins, then they will need to change from the current “offering everything” model. Giving access to 20 million tracks has echoes of providing hundreds of TV channels when pay-TV services were first rolled out. Consumers who favor a-la-carte buying are restricted to what they can afford, but taking a music-subscription does away with such a limitation and is an attractive proposition. However, as when new pay-TV subscribers realized that most of the new channels available were of little interest, the provision of 20 million tracks will cease to become a big selling point, since most subscribers access a few thousand at most. Music-subscription services will then need to come up with new ways of attracting new subscribers and holding onto the ones they already have.
Pay-TV services were initially successful because they offered something that other traditional broadcast TV services did not. Moreover, those services that figured out what consumers wanted and responded to those needs are now some of the biggest entertainment companies operating today. A wealth of channels are still available from most national pay-TV services, but what now separates most countries’ providers (apart from the delivery platform) are exclusive rights to certain popular events.
Over-the-top TV (OTT) services have also started differentiating themselves by making good use of exclusives. When OTT first started there was little distinction between services, since they all had similar catalogs, but now the likes of Netflix and Lovefilm/Amazon are moving toward acquiring and commissioning exclusive content.
The past couple of years have seen a remarkable expansion of streaming as a music-distribution model. The sector still has a long way to go to convince the recorded-music industry that the subscription model can replace the tried-and-tested a-la-carte system of buying without diminishing artist income. However, pay-TV operators have shown that an industry can compete against free and can flourish by providing quality services. Certainly no one will be complaining if the next 20 years prove as fruitful for the likes of Deezer, Spotify and WiMP as the past 20 have for the pay-TV sector.
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