How much money do you spend on a cup of coffee on the way to work? $3? $4? How much do you spend to see a movie in the theaters? $9? Or maybe even $12? Maybe you’re one of the 43.4 million Americans who pays $9.99 a month for a limited catalog of movies and TV shows on Netflix. But what do you pay for music?
In an anonymous survey that we conducted about music streaming habits, 62% of respondents said they think that a music streaming service should cost less than $9.99 a month. The problem? No such service exists.
In the past year, the world of music streaming has become increasingly competitive. Apple Music and Tidal each launched a streaming platform, Spotify gained 10 million users, and YouTube is now on the verge of launching its own paid music platform. But none of this competition has made streaming any cheaper for users. Currently, the only option for an individual user in the music streaming world—whether you patronize Spotify, Apple Music, and Tidal—is to pay $9.99 a month or to pay nothing at all and listen to a few ads.
The data we gathered was mirrored almost identically in a 2015 survey run by Nielsen, which found that that 46% of people said they didn’t subscribe to a music service because it was “too expensive.”
On top of that, 83% of Nielsen’s respondents said that the biggest reason they would subscribe to a streaming service would be its price. We found this to be true as well, with 58% of Fusion’s survey respondents who currently pay for a music streaming service indicating they would be willing to switch to another service if that meant they’d pay less.
Right now, at $9.99 a month, streaming platforms are marketed toward music aficionados. “Only about 10% of music buyers spend $10 or more a month on music (across all recorded music formats) and most of those have already been converted to subscriptions,” Mark Mulligan wrote on the Music Industry blog in January 2015.
Maybe people won’t pay $9.99 because it just seems like too much. After all, spending $120 a year on a streaming service is something only people who have money and also really like music can afford to do. “The pitch is asking consumers to pay more than they’ve ever paid for music. The risk is that by pricing it as a premium, you’re only converting the small proportion of the market that was always going to pay more for music anyway,” David Touve, a professor who studies opportunity, commerce, and music copyright at the University of Virginia, told me. “You’re missing the average consumer who probably was spending $30 or $40 [per year].”
And there’s plenty of data that says a streaming service sold at a lower-cost tier could be monumentally successful, not only with consumers, but in terms of revenue. According to Nielsen’s Music 360 2015 report, only 41 million people paid for a music subscription service in 2015. That may seem like a large number, but when you consider that the United States’ population is somewhere around 320 million people, that means that only 12% of Americans are paying for a music subscription. How many might be converted to paid streaming if it were marginally cheaper?
Dr. Touve told me that “the more important question to be asked is at what price would the total pool of dollars available to the music industry be the largest.” Dr. Touve himself has written in the past, on a music industry blog called Rockonomics, that he thinks the magical price point might be somewhere closer to $5 than $10. Other theorists, like Mark Mulligan, haven’t suggested a specific price point, but have agreed that the current $9.99 price point is far too high.
The problem with just slashing streaming subscription prices is that consumers will always want the same product for less money. Almost no one will willingly pay extra for a service that other people are getting for a cheaper price. “I think every consumer will always say they’d rather pay less, but what’s more interesting is how the product is perceived by consumers and why they aren’t willing to pay more,” Dr. Touve told me. So the question, then, is why? Why won’t consumers pony up $9.99 a month to support the music industry?
And that $9.99 really makes a big difference. Users who pay for subscriptions bring in a ton more money than ad-supported free tiers do. As the Financial Times reported last year, ad-supported free streaming brought US music labels $295 million in 2014. In the same year, paid subscriptions brought in almost three times as much, $800 million. There’s money to be made in converting users who don’t pay a monthly fee into users who do.
But the way the legal tripwires of the music industry are laid right now, streaming services couldn’t lower the cost if they wanted to. That’s because the music rights holders—generally labels, artists, and Performing Rights Organizations—can’t (or won’t) agree to lower the monthly price for consumers. Labels have found some loopholes around the current price point: Spotify’s family plan, for example, allows multiple people to pay $14.99 per month to stream (effectively a 50% discount). Apple Music, too, has a family plan ($14.99/month), while Tidal’s only alternative is a family plan that tacks on a surcharge of either $4.99 or $9.99 (depending on whether you pay for HiFi audio) for each additional member.
These deals hint that Spotify knows its price is too high, and knows that consumers would be happier and the pot of money would be bigger if everyone were to pay less. If streaming is going to dominate the future of music, it’s going to have to get at least a little bit cheaper.