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Why Not Price Music Streaming to Sell?

19 March 2014 652 views 4 Comments

Former eMusic CEO David Pakman that lays out the case, clearly and simply, for lower music streaming subscription prices

re/code is running an editorial by former eMusic CEO David Pakman that lays out the case, clearly and simply, for lower music streaming subscription prices. And, the way he explains it, the music labels must be stupid for not doing it.

Here is Pakman’s spin. The average music consumer (ex-streaming) spends $48 per, which breaks down to $4 a month.

Currently, music streaming services are priced at $120 per annum. That’s $10 a month or two-and-a-half times what the average music consumer spends.

While it is possible, in a Russell’s teapot sense, that consumers will increase their average music by 2.5X, there is a more potent way for the music labels to increase their music streaming market penetration and revenue.

iTunes Radio: Already Optimal?
People living in Apple’s walled garden can already get a music streaming service priced well below Pakman’s $4 per month ideal price. Yes, iTunes Radio goes for just $25 a year and includes a range of services that Spotify, Rdio et al just can’t match.

That is? Reduce music streaming service prices to $3 to $4 a month (i.e. $48 annually). Seriously, guys, slash the price to what folks are willing to pay and you will succeed mightily.

Music Streaming Truth

Folks will, of course, will say that’s an overly simplistic answer to a highly complex issue. To whit, I add that the complexity is the fundamental problem — complexity is the enemy of truth which is defined here as max revenue via max penetration.

Kill the complexity and music streaming will flourish. Alternately, kill the labels, a la Amanda Palmer, and the world will right itself without the pointless drama…

What’s your take?

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  • James Katt said:

    iTunes Radio costs $25 a year. This breaks down to $2.08 a month.
    Pandora costs $36 a year. This breaks down to $3 a month.

    Pandora already is the most popular streaming service by far.

    So who is this article trying to convince? It already has been proven that lower costs sell.

    But lower costs means lower profits also. And this is what is killing the music industry. This is why they are trying to kill Pandora.

  • the rocr (author) said:

    From May, existing Pandora subs will pay $3.99 and new subs will pay $4.99 and Pandora is ending the annual payment plan.


    The music labels weren’t trying to “kill” Pandora, but rather force it to play ball on pricing. Pandora is now playing ball on pricing.

    And, there we have it…

  • James Katt said:

    The biggest problem for streaming music is that the royalty rates are set in law by Congress at a higher rate than for terrestrial radio stations.

    And the more streams you have and the more people listen to your streams, the more you have to pay. There is no break-even point.

    If you set your stream price too low, you cannot pay the royalties or your costs of doing business – e.g. staff, equipment, bandwidth, advertising, etc.

    It turns out that $4 is TOO LOW a price to make streaming feasible. You will go out of business no matter how many customers you have.

    Pandora is now raising its rate to $5 a month – $60 a year – to cover the cost of royalties.

    Pandora happens to have a very small library of songs – less than a million songs.

    If Pandora licensed the 25 Million+ songs in the Apple iTunes collection, Pandora would go out of business since $5 a month may not cover the cost of doing business.

    So $10 a month for streaming music in a stable business sounds better all the time, doesn’t it?

    How does Apple get away with $25 a year?
    1. Ads
    2. Increased music sales.
    3. Free downloads limited to what the user already has/pirated – converting them into paying customers

  • the rocr (author) said:

    And, Apple is far and away the world’s largest music retailer.

    The music labels have the same moral standing as car dealers…

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