Music streaming providers in the UK must halve their subscription prices in order to convert more consumers to paid tiers and boost profits. That’s the conclusion of a new report from global independent professional services firm Alvarez & Marsal (A&M), which urges UK providers to reduce their prices to US levels.
The new research suggests that adoption rates of paid music streaming services by existing free users would grow from 17% to 40% in the UK if standard costs were reduced from around £10 per month to £5. “This translates to an increase of up to 2.4 million people paying to stream music,” says A&M. “Furthermore, despite the lower price point, this move would generate potential additional revenue per year of up to £100 million in the UK.”
In Germany, another key European market for streamed music, the potential increase is even more marked. The report suggests that adoption rates of subscribers from free users would increase from 9% to 40% if prices were halved, representing an increase of up to 4.7 million additional people paying to stream music. Revenue gains would be between six and seven times higher than the current rate, says A&M, adding up to €265 million per year.
“This report should be eye-opening for all businesses in the music and other content industries,” said head of A&M’s digital practice in Europe. “Despite the huge popularity of music streaming, no independent providers have been profitable to date. “Our research shows that reducing prices will have a significant effect on subscription rates and, subsequently, be more than off-set by an increase in aggregate revenues. While reducing prices may seem like a dramatic step, with the right proposition and price points in place, there is an opportunity to build sustainable interactive music businesses and even create the Netflix of music.”
Chris Gorman, founder of MusicQubed, which powers O2’s music service – O2 Tracks, added: “The £10 or $10 a month super fans and aficionados have been well catered for, leaving the market for mainstream music lovers largely underserved and under-monetised. A&M’s study validates our belief and business model that most consumers want a super simple and low cost mobile music option, that still provides the labels and artists with the revenues that they deserve.” During 2013, more than 118 billion songs/music videos were streamed in the US, according to Neilsen.
In the UK, currently only 5% of the total adult population with internet access pays to stream music; in Germany, the figure stands at 2%. A&M points out that the US has a much higher percentage of users who pay for music streaming services than the UK and Germany, as US customers, at $10 per month, are paying less than half for music streaming in real terms than their counterparts in the UK and Germany, taking into account the exchange rate and respective levels of disposable income.
The study suggests that subscription rates in the UK and Germany drop by half when price models move above £5 or €5 and continue to decline with further price increases. A&M’s research also suggests that streaming providers can further boost subscriptions and increase profitability by setting different price points depending on factors such as the number of tracks available to download and sound quality.
With the continual rise of online DJ web streaming as Mixcloud & Soundcloud, will this be the future of DJ radio?