Are Music Streaming Prices Set To Rise?

15 June 2023 | 4:55 pm | Christie Eliezer

"Music is undervalued,” according to Warner Music CEO Robert Kyncl.

Spotify could be eyeing off a price hike

Spotify could be eyeing off a price hike (Source: Supplied)

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In the first three months of 2023, the three major record companies – Universal Music Group, Sony Music Group and Warner Music Group – generated an amazing USD $6.21 billion (or AUD $9.30 billion) in global revenue. As Music Business Worldwide put it in perspective, that’s about $69 million per day, $2.9 million per hour, $48,000 per minute or $800 per second.

But the three are leading the push for music streaming services like Spotify and Apple Music to increase their subscription rates, the profits from which can be passed on to them and their artists. Music streaming played a massive role in these figures – it accounts for 67 percent of the majors’ earnings.

"Music is undervalued,” asserted Warner Music CEO Robert Kyncl. "If you take the US, the price that the user pays per hour of consumption of music is half of what they pay for movies and TV shows on streaming services. So right there, it's 50 percent undervalued today."

Rob Stringer (chairman of Sony Music Group), when asked whether it was time for streaming prices to rise, replied, “That’s down to the DSPs, not us. But do we think [the streaming business] in the mature markets can withstand pricing increases? We do.”

Kyncl argued that for starters, streaming services should adjust for inflation. This would mean that what cost US users $9.99 a month in 2011 should now be $13.25 a month. In Australia, Spotify Premium – which costs $11.99 a month – should have readjusted by late last year to $15.40. The $5.99 Premium For Students subscription should then be $7.70, and the $18.99 Premium Family subscription bumped up to $24.35.

But, of course, record companies want more than that. They want streaming services to continually and regularly raise prices the way other entertainment companies do.

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Warner Music Group‘s chief financial officer, Eric Levin, insisted it would not harm growth. “Several of the largest players in the industry – Apple, Amazon, Deezer – have taken it upon themselves to raise rates and they’ve done it successfully,” he said. He added his view that the market “has proven it can bear rate increases”, and Warner is encouraging its streaming partners “to look very, very, very, very seriously” at raising rates.

There’s certainly a substantial income to be made, especially as music streaming is growing heavily in population after the peak of the COVID-19 pandemic. In 2022, on-demand audio song streams totalled 3.4 trillion – a 22.6 percent jump up from the year before. But in the first three months of 2023 alone, global music streams crossed the one-trillion mark.

The most in-demand song around the world so far is Miley CyrusFlowers, with 1.16 billion on-demand streams in this period, according to data company Luminate. Following were SZA’s Kill Bill at 885 million streams, The Weeknd’s Die For You at 629 million, Bizzarap and Shakira’s BZRP Music Sessions #53 at 627 million, and Rema and Selena Gomez’s Calm Down at 601 million. Luminate data also shows that music listeners have cumulatively spent about 960,000 years streaming music this year.

In Australia, music streaming is expected to generate $529.6 million by the end of 2023. With an annual growth rate of 4.20 percent, that should reach $624.4 million by 2027.

To put that in perspective: the entire Australian recorded music industry, digital and physical, was worth $565.8 million in 2021, according to ARIA wholesale figures. By 2027, Australian users are forecast to generate $6.94 million with market penetration up to 25.3 percent from its current 22.4 percent.

Globally, the music streaming market will be worth USD $25.71 billion by the end of this year, most of the revenue ($10.2 billion) coming from the US, with the number of users projected by Statista to reach 1.12 billion in 2027.

Reports from the financial markets have come up with more specific number crunching. UK bank Barclays estimated that a 10 percent rise in fees would translate to a 13 percent jump in earnings for Universal Music Group, adding €400 million (or AUD $642.3 million) in revenue each year and €240 million (AUD $385.3 million) in gross margin. 

For Warner Music Group, that same price would be reflected by a 21 percent bump in earnings, adding an extra USD $256 million (AUD $383.6 million) of revenue each year and $158 million ($236.8 million) profit.

Another major financial institution, JPMorgan Chase, estimated in March that if Spotify increased its price for individual plans in the US, it would translate to $200 million (or close to AUD $300 million).

It’s not that the subscription services themselves are averse to upping prices in select markets and on certain offerings. In October 2020, Spotify – which entered the Australian market on May 22, 2012 – increased the local monthly price on Premium Family subscriptions for new users by $1 (from $17.99 to $18.99).

Also in Australia, Apple Music’s basic plan was upped from $11.99 to $12.99 in October 2022, while Amazon Music Unlimited’s base Individual Plan went up from $9.99 to $10.99 – and the Student Plan from $4.99 to $5.99 – in February of this year.

As head of the world’s biggest streaming service, Spotify CEO Daniel Ek is under the most pressure from the music industry to upsurge prices in the USA, UK and major European markets. Here, their base individual subscription rate has remained the same, at $9.99, since launch.

Ek maintained he has no problem with upping the price. “When our competitors are increasing their prices, that’s really good for us because, again, with our deep engagement that we have and the lowest churn of any competitor, we will likely fare better,” he said. “Right now we think Spotify sits at an amazing value-to-price ratio, and that is what gives us the opportunity to over time increase the ARPU (biz talk for Average Revenue Per User) [via price rises] too.”

Spotify is between the proverbial rock and a hard place. In the first quarter of 2023, the company reported 515 million monthly active users (MUAs), beating expectations of 502 million, while premium subscribers hit 210 million versus the expected 207 million. But in 2022, while Spotify generated €11.72 billion (AUD $18.2 billion) – a 21 percent increase from the previous year – it still posted a loss of €236 million (AUD $379 million).

But Ek emphasised that timing was everything. Right now, escalating costs of living and economic uncertainty were hitting hardest the under-35s and young families with children. In Australia, entertainment spend was among the first to be hit, the Australia Council’s Audience Outlook Monitor reported in May. Things were so tight that Aussies were even starting to avoid free events because they still had to factor in the costs of travel, parking and snacks.

Ek continued: “We definitely think that there’s pricing power with this model [and] the more things we’re bringing on to the platform, the more value we’re bringing to users. [This] of course should mean that we have more opportunity to raise prices over time. It’s absolutely part of our strategy.”

But there is a dilemma: keeping prices the same will make it difficult to increase them in the future, especially as TikTok continues growing as the place to find new music among younger users. Mark Mulligan, head of UK-based MIDiA Research, noted: “Basically, streaming music waited so long to change prices, a whole generation expects these prices.”