The Digital Music Family – Let’s Jam for Less!

POSTED BY Analyst Team

It has been a confusing year of price changes for the ‘streamed music’ fans. Spotify, one of the most popular providers, announced its Student Discount package for US college students in March, which allows access to its services for half the regular price. A month later, a deal with Sprint was announced which let “framilies” (friends and family) get Spotify for $5 a month for 18 months. The service was discontinued in the summer, although some discounts through Sprint are still available for subscribers.

Other service providers have also started to recognise that ‘the more the merrier’ when it comes to signing up new subscribers. For example, for students and families based in the US, Rdio offers a 50% discount, which applies to web-only listeners. Amazon allows families to link up to five accounts and therefore access anything that one of them purchased. On the other hand, though, Beats Music seems to be going against the trend of graduating the entire family into its group of subscribers. Prior to the takeover by Apple, Beats had a partnership with AT&T which let music enthusiasts have up to five Beats accounts and listen to their favorite tunes for as little as $15 a month. Since the takeover, this has changed – AT&T stopped selling Beats subscriptions and the family discounts are no longer available. Rumors have it that Apple wants music labels to revise their licensing terms. The company is trying to negotiate with record labels for a lowered pricing structure, arguing that subscription numbers could grow significantly if the streaming service was offered at the $5 per month price point.

The latest to the group family-friendly offers, Spotify introduced its half-price discount program for families on Monday, October 20. The decision comes as a response to the ever-increasing tension between those who sell digital music and those who consume it. Since accessing content digitally requires some sort of payment by each individual user, virtually any sharing with family and friends counts as piracy. Family plans aim to forego that strict (and outdated) assumption and acknowledge that a family member’s subscription is not completely a new account, although they should still pay something more than ‘zero’ for using the service.

As discussed in Juniper’s recent report on Digital Music , streaming services are currently available for a fee of around $10 per month – Spotify Premium and Beats Music are both charged at $9.99/month base rate; while Pandora and Rdio cost $4.99 a month for web-only streaming (Rdio web & mobile is priced at $9.99). The $5-a-month subscription fee, currently sought by leading digital music service providers, is exactly the price that researchers at MIT (Massachusetts Institute of Technology) suggest as the best and most viable option to reach maximum profitability in the long run. The concept, called Open Music Model, suggests that multiple playbacks of recorded music content shall be regarded as a service rather than individual product items, and a flat fee should be charged for unlimited access to such services. It is also considered the best option against piracy today.

It will be interesting to see how pricing structures in the digital content ecosystem will evolve in the near future. Customers surely want to stream music for lower (or potentially free) prices, while record labels still hold their hands tight on their stream of revenue, i.e. keeping royalty fees as high as possible. The two opposing interests shall meet somewhere, the question is how much that point will translate to for all participants in terms of available content, subscriber numbers, and revenues.