Is it time to kill free music streaming?
Image credit: Filip
The end of free music streaming may be nigh as calls to charge for ad-funded streaming instead of offering it for free are growing.
Spotify are the world leaders in music streaming and in many ways have helped to bring the music industry to where it is today. Their business is predicated on their free tier, which offers unlimited music streaming that is funded by intermittent advertising.
Since Spotify began in 2006, the music streaming industry has grown to become the leading source of revenue for the global music industry. Premium music streaming from services like Spotify, Apple Music, Amazon Music, and Deezer accounted for 48.9% of the global recorded music revenues in 2023.
Certain streamers like Spotify and Deezer continue to offer free services, offering streaming that is funded by advertising between playback. These free offerings aren’t very good at generating revenues and are seen instead as helpful entry points for converting users to a paid subscription.
Sony Music Group Chairman Rob Stringer is calling for an end to “freemium” services like Spotify’s free tier. He described them as a “poor contribution to streaming monetisation”, accusing them of being unable to generate meaningful revenue for the artists and labels whose music is being streamed via them.
Stringer goes on to describe a “price gap” between free and premium users. He suggests that platforms should begin charging a “modest fee” to use ad-supported services.
Goldman Sachs added to the narrative in a recent report, writing: “As premium plan pricing continues to improve, we believe that the audio ad-supported streaming offering will also need to evolve to improve the monetisation of ad-supported users (for instance through higher ad loads and CPMs, or through introducing an advertising light tier for a small charge) and/or support higher conversion rates towards the premium plan (through placing greater content or feature restrictions on the freemium service).”
Premium streaming has increased in price in the last year for the first time. Services around the world raised their monthly charge by roughly $1. Spotify even recently raised their standard Premium subscription by another $1 more, with some thinking that other services will follow suit.
As artists the world over ask for more money from music streaming, which has become the primary source of revenue for many, it may be time to think about ending free music streaming. Charging a small fee, less than the price of a full subscription, for an ad-supported tier may encourage users to invest more where they can’t commit to a full $10.99/$11.99 subscription.
Netflix has found success in offering a similar subscription offering to users. Their ad-supported tier still charges users, but at a lower cost to their standard subscription. Users’ viewing experience is then intermittently broken up by commercials. This allows users the freedom of choice for a cheaper option, whilst also generating revenue from both subscriptions and advertising.
Even just a charge of $1 for Spotify’s ad-supported tier could bring in a huge new source of revenue for both Spotify and artists/labels. With 388 million free users on Spotify’s free tier, there is a huge source of potential income, even accounting for a number of those users quitting the platform completely if forced to pay.