Monday 12th March 2018
Digital streaming services have revolutionised the entertainment industry so much over the past decade, that it might seem strange to point to a lack of innovation which might be holding back progress. But one curious aspect of the streaming revolution is how similar the business models are.
In the case of music streaming in particular, with the honourable exception of Amazon, there is very little variety in business models beyond the now standard £9.99 monthly pre-pay all-you-can eat account.
While the market’s growth rate continues to delight content owners and investors alike, the fact is the sector would probably be growing even faster if services were better able to target different demographic groups.
It’s a lesson the mobile telecoms market learned years ago.
As it happens the Bayley family’s mobile habits illustrate the issue perfectly:
- My mother uses the mobile rarely and so has opted for a minimal pay-as-you-go tariff;
- My son has a seemingly insatiable appetite for data and has a high-priced contract;
- My daughter constantly chats and so for her it’s all about cheap calls and just a bit of data.
Fortunately mobile phone operators have products which precisely target each of them, allowing the family to control costs (hurrah!) while giving each of them what they want.
In fact estimates for the number of different phone and tariff combinations currently available range from 1m to up to 8m.
Perhaps not quite so customisable, but certainly offering a lot more flexibility than music are premium TV operators such as Sky or BT Vision. With sport, without sport, with film, without film and with the ability to add downloads on the move, Sky, for instance, offers an incredible amount of choice, all designed to maximise the market.
Now it is of course possible that £9.99 all-you-eat is the optimum music offer and no change is required, but if I look at how my family use music streaming, I sincerely doubt it. Admittedly there are discounts and packages and the effective monthly price to Mother, Son and Daughter is probably more like £5 a month, but there’s no hiding from the fact that their music usage varies dramatically:
- My Mother seems to be obsessed with Elvis Presley and little else and doesn’t subscribe at all;
- My Son has over 10,000 tracks saved to his library and listens up to eight hours a day;
- My Daughter has just 268 tracks saved in her library and listens to those and a new release playlist for only around an hour a day;
- As for me, I have around 5,000 tracks but listen mostly via Alexa or actually to CDs in the car.
As things stand, with current pricing, my Mother will probably never subscribe unless there’s a well priced “Elvis channel”, my Daughter and I will probably continue to subscribe albeit with very different usage patterns, while my Son could probably be persuaded to take out a “super-user subscription – if only someone pitched it to him.
At both ends of the market – mother and son – the music industry is currently leaving money on the table.
So why aren’t the services offering a greater variety of options?
The fact is, in music the “retailer” has far less control over price than in most other sectors. It’s in the nature of the copyright business that there is no alternative supplier for Ed Sheeran or Sam Smith.
If digital services want to make more segmented offerings, they are going to have to bring the copyright owners along with them.
The good news is that there are some positive precedents. When mobile telephony first came along it was a business product for years. Monthly accounts with long term commitments were the only way to get connected. It was the advent of pre-pay or pay-as-you-go offerings which enabled the market to take off.
Average revenue per user (known as ARPU) may have taken a hit, but it enabled the mobile industry’s reach to extend to virtually the entire population.
Meanwhile in subscription television, Sky are past masters at the up-sell, adding services like Sky Cinema, multi room packages and on the move options.
The simple fact is that a single product can never maximise the market.
Content owners need to be prepared to compromise if streaming is to reach its full potential.