AUDIO STREAMING

Business

Most Audio Subscription services base their business in revenue from two main sources: Subscription fees and advertisement, and offer 3 layer “Freemium” service, even if in some cases the Free stage is offered only during country launch or for limited period as trial for potential new customers.

In the free modes the revenue comes from advertisements and in the others from subscription fees.

Most of the costs come from royalties paid to record labels and marketing even if initially the technological hardware and software development are a heavy burden.

The royalties are paid based on a ratio of the amounts received versus the number of downloads in a given month, even though there are weighting considerations in Major Labels vs independent labels fees and it is suspected that some artists may be preferred to others.

For the industry, artists and composers Subscription Services are bad short term revenue sources even though in the long term they are a “sexy” model.

In the table below we can see a comparison between the revenues depending on media:

So, on average 100-200 plays are needed to provide the same amount as one iTunes sale would provide. It is also song based so album bands (eg. Pink Floyd) are not very adept of this model. This model has various pros and cons for an artist/record label:

Pros	Cons
Revenue from people who wouldn’t pay for a tune	Very Small fee per play
Long term cummulative revenue	Affect record sales during launch phase that affects quick ROI of record production costs
Marketing step that leads to digital or physical sales and improves concert revenue	Limited geographic availability

Since this is a new business the strategies are still mixed and no sound conclusions have been made with for example some artists fully embracing it since beginning of product availability stage, some preference a hiatus of some months after release before making full albums available and others still preferring to stick to old “methods”.

Key drivers for the growth of Music Subscription services are the increased efficiency in the war against illegal downloads (with recent close of Megaupload sharing service and BTJunkie torrent meta searchers) and the increased global penetration of smartphones and tablets. The partnerships with Telecoms and Mobile Phone Operators (as their Music partner) and recent integration with social network sites like Facebook have increased the public profile and penetration of the services.

Some keys facts and figures:

• The global number of paying subscribers for music services has grown by 65 per cent, from an estimated 8.2 million in 2010 to over 13.4 million in 2011
• Subscription has caught on exceptionally well in some markets, particularly in Scandinavia. In the first 11 months of 2011, Fr in Sweden, subscription accounted for 84% of digital revenues, boosted by its national champion Spotify. 

To summarize we can quote a recent Financial Times: “The global music industry says it is close to a turning point where growth from digital revenues offsets declining sales of CDs, thanks to a combination of subscription services and tougher action on piracy”.