Subscription Models Grow

By Michele Bacigalupo

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The big names in entertainment have been paying close attention to the way consumers absorb their media. People know they can find music, television shows, and movies for little to no cost with the internet at their fingertips. Looking to give users access to media at competitive rates, certain companies offer online services at little-to-no cost. Spotify allows free-subscribers to stream music interspersed with ads as well as expanded services to premium account holders who must pay a monthly fee. Apple and HBO are set to follow suit with low-fee services later this year.

Although Spotify boasts 60 million subscribers overall, only 15 million users pay for its premium services, which includes unlimited ad-free streaming on all devices. As such, the company is having difficulty turning a profit. This has been a perpetual issue for co-founder and CEO Daniel Ek since Spotify’s launch in 2008.

Contrary to many other internet services, Spotify does not operate on a scale. Since the company buys its music at a flat rate instead of a fixed proportion, Spotify spends an enormous amount of its total revenue on royalties. Due to this, as Spotify gains more subscribers, the service must pay more for royalties.

According to Nielsen SoundScan’s year-end analytics, streaming is rapidly becoming the most popular way to absorb musical content. On-demand streams showed an increase of 54 percent in the report. Even sales on iTunes have gone down in the past year, with a drop of 12 percent in songs and 11 percent in albums.

To combat its falling numbers, iTunes acquired the subscription streaming service Beats Music in May 2014. The subscription currently costs $10 per month, but Apple is working with music labels to drop the price in order to entice more users to join. When Apple purchased Beats Music last year, it cost $3 billion, Apple’s most expensive acquisition to date. If Apple succeeds in turning a small fraction of iTunes consumers into Beats subscribers, it could become a serious competitor to Spotify, potentially changing the face of streaming music.

In the past, musicians have lashed out at Spotify for the service’s failure to provide them with fair compensation, likely due to the flat rate paid by the company. Whereas, songs and albums purchased from Apple’s iTunes Store have the potential to earn musicians a sizable amount of money since it isn’t based on a flat rate. Spotify just doesn’t have the means to compete with payout of the iTunes Store.

Last summer, singer/songwriter Taylor Swift pulled her music library from Spotify and wrote an opinion piece for The Wall Street Journal explaining her decision. Swift further expanded on her decision to leave Spotify in an interview with TIME Magazine.

“Everybody’s complaining about how music sales are shrinking, but nobody’s changing the way they’re doing things. They keep running towards streaming, which is, for the most part, what has been shrinking the numbers of paid album sales,” Swift said to TIME.

Prior to Swift’s decision, musician Zoe Keating released a public document of her finances from 2013, showing that 92 percent of her income is brought in by sales of her music, with a significantly smaller percent produced by streams.

In the world of television, HBO has come up with a solution to win over costumers who don’t subscribe to cable TV. In the past, HBO has required its users to have a cable subscription in order to access the network’s content online, but a new subscription service will charge customers $15 each month for online-only access. It will be made available to cord-cutters (people who live without cable access), as well as those who remain faithful to their cable networks. Since more than 10 million homes in the US have relinquished the cable cord in favor of paying for internet alone, HBO seems to be appealing to the growing streaming audience.

The HBO service is set to launch in April 2015, right in time for the premiere of the new season of Game of Thrones. HBO is strategically coinciding its new service with the release of the fifth season of its most popular show, which is also one of the most pirated shows on television.

Despite the fact that HBO’s streaming subscription will cost almost twice as much as a $7.99 Netflix subscription, HBO has little to worry about. Arguably, HBO’s content is more original, refined, and a bigger part of the pop culture conversation than the majority of the media available on Netflix. Though certain Netflix series like House of Cards and Orange is the New Black have become critically acclaimed–even taking home highly-regarded awards at the Golden Globes–these shows account for a small percent of the streaming service’s total original content.

As of now, Hollywood seems to be acclimating to the new streaming service push in the market despite an unpredictable future, while the music industry is still struggling. Perhaps, as more companies expand online, seeing what works and what doesn’t, the future of these industries will become more stable. Until then, users will benefit from the competition between companies like Apple and Spotify as well as Netflix and HBO as they strive to offer competitive rates to consumers.