Music makers are tired of getting peanuts from ad-supported streaming.
Free music streaming has been a huge part of digital music for over ten years. But now, it’s under threat. Since free tiers pay artists even less, reports and industry experts are pushing for platforms to let go of free music streaming.
Instead, they suggest charging a small fee for listening with ads for a multi-beneficial approach for both sides. Artists will get fairer compensation while platforms can also earn more.
The Case Against Free Tiers
Spotify, the biggest music streaming service, has always offered a free tier to attract users.
Many thought this was a great way to turn casual listeners into paying subscribers. But now, people are starting to question if this approach can last.
Free streaming has never been good when it comes to paying artists. These ad-supported versions pay very little compared to paid subscriptions.
To put it in perspective, Spotify only made €389 million from ads in the first three months of 2024. This is a tiny part of their total earnings, even though most of their users listen for free.
On the other hand, paid streaming made up nearly half of all recorded music money in 2023. This big difference is making people in the music industry clamor for immediate change.
As the music industry keeps changing, there’s more pressure to fix this gap and make money from all types of users.
Industry leaders have noted a widening “price gap” between free and paid users, particularly in mature markets, which they argue needs to be addressed to ensure fair compensation for artists and sustainability for the industry.
Big Names Calling for Change
Rob Stringer, the Chairman of Sony Music Group, has been vocal in pushing for this change based on a report published in May 30, 2024.
According to him, free streaming doesn’t make enough money. So, instead, he’s advocating for streaming services to charge a “modest fee” for listening with ads.
This sentiment isn’t isolated. A recent Goldman Sachs report echoes Stringer’s call, proposing that streaming platforms change their free options to make more money and get more people to pay for subscriptions.
But, even before all these, the shift away from free tiers is already underway.
Tidal and Deezer, two respected players in the streaming arena, already got rid of their free tier options earlier this year. This leaves Spotify and YouTube Music as the last major holdouts still offering ad-supported free streaming.
How This Could Affect Listeners and Artists
This industry shift could mean a lot for both listeners and artists.
People who are used to free music might need to rethink how they listen. But this change could help artists get paid more, especially those who aren’t very famous.
Consider this: in 2023, 86% of songs on big streaming services were played less than 1,000 times. This shows how hard it is for many artists to make money in the current system.
Even a nominal charge for currently free tiers could make a big difference. Experts think that adding even just a $1 fee could bring in between $465.6 million and $11.64 billion every year around the world, depending on uptake rates.
The report also highlights the need for improved monetization strategies. According to it, monetization of music content has significantly lagged behind consumption.
Since 2017, people have been listening to four times as much music, but the money made per stream has gone down.
Improved monetization through higher ad loads, introducing an advertising light tier for a small charge, and better segmentation of freemium users are seen as potential solutions.
But the impact of these changes would affect different countries in different ways.
In emerging economies, where $5 might equate to multiple full premium subscriptions, implementing even a “modest fee” could prove challenging. Meanwhile, mature markets like the USA are already witnessing a slowdown in subscriber growth, adding urgency for new monetization strategies.
The Future of Music Streaming Monetization
Looking ahead, it’s likely we’ll see more paid tiers and fewer completely free options.
Spotify’s recent price hike for its Premium tier to $11.99 per month in the US is just the tip of the iceberg in this broader trend towards improved monetization strategies.
It’s not just about price increases, though.
Streaming platforms are also modernizing their payout models to address concerns about fair compensation.
Deezer and Spotify, for instance, have recently changed their payment systems to reward artists based on how much people listen to their music, not just how many times it’s played.
Improving Monetization Beyond Headline Price Increases
Beyond price increases, there is also an opportunity to improve monetization through better audience segmentation.
There’s growing interest in developing “super premium” plans for superfans. This takes inspiration from the K-pop industry’s success in monetizing fandom through exclusive content and experiences.
When you think about it, the current streaming model is rather one-dimensional. They charge everyone the same monthly fee, no matter how much they use the service or like the artists.
This approach fails to capitalize on superfans who are willing to shell out more for exclusive content and experiences. In fact, reports say there could be $4.5 billion to be made from this type of audience.
The K-Pop industry serves as a case study in this regard.
Platforms like HYBE’s Weverse let fans and artists communicate, purchase exclusive content, and engage more, resulting in better monetization.
It’s an approach that could revolutionize the streaming landscape if replicated by other services. Plus, it won’t just open up new revenue streams, but also enhance the fan experience.