Recent reports from multiple news sources have emerged this week talking about how Spotify is now worth more than the entire US Music Industry. According to The Wall Street Journal, “after their recent deal for $400 million in additional funding, Spotify is now worth a total of $8.4 billion, which is double the value of their closest competitor Pandora.” If it wasn’t clear before that music streaming is taking over the industry, it is now. I used to buy physical albums a few years ago because I like to own physical copies of media, but once Spotify started offering college students $5 per month plans, I could not resist any longer. The service is fantastic and I have discovered countless new artists.
According to RIAA, “their valuation for 2014 was $6.972, which is now just behind the value of Spotify. Earlier this year, RIAA announced that for the first time in history, music streaming made more money than the sale of CDs last year, which makes this news about Spotify not all that shocking.” This brings up a larger discussion about the mortality of the music industry in the United States. Obviously, digital sales have completely eclipsed physical music sales and that is not changing anytime soon. But some believe that $10-$15 per month for unlimited music streaming is too much. According to David Pakman, former CEO of eMusic, stated that, “Consumers are willing to spend somewhere around $45 – $65 per year on music … [T]hese numbers have remained consistent regardless of music format, from CD to download. Curiously, the on-demand subscription music services like Spotify, Deezer, Rdio and Beats Music are all priced the same … This is because the three major record labels … have mandated a minimum price … The services are not able to charge a price they believe will result in maximum adoption by consumers. The data shows that $120 per year is far beyond what the overwhelming majority of consumers will pay for music and instead shows that a price closer to $48 per year is likely much closer to a sweet spot to attract a large number of subscribers.” Marc Geiger, the global head of music for William Morris Endeavor, has a different point of view. “Geiger envisioned a future in which 1 billion people pay $15 per month for streaming subscription, yielding a whopping $180 billion in revenues for the music industry. (About 25-30% would go to distributors like Spotify, but even at the $135 billion figure Geiger used, streaming alone would be more than 4x larger than the entire industry was for the labels back in 1999.) On top of that, he thinks that ad-based services like YouTube will generate another $50 billion, of which the labels will get 50%.”
I think $5-$10 a month for unlimited streaming a fair business model that allows the consumer to subscribe monthly, rather than yearly, where they can opt out at any time.