Last week we had a couple of good reasons to take a second look at subscription models for streaming music business. First, Last.fm announced that the radio service built into Last.fm mobile apps and on home entertainment devices will become an ad-free, subscriber-only feature on February 15th. It’s not practical, they explained on their blog, to deliver an ad-supported version of their streams on mobile and other connected devices, so they’ll continue to offer an ad supported free version from their website, accessible through your computer, but if you want to listen on other devices you’ll have to pay a monthly subscription fee of $3 per month – the cost of a “fancy coffee.”
Last is not the first (get it?) service to head in this direction – many other services offer ad-free versions of their sites for a small subscription fee. Pandora One, Pandora‘s ad-free version, costs $3 a month as well – although they do offer a free version that is available with mobile devices. It’s working out okay for them – as we saw in Pandora’s recent SEC filing, they have managed to convert a small percentage of their large user base to paying customers, and generated 13.6% of their revenues in the first 3 quarters of last year from subscriptions.
Other services are working the subscription model as well – MOG, rdio, and Rhapsody, who offers unlimited streaming for $10 a month along with the ability to transfer playlists to a device for offline listening.
The Pew Internet and American Life Project reports that 33% of Internet users said they had paid for digital music online – which presumably includes downloads as well as access to premium streamed content. Digital music topped the list of items consumers were most likely to pay for.
Streaming music services have struggled to develop successful business models. CBSRadio, which owns Last.fm, no doubt decided that profitability or the pursuit of that is important enough to implement some changes that will no doubt impact the size of their audience. Can they leverage their brand and audience into a decent size subscriber base? Some early indicators say they just may be able to.
The Pew Internet and American Life Project reports that 2/3 of Internet users have paid for digital content. Thanks to pervasive broadband penetration in the US users can quickly and easily download software, movies, television shows, music, e-books, and news articles.
The survey asked more than 750 adults whether they had ever paid to access or download a list of 15 types of digital content, ranging from digital music to ebooks, movies, photos, games, apps, adult content and more. 33% of Internet users said they had paid for digital music online – which presumably includes downloads as well as access to premium streamed content. Digital music topped the list of items consumers were most likely to pay for.
It’s a study that validates the premium subscription revenue model and has great and positive implications for media companies that are struggling to recover revenues lost to dwindling circulation or audience for their traditional media. Beginning this month the New York Times will lock down unlimited access to its website under subscription, limiting online access to its content to online or newspaper subscribers.
Streaming music services have struggled to develop successful business models as well, with some services such as Pandora and Slacker exploring both ad supported and premium no-ad subscription platforms. Others such as Rhapsody and MOG deliver on-demand streaming songs for a monthly subscription. This seems to be a model favored by the record labels, who have refused to license on-demand service Spotify in the US for their ad-supported on-demand service. Pandora, Slacker and other webcasting services, which do not deliver on-demand songs, have a compulsory license (and associated royalties) for such.