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The Rational Argument for Making Spotify Cost Half as Much

Streaming services grew by 50 percent last year, but still won't save the music industry—unless they get way cheaper.
Image: Flickr/Zen Sutherland

The heavens—aka wallets—have opened, and money is flowing into the streaming services. Subscription revenues for streaming services rose by more than 50 percent over the past year to more than $1 billion. For the first time in 12 years, overall sales of recorded music in Europe grew, according to a report by the music trade group, the International Federation for the Phonographic Industry.

Nevertheless, the worldwide music industry continued slowly collapsing, shrinking another 3.9 percent to $15 billion, a fraction of the heady Backstreet Boy-inflated days of 1999, when $40 billion worth of music was sold.

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What’s the problem here? There are 28 million people paying for music by the month—the Columbia House Record Club peaked in 1999 at 16 million. It must be that streaming services are just charging way too little, right? I mean, $10 a month is nothing—less than the cost of buying one CD every month (as I recall).

But former eMusic CEO David B. Pakman compared how much people were spending per year on music in 1999 and 2013, and discovered something interesting: people who pay for music are actually paying more now.

In 1999, according to the IFPI, the average person over the age of 18—both across many countries or individually within one—spent about $28 on music, Pakman wrote at Recode.net.

Still, that’s averaged across everyone, even people who never bought CDs, who are probably bringing the average down. “If we look at just the consumers who bought music,” Pakman wrote, “they spent $64 on average that year.”

Spotify, Deezer, Rdio and Beats Music all cost around $120 per year, though—nearly twice what the average consumer paid in fat old 1999. The issue with streaming isn’t that individual consumers are paying too little, but rather that there are still too few of them.

So Pakman suggests something wild: streaming services should be even cheaper. Bridging the gap between streaming and CDs was the iTunes, pay-per-track store. The average consumer on iTunes was spending about $48 a year on music. So, Pakman reasons, consumers would probably pony up $4 to $5 a month for a streaming service—but it should probably be $3 to $4, you know, if they want to really win people over.

It’s not really clear why the ideal amount of money is set at 1999 levels, and Pakman admits that there’s pretty much no way that the major labels who set the price of digital music would want to de-value their product any further. Artists, in spite of coming up with ways to game the system, like by releasing totally silent albums their fans can play on repeat while they sleep, still believe that streaming services do nothing for them.

Still, iTunes revenue is dropping, as are CDs, and even ringtones. The revenue streams that are growing are ad-supported services (so Youtube and Pandora), the subscription streaming services, and vinyl. Record labels and streaming services might do well to heed Pakman’s advice and look into how to grow the subscription base in an increasingly crowded media landscape, competing against the looming specter of free. It’s that, or trying to convince the world to revert to being vinyl hoarders.

As much as it might sound good to turn back the clock, if my parents’ record collections are anything to go by, when the average music fan was buying vinyl, he or she didn’t always turn into a hoarder. A couple of Jim Croce records, it looks like, was all they needed. That’s not going to revive a dying industry.