Streaming consumption has held up during the lockdown, according to Official Charts Company data. All the signs are that subscriber numbers are still growing steadily, too.
But BPI & BRIT Awards chief executive Geoff Taylor has called on DSPs to look at the returns from ad-funded free tiers. Worryingly for labels, these services are now under greater pressure with falling advertising rates during the pandemic (although digital advertising may be hit less hard than other mediums).
“Generally speaking, ad-supported hasn't done quite as well during lockdown as premium,” said Taylor. “At the BPI, we think there's work to do on ad-supported consumption In terms of penetration, but particularly in terms of CPM and realising more value from that tier. It's been underperforming for a very long time. I think there's a job of work to do with the services to try and target advertising better, and raise the economic contribution that the ad-supported tier makes to the industry. It’s clearly insufficient.”
While the industry has made it clear that it values subscriptions as the driver of streaming growth, DSPs have seen free tiers as a funnel to bring in more paying users. Spotify revamped its free service two years ago, rather than winding down its freemium offer as some might have expected.
Taylor said that the funnel from freemium to paying subscriptions “varies very much service by service”.
“I think with Spotify, generally speaking it’s worked pretty well and there have been good conversion ratios between the free tier and the premium service,” he said. “But on other services, we haven't seen that as much.
“Particularly YouTube, there's been real concern across the industry that the YouTube premium service [YouTube Music] hasn't grown as quickly as we would hope. It clearly had great potential given the scale of YouTube as a platform, but we would like to see greater efforts from YouTube to convert more users from their free tier into their paid service.”
YouTube has not issued figures on its YouTube Music subscriptions, though parent company Alphabet has reported advertising revenues.
There's been real concern across the industry that the YouTube premium service hasn't grown as quickly as we would hope
Taylor said the signs are that subscribers value premium music streaming services when they do sign up.
“The data we get back from consumers really suggests that when they try a premium streaming service, they really love it,” he said. “Satisfaction levels are really high and churn levels are low. So, the more people we can get to try audio streaming, and then the more uses that you can put it to – when you can add in-car and other uses like that – the value proposition, particularly at the low price point that it's at, is really, really strong.”
While there has been pressure from parts of the music industry on the standard £9.99 for a subscription, economic uncertainty and mid-tier rivals may mean that DSPs are reluctant to introduce any increases at this time.
“That’s something that the retailers determine,” said Taylor. “It is a highly competitive retail market for streaming services and obviously that has the effect of holding down prices. It's interesting that in Norway there was a price increase and they didn't see much in the way of churn.
“But as to when the timing is right, services will obviously closely be considering potential churn and closely considering what price resistance there might be to an increase. The most important thing is that we continue to grow the market in terms of the number of fans who are using streaming. It will find the right price point over time.”
Taylor admitted that the low £9.99 price point was a major reason for the growth of services.
“It is an incredible value proposition, which is one of the reasons that it has been so successful and is continuing to be so successful,” he said. “Do we think music is generally undervalued? Possibly when you compare it to other forms of entertainment and other services. But it's good for the industry that we are offering good value to the consumer, and that the consumer is really appreciating the service. I think the fact that we're still continuing to grow is a very positive sign.”
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