Churn is a topic in its cooling off period at the moment, with Mulligan, Resnikoff, Peoples, Dredge and others contributing a short time ago to a discussion on this issue. The debate centers on whether the relative proportion of active versus inactive users (so-called zombies) is a good or bad sign for new music services.

I think something more important than churn may be taking place. Or, stated differently, the market grew quickest during a period that likely also offered the highest rate of churn. The US market for music services offers a particularly useful space for digging into this issue.

First.. a distinction I would like to make between two kinds of churn: (1) the movement of a subscriber from one service to another (i.e., your loss is my gain) and (2) the loss of a subscriber from not only one provider but from the market as a whole (i.e., your loss is our loss).

I am making this distinction for a very simple reason: When we only consider the user base characteristics for clearly freemium services (e.g., Spotify and Deezer), we likely over-estimate the zombie population. The over-estimation is the result of counting “your loss is my gain” subscribers as “your loss is our loss” subscribers.

As fas a I can tell, of the 3.4 million paying subscribers to on-demand music services:

(A)  15-20% of the 2012 subscribers (650,000 [+/- 100,000] accounts) may have been “your loss is my gain” churn.

(B)  50-65% (2,000,000 [+/- 200,000] of this overall subscriber pool were not likely and directly acquired via a freemium model.

(C) Of the 1.6 million new subscribers in 2012, however, upwards of 60% (900,000 +/- 100,000) subscribers may have arrived by way of a freemium model. Said another way, of the 1.6 million new subscribers in in 2012, upwards of 40% may not have arrived by way of a freemium model.

(D) The total population of zombies in this pool, most of whom arrived in 2012, may likely account for as little as 38% (+/- 5%) of the registered user base — after taking into account “your loss is my gain” churn and new subscribers to the market who did not arrive by way of the freemium path. This may be an underestimate as well, since its very difficult for me to capture and/or estimate (without internal data) registered and inactive users prior to 2010.

For the long story, head to Rockonomic…