It’s time to lower music service prices, or “How to price a music service so hardly anyone will pay.”

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It’s now officially past the time for the music industry to re-think the pricing tiers it has mapped over the subscription music service market. Unless the goal is for hardly anyone to pay for these service, then prices are just fine as they are.

That means it is also time to stop blaming the sputtering growth of music services on bad marketing, or cultural whatever, or even piracy.

The problem is pretty simple: the prices are too high. Probably much too high. There would be a much larger pool of money on the table were prices for these service to go significantly lower. And no barrage of press releases trumpeting service growth will continue to veil the fact that hardly anyone is actually paying.

In case the present price tiers for subscription music services are confusing to you, the tiers go like this:

4.99 for streaming-only access to music on a computer
9.99 for streaming-plus-mobile device access to music

Caveats:
Take off the last digit if the service is launched in a Nordic region, or
Add 2.00 for any service launched in OZ, or
Add 2.50 or 3 to any service launched in NZ, or
Give the Swiss a .50 discount to the folks in NZ.

Regardless of what the real exchange rate might be at the moment, place at the front whatever currency symbol is appropriate for the country within which the service will launch such as: $, £, or €. So that’s $9.99 in the US, and £9.99 in the UK and €9.99 in France, AUD$11.99 in OZ, NZ$12.99 in Kiwi country, and SEK99 in Sweden for the “premium” service. Don’t forget the discount to the Swiss, so the service is 12.49 in Swiss Francs.

Back in 2009 I placed the following graphic in front of a room filled with music (and other copyright) executives, while presenting at the World Copyright Summit in Brussel. These data were specific to the UK, but let’s use them as an example.

Using data aggregated from a survey (or two) I estimated that at the price of 9.99 the industry would be able to signup no greater than 2.7%(ish) of the broadband population or 1.5%(ish) of the target population for a subscription music service.

I saw the total pool of revenue expanding (notice the elasticity in the graph above) significantly even if prices for a premium (i.e. mobile) service were below $5, and as low as $3.

As another example, Muve music has bundled their music service such that the price for a mobile services is clearly south of 9.99. The number of subscribers to Muve are now approaching 10% of the total number of mobile subscribers on Cricket Wireless, the wireless company offering the Muve music service. For context, Muve offers a premium music service bundled with minutes, unlimited sms, and “unlimited” 3G data beginning at the price tier of $45. Straight talk offers a comparable MVNO service, without music, for the same $45 price.

Needless to say, not everyone was excited about these numbers. But was this estimate that far off?

To date, the supposed “largest” subscription music service, as far as total number of paid subscribers, would be Spotify — with just over 4 million subscribers worldwide—according to their recent announcement.

Spotify operates, however, in 15 countries, the total population of which would be just under 700 million humans.

That puts Spotify’s subscriber base at 0.57% of the population. After major partnerships and promotions with the likes of Facebook, a service which recently claimed nearly one billion active users.

Reducing this total population by 20% to estimate the population that is over 13 or 14, we would find that Spotify has signed up 0.71% of this age-appropriate population (i.e., the folks with mobile phones).

Adding to the mix the array of music services operating out there (e.g., MOG, Rdio, Deezer, WiMP, Muve, Melon, etc.) across all of the countries within which these services operate in addition to the Spotify countries (e.g., South Korea, India, etc.) and the percentage of subscribers for population above 14 stalls.

For example, while Dhingana in India has been able to signup 8 million active users in India and three million in the US, that base in India amounts to (surprise) 0.64% of the population — at a price of FREE.

In the end, at present prices, the industry has not been able to signup no greater than 1.5% of the target population. In fact, the real percentage may be less than 1%.

It’s time to re-think pricing of music services.

Unless, of course, your goal is for hardly anyone to pay for them.