All summer, there’s been plenty of buzz around streaming services and the impact these have had on the music industry. Sure enough, people have streamed more than 1 trillion songs just in the first half of this year. Whether you’re a digital content provider or running a subscription-based business, the changes in the music industry provide some worthwhile lessons.
Choosing Between a Subscription or Ad Model Is Only the Beginning Regardless of the type of content, a fundamental discussion and concern centers around choosing the right business model: subscriptions or ad-based. According to Jupiter Research, revenue generated from ad-based music streaming is expected to hit $782 million worldwide this year and jump to more than $1 billion in 2016. More importantly, ad-based models may actually increase the number of users who eventually opt for a paid subscription. Prime examples include Spotify and Pandora, both of which have taken a hybrid approach, using ad-based services to attract new users that gradually funnel those users into paid subscribers. As with the cable industry and video content, the music industry has been in constant transition, but never more so than over the past two decades. From cassettes and CDs to MP3s and now streaming, the industry and listeners are primed for the next major shift in how we consume music. What Matters: Managing Customer Relationships and Retention Churn is a bad word for subscription services, and music streaming services are as vulnerable as any. With the flexibility to switch from service to service, audiences can demand and expect a certain level of content. According to estimates, since its launch in July Apple Music has had 11 million free trial sign-ups with 2 million who are paying subscribers. Compare that to Spotify which, now in its ninth year operating, has more than 20 million paying subscribers. Those numbers provide fodder for the more significant objective for music streaming services: customer relationships and retention. In a business as competitive and volatile as music streaming, the user audience is the biggest customer acquisition asset. Whether through word of mouth or social media, listeners can make or break a service. As the business grows, customers become more and more powerful in their reach and influence. Lately, much talk has centered around artist exclusivity to attract and retain listeners. Taylor Swift’s music streams exclusively on Apple Music, while Prince's similar arrangement with Jay Z’s TIDAL are notable examples. While it remains to be seen whether artist exclusivity alone will have much of an impact on customer acquisition and retention, providing a good and positive experience surely will. For music services, frequent interactions with customers can significantly maximize the value from those subscribers. In a business heavily dependent on returning listeners, successful music services will be those that can impress and engage users every single time