Are Family Plans Killing Music Streaming’s Economics?
There’s growing angst among the record labels that shared Family Plan subscriptions offered by Apple, Spotify, Pandora, etc., are hurting the music industry’s revenue . All you need to do is look at the ARPU (average revenue per user) trends for evidence of this. In Spotify’s Q2 Earnings call they reported a 12% decline in ARPU compared to Q2’17. The main culprit for this drop is the rise of family plans – where a group of listeners pay a monthly fee that’s much lower than each listener would have paid if they had their own sub. Since some streamers, including Spotify, pay the labels a percent of their revenue any discount in the subscription price lowers everyone’s take.
When Family Plans first came out pricing was healthier. The primary listener would pay the full $10/mo, and then could add extra users at $5/mo. So a four person plan would bring in $25/mo, as an example. Then in 2016 Apple introduced the first flat-priced Family Plan at $15/mo, which Spotify matched a few months later. For Apple dropping the price floor is a winning strategy – they have cash to burn and can use streaming subs as a loss leader to keep more listeners in their ecosystem. However, everyone else in the subscription game is now feeling the squeeze.
Over the next six months Spotify will begin renegotiating its label deals. It’ll be interesting to see if the labels demand a higher percentage of the steamer’s ARPU to make up for the rev dent Family Plans have made.