Is It the End of freemium for Spotify?

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A recent article on Music Business Worldwide has announced that “Spotify now has in excess of 35m subscribers worldwide – and has added around 2m paying customers each month in the past quarter.”

“The Swedish streaming service is currently standing at around 37m subscribers, a figure accelerated by a recent price promotion in multiple territories.”

So Spotify is growing, and at a faster rate than its competitors, making the music streaming market look like a two horse race, with Apple trying to make ground on its rival.

But more importantly here, is that most of these paying customers, which have recently driven Spotify’s sales, are all taking advantage of the 3 months’ promotional offer for $0.99, which was live during the 2nd quarter of this year. With other similar offers being the main factor of Spotify’s growth over the last 18 months.

This is another way of saying that $9.99 isn’t an appealing price point for most customers.

The IFPI’s 2015 numbers revealed, that the average revenue per music subscriber dropped from $3.16 in 2014 to $2.80 in 2015. This is another key point that promotional offers are driving streaming services. The report also shows that over a quarter of these new subscribers will cancel their service once the initial offer has run out.

Free subscriptions did provide streaming companies with a valuable way of converting new customers. But reports show that freemium services are just not converting as well as promo offers.

Mark Mulligan, of MIDiA Research, has been arguing that mid-priced subscriptions will be the thing of the future, with a pricing reset of the music streaming industry.

Streaming companies may introduce mid-priced subscriptions using offers or targeting specific customers, such as:

  • Student Discount (which a few services already offer)
  • Family Discount
  • A Pay as You Go / top up service?
  • Maybe multiple tiers? And price points? For different features or services.

If this could be the start of a pricing reset what does that mean to free services?

Could this be the end of freemium services, the reports don’t look promising for free users, as mid-priced and/or promotional offers seem to be the best way for streaming services to convert new customers.

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