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Streaming Family Plans: Too Much Sharing Has Execs Concerned About Slipping Revenue Per User

Streaming Family Plans: Too Much Sharing Has Execs Concerned About Slipping Revenue Per User

Though Spotify’s subscriber base is steadily growing, the average revenue it gets per paying subscriber is shrinking.

One of the biggest reasons: family plans.

Industry sources tell Billboard that nearly half of global streaming subscribers are on family plans, which Spotify, Apple, Pandora, Amazon and YouTube all offer for $15 per month, for up to six family members. Analysts say the average family plan has three to four subscribers, meaning each participant saves an average of $5-$6 per month, and family plans account for at least 30 percent of total new subscriptions for Spotify.

These family-friendly offers have been instrumental in helping music services amass paying customers around the world — Spotify now counts over 83 million, and Apple boasts over 44 million — and neither Spotify nor Wall Street sees the slipping average revenue per user (ARPU) as a problem. Spotify’s stock is up over 15 percent from April, when it debuted on the New York Stock Exchange. Family plans could prove especially powerful in the big emerging markets in Asia and Latin America that streaming services are just starting to crack, where there tend to be fewer earners per household.

But some music industry executives are concerned about the downward ARPU trend; Spotify’s ARPU declined 12 percent in the second quarter of 2018 from the prior-year quarter. And as record companies gear up to start renegotiating their licensing deals with Spotify, some will be pushing it — as well as its competitors — to adjust the parameters. Family-plan price bumps could help compensate for the potential revenue being lost when family-plan subscribers share their passwords with friends outside their families. Such account-sharing is a problem plaguing subscription services outside of music, such as Netflix and Hulu. According to media research firm Magid, about 35 percent of millennials share passwords for streaming services.

“Of all the listeners to the top paid [music] services, roughly a quarter are ‘sharing’ the account — that is, they are not personally paying for the account, nor are they on a free trial,” says MusicWatch analyst Russ Crupnick.

When Spotify launched its family plans, they were more expensive, costing $10 for the “master” account and $5 for each additional user. But after Apple began offering family music plans for $15 a pop, Spotify did the same in 2016 in order to compete. While the record labels had sanctioned Apple’s reduced family-plan price, in part because they trusted that Apple’s older customer base would be unlikely to abuse the plans, they hadn’t given Spotify the rights to cut its prices, and some label executives accused Spotify of breaching its licensing deals. Eventually the labels agreed to Spotify’s price cut, but “now we’re in a corner, and it’s not good for anybody,” says one top major-label executive who wants all the major streaming services to return to higher family-plan pricing models.

Today, Spotify’s paid-tier subscribers generate 20 percent less per user on average than Apple Music’s. Meanwhile, Spotify’s family plans have one extra account member, on average, than Apple Music’s, according to this executive, chalking up the difference to Spotify’s users being younger and Apple’s users more reluctant to share family-plan access beyond their families, given the credit card and other personal information tied to their Apple accounts.

“In the physical world, we always wanted segmented pricing, from the front-line release costing $17 at retail to the bargain bin at Walmart, but our concern with Spotify is that they’re rushing to the bargain bin,” says the executive. “We’re racing to the bottom too quickly.”

See the original article here.

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