More love for music subscriptions

The iHeart Radio Ice Cream truck. Photo: John Lamparski/Getty Images for Advertising Week New York

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iHeartRadio launched a new music-subscription service yesterday, with multiple tiers for increasing sets of features.

The first tier costs $5 per month, allowing users to replay and skip songs, and listen offline. The second costs $10 per month and provides a full on-demand suite of songs, similar to Spotify.

Both plans are ad-free. Radio providers and music streaming services are increasingly offering subscription packages to supplement ad-supported listening. The company’s parent, iHeart, operates the largest terrestrial radio network in the US, and although they don’t break out digital listeners, it’s monthly terrestrial audience rounds out at more than 250 million listeners. Here’s why the launch is important for the music streaming industry:

  • Subscriptions are the future of online music. It seems inevitable that every music streaming service will eventually offer a premium subscription tier. Music subscriptions will account for 78% of total US streaming music revenue in 2020, compared with 67% in 2016, according to a recent study from Activate.
  • Subscription growth will outpace ad-supported models over the next four years.Total streaming music revenue will reach $6.5 billion in 2020, advancing at a four-year compound annual growth rate (CAGR) of 17%. This will be largely driven by subscription services revenue, which is set to increase at a CAGR of 22%, while ad-supported revenue will grow at a 5% CAGR.
  • Unique features will keep subscriber sticky. As vast song libraries are becoming ubiquitous among online streamers, unique features are becoming more important to users. According to Activate, personalized playlists, recommendations, slick user interfaces, and other enhancements that reduce friction (i.e. voice integration) will likely be the features that retain users and attract new ones.
  • iHeartRadio needs a differentiating feature. The $10 plan allows users to create playlists and music libraries, a common feature of online streamers. The company is banking on discoverability to set apart from competition, but this may not be enough as listeners can already discover new songs via curated playlists from companies like Pandora or Spotify.

While the launch is the next logical step in the company’s digital strategy, they are fighting an uphill battle. Music streamers are beefing up capabilities and iHeartRadio will need to follow suit. One such example is Spotify’s new “Spotify Singles,” which features original live recordings and cover songs by popular artists.

Many digital media companies have embraced monthly and annual subscriptions. This business model allows digital media companies to provide a premium experience that offers more than the basic, often ad-supported service level.

Subscriptions are enjoying a new prominence as a revenue model for digital content and apps. Internet companies are exploiting the opportunity to boost ARPU (average revenue per user), thanks to recurring payments from a subscriber base.

BI Intelligence, Business Insider’s premium research service, has compiled a detailed report on subscription revenue that looks at how prominent players in five separate categories have tried to build a subscription-based revenue stream alongside ad-based businesses: the categories are video, music, news publishing, social networks/messaging, and dating apps.

Here are some of the key takeaways:

  • Most companies operate on a “freemium model.” Subscriptions typically operate alongside an advertising business.
  • Success in freemium boils down to offering a core audience exclusive value that can only be accessed beyond a paywall. The key is to target the most loyal audiences, and sell them on an expanded offering — bundles of features or content — that they find irresistible.
  • Some publishers and apps have had mixed results with subscriptions, and vary in terms of how hard they have pushed them. Part of the problem is that ad-dependent companies are worried about limiting audience if they pack away too much value into a subscription tier.
  • The proportion of paying subscribers within the total user base varies considerably across digital media industries. Each category is obviously different, and won’t face the same challenges and opportunities in dialing up the percentage of subscribers and subscription revenue. Here are some of the proportions of subscribers in apps’ user bases: Spotify (25%), WhatsApp (21%), Pandora (5%), Match Group (5%), The New York Times (3%), and LinkedIn (2%).

In full, the report:

  • Analyzes the most common subscription-based digital media revenue models
  • Explores the drivers that allows some subscription or freemium business models succeed
  • Explains the revenue mix and business opportunity in several key digital media industries
  • Outlines companies that have succeeded with subscription-based business models

To get your copy of this invaluable guide, choose one of these options:

  1. Subscribe to an ALL-ACCESS Membership with BI Intelligence and gain immediate access to this report AND over 100 other expertly researched deep-dive reports, subscriptions to all of our daily newsletters, and much more. >> START A MEMBERSHIP
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