Making Free Pay: Fine-tuning Freemium
Streaming is transforming music and TV business models, driving growth in both audiences and revenue. A balance between free and paid tiers and services has been key to this success, but, growth is not always balanced, and as we approach maturity in many western markets, more may be needed of free, ad supported options. Likewise, for unlocking longer-term, larger-scale growth in emerging markets.
We know these issues matter, but we also know it can be hard to plan for the next phase when there is so much activity and resource requirement being delivered by the current phase. Therefore, to help media companies and streaming services alike, we have put together a curated insight event to provide the definitive evidence base for setting the balance between free and paid.
Join us for this free event, to see exclusive, previously unseen MIDiA data presented by our Research Director Tim Mulligan and a panel of industry experts tackle the burning questions. This event will help you understand:
- Just how big will streaming music and video advertising get?
- What is the right balance to strike between free and paid?
- How will this balance vary across different regions across the globe?
- How many more consumers will make the path from free to paid?
- Why are streaming audiences so interesting to advertisers and how can they reach them?
- What impact will the tech majors’ domination of global ad revenues have on streaming services?
The event is free to attend, and will be in central London on the 17thOctober. Places are limited though and going fast, so be sure to sign up soon if you plan to come.
As a sneak peak, here is one snippet from Tim’s presentation:
TV and music have a long history in ad supported via broadcast TV and radio. Both also have had the opportunity to convert an unprecedented volume of consumers to subscription relationships through streaming. The focus right now is all on subscriber growth, but the flatten out phase of the s-curve will come and when it does, ad supported can, and should, pick up the baton and run with it. The challenge is how to do that without unravelling subscription revenue.
Both music and video will follow a similarly shaped growth trajectory over the coming years in terms of advertising’s share of total revenue. However, music will lag far behind with just 38% of streaming revenue coming from ad revenue in 2025, compared to 56% for video. This will reflect both the positive and the negative. On the plus side, music will be generating strong subscription revenue in 2025, thus commanding much of the revenue share. However, it will also be generating much less annual ad revenue per user (ARPU) in 2025 than video: $4.69 compared to $20.37. In fact, video will see ad supported ARPU nearly double by 2025 from 2017, while music will add just one dollar.
This reflects multiple factors, including:
- Social video (YouTube, Instagram, Snapchat, Facebook) will generate far more ad supported video revenue than it will ad-supported music revenue
- Video ads command a higher ad rate than audio ads
- TV ad budgets are much bigger than radio ad budgets, and their transition to streaming will accelerate video ad revenue growth
- Few music services have scaled their ad sales outside of the US (though some encouraging signs are occurring there)
- Emerging markets will be key drivers of ad-supported music audiences, but digital ad markets will take time to get established
Ultimately, streaming ad growth will be shaped in equal measure by traditional ad market dynamics, and the tech and ad sales capabilities of the streaming services in each and every respective market. This means that in many markets we will see free audience growth far outstrip ad revenue growth. Just one of the many challenges posed by a growing ad supported streaming sector.