The Cost of Freemium

Music streaming services (MSSs) are a relative new comer to the online digital music market. As of yet, there has been much apprehension from key stakeholders within the music industry, towards the use of the freemium pricing model by many of the MSS platforms. This research aims to uncover the impact of freemium MSSs within the music industry via an empirical study into the potential incomes of MSSs and revenue levels. Consumers valuation of freemium MSSs were elicited through contingent valuation methods, and a questionnaire was used to measure respondent’s willingness to pay (WTP) for a premium service tier, and willingness to listen (WTL) to adverts for a free service tier. Results showed that the optimum price level for premium streaming services is around 7$ per month, while the optimum level of advertisements were around 3 minutes per hour for the free service. A review of these results along side complementary sources on the music industry showed that freemium MSS services have a high earning potential for record labels and right holders, discourages piracy, and are a valuable tool for artists to promote and earn from their music. All the key stakeholders, record labels, artists, and consumers, stand to benefit from MSSs. This research hopes to clarify some of the misconceptions and controversy surrounding MSS and foster cooperation between them and key stakeholders in order to reverse some of the negative impact of piracy and digitalization within the music industry.