What Is Password Sharing Costing Streaming & the Music Business at Large?
About one in nine Americans using a music subscription service are streaming using someone else's account, according to market research firm MusicWatch.
About one in nine Americans using a music subscription service are streaming using someone else’s account, according to market research firm MusicWatch. That means roughly 11 million of the estimated 95 million total Americans regularly using a music subscription service at the end of July 2019 were doing so for free, potentially costing the music industry hundreds of millions of dollars.
If action were taken to boot these freeloaders from the accounts, not every one would become a subscriber, but account sharing undoubtedly leaves money on the table. About 30% of people who admitted to using someone else’s account to stream music said they would pay for a subscription service, if they had to. That segment would be worth $300 million annually at $9.99 per month. The remaining 70% of account sharers would opt for the free, ad-supported services, said MusicWatch.
Those numbers aren’t trivial, even for a recorded music industry that took about $7.3 billion in wholesale revenue in 2019, according to the RIAA’s year-end revenue report released Tuesday (Feb. 25). With widespread dissatisfaction over current streaming royalties, creators and labels should happily welcome extra revenue.
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If the $300 million in lost fees were distributed pro rata, Universal Music Group, with a 38.82% share of U.S. on-demand streams in 2018, would receive an extra $68 million in royalties, by Billboard’s estimate. And that’s just in the U.S. That’s a speck compared to its North American revenue of $2.86 billion, yet an incremental 2.4% of revenue would be like being gifted a small record label with modest success but no expenses. As Dire Straits sang, it’s money for nothing.
Key Takeaways:
1) Of the 11 million Americans currently using a shared subscription account, about 30% could be considered likely subscribers and could be worth $300 million annually (at $9.99 per month).
2) Subscription services address account-sharing indirectly by offering a spectrum of pricing and plan options, from discounts for students to higher-priced family plans for up to six people. Many carrots, few sticks.
3) Some amount of account sharing is inevitable, just as illegal downloading still persists long after the record industry’s flurry of lawsuits. But what is an acceptable amount of sharing?
Rather than crack down on account sharing, streaming services, working with record labels, have given consumers reasons to subscribe. Three of the four Ps of marketing are in play: product, price and promotion. The standard, single-subscriber plan, typically priced at $9.99 in United States, has had many offshoots, such as the $15 family plan, the $5 student plan, free or low-priced trial periods, bundles with telecoms, a bundle with Hulu (Spotify) and a bundle with the Echo smart speaker (Amazon Music), to name a few. All the while, a drumbeat of new features and redesigns improves user experiences.
If the soft-handed approach to account sharing is appropriate in a young marketplace, more aggressive tactics would be appropriate in the future. But as the subscription format matures, will services and labels take freeloading more seriously? “That doesn’t seem out of the question,” one executive at a major record label tells Billboard. “But for the time being the focus is more carrots than sticks.”
Freeloading isn’t illegal except in Tennessee, where the “Log-in Law” signed in 2011 has gathered dust. With roughly 2% of the U.S. population, Tennessee could have hundreds of thousands of infringers: countrywide, a third of the 68 million people with single-payer music streaming subscriptions — and 44% of millennials — share their log-in information with an average of 2.3 people. But to enforce the law, services would have to report violators and shoulder whatever consumer outrage arose. Who wants that customer relations nightmare?
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Currently, the best deterrents are baked into the products: when users have different tastes, sharing an account won’t give any one person accurate recommendations and song selection. Family plans solve the problem by offering separate profiles and unique login information under one account. Apple IDs naturally discourage people from giving people access to their Apple accounts — iTunes, email, iCloud — as well as their payment information. Some streaming companies’ terms of service expressly prohibit or inhibit sharing login info. For example, Spotify requires family plan members to have the same address. Music services also deter account sharing by disallowing concurrent listening on more than one device.
Video service Netflix battles account sharing by limiting the number of concurrent users to an account. Its terms of service explicitly prohibit sharing an account with people outside the household. Research firm Magid estimated in 2018 that 11% of its users share an account. Then in November 2019, as Netflix began cracking down on account sharing, the advocacy group Alliance for Creativity and Entertainment announced a working group to reduce unauthorized access to content. ACE members include major movie studios as well as Amazon and two ISPs, Comcast and Charter Communications.
History shows that record labels could push back against lax attitudes. In the years following Napster’s 1999 launch, the music industry faced a deluge of peer-to-peer services and widespread illegal downloading. In 2005, record labels won a Supreme Court decision against Grokster, the maker of a popular peer-to-peer application, that gave teeth to their cease and desist letters. Even so, peer-to-peer usage peaked in 2006 at 19% of the U.S. internet population, then dropped from 12% to 9% in the quarter after LimeWire, the last major file-sharing application, shut down in 2010 according to market research firm The NPD Group. By 2012, a year after Spotify launched in the U.S., managing partner Russ Crupnick said at the time, “the increased use of legal and licensed streaming services” had become a viable alternative for former peer-to-peer users.
An approved version of account sharing, the family plan, is used by 25 million Americans, MusicWatch estimates. These multi-user accounts cost $15 per month for up to six individuals. Some labels have groused the now-standard pricing strays from their original pricing, $10 plus $5 per additional listener, with a label source telling Billboard in 2018, “now we’re in a corner, and it’s not good for anybody” to accept lower per-head revenue. Even so, family plan pricing is uniform and settled law. Spotify has praised family plans for reducing attrition, increasing listening time and providing a relatively inexpensive way to acquire subscribers.
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Attitudes will be a roadblock for reducing freeloading. When Crupnick ran focus groups on piracy for NPD Research in the early 2000s, he found that people illegally shared music files even though they knew it was wrong, he told Billboard. But with subscriptions, “people think as long as somebody’s paying, that it’s OK to use.” Awareness is another issue. MusicWatch also found 20% of account sharers weren’t aware the subscription service they used offered a family plan.
Without a scorched-earth approach, not every weed can be eradicated. Peer-to-peer downloading continues 15 years after the landmark Supreme Court decision that spelled the services’ demise. A resilient portion of freeloading will survive education and innovative marketing, too. “This is just a problem that’s going to exist,” says Crupnick.