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Music Subscription Services – Are They Worth It?

Over the past decade or so we’ve seen the rise of subscription services in business and in our personal life. Instead of spending a one time amount for a product or service, increasingly we are being offered a monthly subscription in order to “rent” the product or service rather than buying it.

There are a number of well know examples. In the “old days” you bought an album on vinyl or CD (depending on your age) and you spent $15-25 (again depending on your age). But now you need only subscribe to Spotify, Apple Music or another service and pay “only” $10-$15/month. Seems like a good deal – right? Instead of buying one album for $15-25, you get every album ever made for $10-15/month.

But here is the problem. Some audiophiles were buying 10-20 (or more) albums per year and spending $200+/year. So for them, paying $10-15/month seems like a good deal for a streaming service. And for them, it is. But the reality is that $10/month = $120/year = 6 “pre-streaming” albums per year (@$20 each). So, for those who would only buy 1 or 2 albums per year, it is decidedly a bad investment.

In the United States in 1999, the average music listener spent $71/year (Recorded Industry Association of America Stats). That was the peak spending since 1973. So, for the average music listener, they would actually spend more money on streaming services than they would have spent on buying music.

When streaming was first introduced it was initially the free “pirated” version (Napster) followed by the free ad-supported version (YouTube and Spotify). Recently though, more and more people are purchasing premium subscriptions to eliminate the ads. And industry revenue has started to recover as premium streaming services start to replace the old physical music sales of the past.

So, what does that mean for the individual consumer? Like all streaming services, premium music streaming services offer a free trial with an option to cancel at any time. However, most people find that they continue after the free trial and Spotify claimed in 2018 that over 50% of “engaged users” convert to their paid premium product. Like all premium services, it is very difficult to convert back to the free service after you’ve tasted the paid version and companies work very hard to make sure the paid version is substantially better than their free offering.

But the advice is the same for all subscription services – evaluate them from time to time to make sure you are still getting the value from the service that you initially expected and be careful you don’t have more than one subscription for the same or similar service. In our family, we found out that we had 2 Spotify accounts – one group account that was supposed to be for multiple members of the family and 2 other individual accounts (the kids). Eliminating the individual accounts saved us $240/year. In our next blog we’ll talk about subscription services more generally and how to make sure we don’t pay more than we should. In them meantime, enjoy the freedom to listen to almost any song ever made while you enjoy other blogs from Smart Invest Canada.

#personalfinance #FinancialPlanning

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©2020 BY SMART INVESTING FOR CANADIANS

All articles herein are presented as an educational resource and should not be considered as professional financial or individualized investment advice. Readers should always exercise their own judgement when making any decisions about their money.

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