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What the Music Business Can Learn from Disney+’s Subscriber Success

Could a record-label-run streaming service, or new release and pricing models, emerge in the wake of Disney’s success?

Disney+, a newcomer to video streaming, already has 50 million paying viewers.

David Buchan/Variety/Shutterstock

By and large, major music companies will be thankful not to be Disney right now. The “Happiest Place on Earth” has had fair reason for glumness of late, due to the economic turmoil evinced by, you guessed it, the knock-on effects of COVID-19.

Disney’s annual revenue in fiscal 2019 stood at $69.57 billion, with more than a third of that money ($26.23 billion) driven by its six global theme parks (“Parks, Experiences and Products”). Those parks have all been closed since March 16th, and will remain so indefinitely. It gets worse: Another third of Disney’s turnover in FY 2019 ($24.83 billion) came from “media networks,” including sports giant ESPN, whose schedule has been so badly decimated by the coronavirus pandemic, it’s now literally showing videos of children spelling out words as entertainment.

The past week, however, has provided a much-needed beacon of light for Disney’s management and shareholders. Disney+, the firm’s own on-demand TV and film subscription service, is going bananas. Having launched in the U.S. five months ago, and in the likes of the U.K., India, and Germany in the past month, Disney announced on April 8th that its Netflix rival has surpassed 50 million paying subscribers, up from 28.6 million at the close of 2019. To put that success into context: It took Netflix more than seven years after launching its streaming platform in 2007 to reach the 50 million-paid milestone — which possibly explains why analysts didn’t expect Disney+ to do it until 2022. Disney isn’t fiddling its numbers here: Disney+ is available only on a paid-subscription basis following a seven-day trial period (with some bundling exceptions, such as a one-year free pass for Verizon customers).

Care for a quick, hot-take music industry comparison? Apple Music, which matches Disney+’s model in terms of its lack of an ad-funded “free” tier, is estimated to have finished 2019 with 68 million paying subscribers. At its current velocity, Disney+ is on course to overtake that number by the end of June … and it hasn’t even launched in Japan or Latin America yet.

Here are three important lessons that the music business could, even at this early stage, learn from Disney’s 50 million-subscriber success story:

1. Proprietary streaming services from rights holders can actually work

There is a circular conversation that often goes on and on in the music industry:

Person 1: “The major labels were idiots for helping Spotify launch with an existing technology — streaming — and rip up their business model overnight. They should have done it themselves.”

Person 2: “The majors did actually club together and launch their own digital-music services, pre-iTunes, back in the early ‘naughties’: PressPlay and MusicNet. Neither worked. It takes that tech-entrepreneurial mindset to see and pursue the opportunity that Daniel Ek recognized — and his company deserves its share of the pie.”

Person 1: “So why can’t the majors pull their content now, kill off Spotify and its rivals, and take back this margin? Couldn’t they just force us all to subscribe to their own service directly?”

Person 2: “Spotify, Apple Music, Amazon Music, and other third-parties were servicing more than 250 million paying subscribers among them at the end of 2019. Would you really risk killing that cash cow just to save a bit of margin?”

Now, the runaway success of Disney+ has made that final question seem less rhetorical — and frankly less dumb — than it was a few weeks ago. Disney, obviously enough, pulled its entire catalog from rival services such as Netflix ahead of the launch of Disney+, enabling the service to live up to its promise of being “the exclusive home for your favorite movies and TV shows.”

According to Spotify’s latest annual SEC filing, content from the three major record companies plus indie-label agency Merlin made up 82% of music streams on its service in 2019. The removal of this content wouldn’t just be harmful to Spotify and its competitors, it would be instantaneously fatal. Spotify is very aware of this danger. It warns investors in said SEC filing: “We have no control over third-party providers of our content. The concentration of control of content by our major providers means that even one entity, or a small number of entities working together, may unilaterally affect our access to music and other content.” If the majors (and Merlin) hold as much power as even Spotify itself acknowledges, what would happen if they finally banded together to wield it?

2. We need to talk about pricing

The $9.99/€9.99-per-month standard individual subscription remains in place more than a decade after Spotify first introduced it in Europe back in 2008, and then in the U.S. in 2011. Despite a successful so-called “experiment” with raising these prices by 10% in Scandinavia (which has now gone on for two full years) — plus obvious pressure from a decade’s worth of inflation — Spotify (and Apple Music, et al.) has largely stuck fast to its tried-and-tested price tag.

However, last year, Dutch-American classical streaming service Primephonic conducted a study that suggested that 52% of American music fans would pay more than $9.99 per month for a “streaming service that truly meets their needs.” A further report from U.K. multimedia consultants OC&C concluded that more-sophisticated streaming pricing would unlock additional revenue for the music business — especially by serving fans of specific artists and/or genres additional content for higher-priced subs.

Disney+ may throw a curveball into this discussion because it comes at a lower price point than Spotify — $6.99 per month or $69.99 per year. This, it could be argued, has been perfectly pitched for an impulse consumer uptake. It could therefore also be argued (and I’ve heard exactly this line of thought from very-senior Spotify executives) that reducing music streaming’s monthly subscription price could open up Spotify and Co. to a far bigger paying audience, in turn presenting a larger total revenue opportunity.

On the flip side of this debate: Disney+ just attracted 50 million paying consumers entirely without a free tier — another mark against the necessity of the ad-funded “funnel” that Spotify claims is essential to tempt consumers away from piracy. (Newsflash: Spotify already has more than 124 million paying customers whose experience wouldn’t be affected one iota by the removal/limitation of its free tier. And, despite Spotify’s protestations, music piracy very much remains a thing.) Another key difference: Disney’s $6.99 monthly U.S. price point is rigid — aside from that Verizon bundle — while Spotify’s true monthly average revenue per Premium user is driven way lower than $9.99 by Family Plan and Student discount deals.

Based on its current U.S. pricing, Disney+’s 50 million subs base will generate between $3.5 billion (if they all pay annually) and $4.2 billion (if they all pay monthly) over a 12-month period. That’s in the same ballpark as Spotify’s total subscription revenue in 2017 ($3.67 billion), which was deemed viable enough for the company to float on the New York Stock Exchange in April the following year.

3. Music’s one-tier release model should — finally — be properly questioned

Don’t expect Disney+’s $6.99-or-the-highway pricing model to remain so simplistic for long. Once Disney has built up a satisfactory global paying-subs base (say, in the hundreds of millions), nothing is stopping the company introducing additional, pricier options to maximize revenues.

Interestingly, Disney has resisted taking the opportunity to do that with the enforced home release of Pixar’s Onward, which was a priority cinema release  just weeks ago … until COVID-19 shut down theaters. Disney subsequently rush-released Onward as a $19.99 download on March 20th, but then brought it to Disney+, available for all U.S. subscribers, two weeks later. Disney is therefore using the movie (which cost more than $175 million to create) to drive subscriptions to its platform during the coronavirus lockdown, rather than charging Disney+ subscribers an additional fee to access it. (It’s done exactly the same thing with Frozen II, which came to Disney+ in the U.S. on March 15th — more than three months earlier than planned.)

In future, I predict this will gradually change, with Disney+ subscribers getting first dibs on the best of the company’s new blockbuster releases — but for a surplus price. The House of Mouse has form doing just this. U.S. sports fans can subscribe to Disney-owned subscription service ESPN+ for $4.99 a month or $49.99 per year. … But in order to also access pay-per-view UFC content, that annual cost rises to just under $80. There is much that Disney can bolt on to Disney+ — with its limited current catalog of 500 movies and 7,500 TV episodes — in a similar vein, especially when it comes to milking demand for its biggest new releases.

The pro-Spotify credo that artists must release their new music on all streaming services, at the same time, for free, is heavily burned into the modern music business’ psyche. And yet, after a mixed history with “windowing” digital album releases on premium streaming services, could the record industry finally be tempted to trod down a new route — creating a pricier tier, above the base monthly cost of a music-streaming subscription, that guarantees consumers exclusive access to the biggest new releases each week?

Tim Ingham is the founder and publisher of Music Business Worldwide, which has serviced the global industry with news, analysis, and jobs since 2015. He writes a weekly column for Rolling Stone.