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Solving the very real streaming pricing dilemma

More big public spats in the streaming world - kicked off by the US Copyright Royalty Board’s proposed rate increase for songwriters and ending up most recently with Spotify and Apple trading very public barbs.

What this all boils down to ultimately is pricing. There are so many frustrations around the current economics that have all been simmering for a long time and now they’re boiling over quite spectacularly.

Songwriters have long felt short changed by their share of the streaming pie, anyone who isn’t Apple meanwhile hugely resents giving Apple 30% of all revenue earned from sign-ups via the App Store, and while pretty much all music services have been stuck endlessly on 9.99 pricing, everyone in the music business looks enviously over at Netflix as it repeatedly increases its pricing with no apparent negative effect on its subscriber count.

As Mark Mulligan correctly says, music streaming pricing is a classic prisoner's dilemma situation. Every service and rights' holder would benefit from pricing increases over time, but in the prisoner’s dilemma the optimal outcome is only possible through some kind of cooperation, which is impossible as the prisoners can’t communicate. Which is exactly the case in this situation because of competition law. So as a result everyone’s stuck in a place they don’t want to be, that isn’t in their best interest, but nobody wants to be the first to jump as it’s a leap in the dark that carries major commercial risk for them. Quite the dilemma indeed.

The thing about prisoner’s dilemma is there is no easy solution, nor even a complicated one either for that matter. Economists from around the world regularly meet at conferences and hold competitions specifically dedicated to trying to devise the best strategies for the individual prisoners in the dilemma, the players, so that the rational decisions of each player doesn’t create a situation that turns out bad for everyone. Yet no one has nailed it so far. No one has been able to develop a clear and reliable strategy that delivers the best outcome for everyone. If someone does they’ll likely be a shoo-in for the Nobel Prize in Economics.

So what to do? It’s possible that any individual player in music streaming may decide to be bold and just go for it, changing their rates or their prices in the confidence that they will reap the rewards and are able to withstand any short term costs. And they may well be right, but without question it carries a serious risk.

My own contribution to this debate is to set aside the 9.99 and look elsewhere. For all the reasons discussed above, changing 9.99 is complex and risky. So I say leave the 9.99 sleeping dog alone and focus on expanding the range of prices and offers. That could include say premium and lite versions, higher quality and added extras, smaller niche offerings, bundles with other content, or all sorts of other ideas. Some of these are already familiar, some completely new.

9.99 draws its power from being the only real game in town. Only when that power is broken, when it’s just one of many offers and price points, will all the prisoners in this game be set free so to speak.

And you never know, get the economic strategy right here and there could be a Nobel Prize in it.

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