Netflix, Spotify and the Future of Unlimited Streaming

For those interested in streaming media as well as new ways to delivery and monetize content, last week was an important one due to two major announcements from two giants in the field. The first came from Netflix, which announced it reconfiguring its account structure in such a way that many customers would be seeing a 60% increase in their monthly bill if they wanted the same service. The second came from Spotify, the music streaming service long popular in Europe as it opened its doors to U.S. customers. Though the two stories could not be farther apart, especially in how the news was received, they're painting a very clear picture of how the streaming media marketplace is shaping up and what that means for copyright, licensing and piracy. To see how, we have to take a deeper look at the announcements, the public's reaction to them and what they mean. Netflix's Price Hike The first announcement centered around Netflix's shift in the way it was pricing its various services. The company, which previously had offered one DVD rental per month and unlimited streaming for $9.99, was breaking apart the two components and charging $7.99 for each. The result would be that, for the same service, one would now have to pay just shy of $16 per month. However, the "rate hike" isn't a hike at all for those who just used the streaming service as it remains at the same price. Likewise, those who are on the plan but only want one service or the other can scale back and save $2 per month. That being said, users were still extremely upset with some polls showing over 50% of users plan on unsubscribing from Netflix if the pricing isn't changed. When it came time to cast blame, many put it squarely on the film studios and there is indeed some reason to believe that rising licensing costs played a role in the rate shift. However, given that the "hike" doesn't raise the price for the streaming service alone, it seems more likely that Netflix is simply trying to remove "dead weight" customers from its streaming service. Since many of Netflix's content licenses hinge in the number of users it has, giving customers access to streaming content when they have no interest or ability to view it is wasting money. In short, while content licensing rates increasing, by slowing growth and limiting usage of the service, Netflix feels it can keep the prices where they are, at least for the time being. Spotify's Big Play Where Netflix's announcement was met with near-universal anger, Spotify's announcement was met with a great deal of excitement. Spotify, which for years has provided free and low-cost streaming music in Europe, has finally been able to secure deals with the record labels to launch in the U.S. However, where Spotify was a pioneer across the Atlantic, it comes after services such as Amazon Cloud Player, Google Music and even after the announcement of iCloud Music Match. This says nothing of directly competing services such as Rhapsody and Napster that have been in operation for years. While Spotify does offer a free service, it is limited to 10 hours of music per month, only offers certain features and has ads. Also, the free version is invite-only at this time and invites are scarce. However, users of one of the two paid tiers bypass the limitations of the free account and do not need an invite. Paid accounts on Spotify begin at $5 per month for a basic unlimited package and $10 per month for an account with more advanced features. Though no numbers are available the early indications are that Spotify's launch in the U.S. has been a success, with rave reviews and many willing to spend the money to skip the queue and get into Spotify now. The Future of Streaming Media All of this asks a difficult question: Why are users eager to spend $5 or even $10 on unlimited streaming music with Spotify but are upset about spending $8 for unlimited streaming movies on Netflix? Part of the reason, almost certainly, has to do with Netflix's announcement and previous pricing model. Not only did Netflix's controversial blog post try to make it seem like the move was better for the customers (which it may be in some cases) but Netflix had already once raised prices in the past year. However, a lot of it seems to hinge on Netflix's library itself, which many view as being lacking and that causes Netflix's users to use the DVD queue to supplement the holes in the streaming library. Spotify, however, has a reputation for having a very robust collection of music, with an estimated 15 million songs in its library. Likewise, its software and features generally receive high praise, compared to Netflix, which often takes knocks for its interface and tools. This is a big part of why Spotify and other free offerings (including YouTube) have had an impact on piracy though it doesn't appear the same can be said for Netflix, at least not yet. So what does this mean for copyright holders and streaming services? The answer is quite simple and something many in the industry have said for a very long time. Building a Better Stream What Spotify, in particular the divide between it and Netflix, shows is that copyright holders can compete with pirated copies of their content. However, doing that does require a great deal of work. As such, the following variables are crucial for such a service to work. Convinience: The service has to be accessible in as many places and on as many platforms as possible. It also has to be reliable and constantly available. Completeness: Having 15 million tracks is useless if the one track the listener wants isn't available. Features: Any paid service must offer features that can't be obtained for free with pirated copies, at least not easily. This can include recommendations, social networking, etc. The one thing that is not on that list is price. While it is important that the price be able to be justified, Spotify has shown that people are willing to pay more than even what Netflix is charging for a streaming service if it is worthwhile. In short, the price can't compete with free pirated copies nor should it try, but it shouldn't be a reason to turn away either. Streaming services that can do this will, for the most part, be successful while those who don't will generally fail. It's really that simple. Bottom Line In the end, this is where the marriage of content creators and technology firms has to happen. Content creators have to make things people want to see or listen to and tech companies need to get it into the user's hands with enough features and convenience to make it worth paying for. For this to work, both sides need to hold up their end of the bargain. With Netflix, content creators need to make sure their work is accessible at a reasonable price and Netflix needs to take ownership over its PR and interface issues. If the two sides worth together, some amazing things can happen and piracy can become, at most, a back burner issue. If they don't, then piracy isn't going anywhere and neither side will reap any benefit from the works that have been created.

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