Market Insight

YouTube enters crowded music subscription market with video bundle

November 18, 2014  | Subscribers Only

Jack Kent Jack Kent Director, Media and Advertising

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Google-owned YouTube unveiled its new Music Key subscription service alongside a number of new music related features.

The new Music Key subscription service:

  • Offers premium subscribers ad-free access to support YouTube music videos, enables offline audio and video caching, and background playback on YouTube’s mobile apps.
  • Has deals with the three major labels and hundreds of independents for audio and music video playback.
  • Launches in the US, UK, Italy, Spain, Portugal and Finland available for $9.99,(£9.99) per month – discounted to $7.99 (£7.99) for early adopters. Google is inviting a select group of users for a six-month free trial.
  • Includes a bundled subscription to Google Play Music (rebranded from Google Play Music All Access), Google’s existing on-demand service. YouTube Music Key subscribers will automatically gain access to Google Play Music and vice versa.

Additional free YouTube features include:

  • Full album streams.
  • A dedicated music tab.
  • Enhanced artist information and additional content.

Our analysis

This is not YouTube’s first foray into subscription content. Its previous attempt at offering subscription video channels struggled because of a lack of quality content and its rental service has since been folded into Google Play video. As it already provides a huge music video catalogue, YouTube will not face the same content issues this time, but its bigger challenge is persuading users to pay for content. For most consumers, the primary attraction of YouTube is that it is free.

Bundling YouTube Music Key and Google Play Music subscriptions is a good move to drive uptake. Although, because they are separate apps Google must make sure it communicates the value of the offer well to consumers and make it easy to use both apps in tandem, or YouTube risks creating confusion.

The launch of YouTube Music Key highlights a number of significant trends in the digital music market while raising questions about the online and mobile music business:


  • The need for differentiation: Over the past few years most on-demand music services, including Google’s, have centred around the $9.99 per month cross platform unlimited access subscription model offering a catalogue of millions of tracks, mobile access and offline playback. Differentiation among these services has been fairly limited to focusing on local and editorial content. In recent months we have seen a drive from services to increase differentiation around service quality – Deezer’s US launch focused on high quality audio for $19.99 per month and Tidal, from Aspiro, offers a similarly priced service that launched in October 2014. SoundCloud – which recently signed a deal with Warner Music – will exploit its user generated content and mixes to differentiate its new service due in 2015. Prior to its acquisition by Apple, Beats Music aimed to differentiate through its curated playlists.
  • The role of free tiers: Whether to offer free tiers is a contentious issue in the music business. Spotify, the leading on-demand service, claims 50m total users of which 12.5m are premium subscribers. Deezer also offers an ad-supported on-demand service and there a variety of ad-funded radio services from the likes of Rdio, but many companies including Rhapsody (Napster) eschew free on-demand service tiers. The provision of an ad-funded free tier is often central to an artist’s decision whether to provide content for an on-demand service or not.  Like Spotify, Music Key’s terms dictate that all content must be available across free and paid tiers.
  • YouTube as a promotional channel: Many artists and record labels have seen the value of YouTube as a promotional channel for retail sales. As retail continues to struggle and with on-demand services driving growth in the digital music business there is a risk that this could further erode retail transactions. But artists and record labels need YouTube for promotion to such an extent they cannot now afford to ignore YouTube or exploring new services it offers.
  • The impact on YouTube advertising: YouTube ad revenue is growing fast at 20.6% in 2014, globally, according to IHS forecasts. The strongest driver in YouTube advertising is the music category, particularly in mobile. In the first nine months of 2014, 50% of all YouTube views on mobile were on the music video hosting service, Vevo, which works on an ad-supported model. Vevo serves one ad for every three videos watched. The launch of YouTube Music Key, a subscription model would intuitively cannibalize music ad revenue, as in other services like Spotify, Deezer or Pandora. However, IHS does not see the subscription service as a long-term impediment to YouTube ad revenue growth. Advertisers are increasingly moving away from traditional ad buys to more bespoke, native formats in digital music. Branded content and sponsorship are becoming more prevalent with large brands (e.g. see Danone Activia-sponsored Shakira La La La music video) as they are more effective at engaging with consumers. Music can be the ad itself rather than just the context against which the ad is bought. As branded content expands, a subscription service can be treated as complementary rather than competitive to a YouTube music ad strategy.

YouTube Music Key is late to the subscription music party. The addition of music videos may not be enough to make subscribers churn away from existing premium services, but it does provide a differentiator for those looking to sign up. This announcement highlights YouTube's strong, and growing, importance in both mobile music and the overall digital music market.


Google Inc. YouTube
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