The top digital music services are still struggling with a very basic problem: How to get listeners to pay for content. While there will always be users who prefer a free option, there are many listeners who, if given a more enticing option, would invest in a richer experience.

The era of the free ride is over

Analysts have described the current business model for streaming music as “inherently unprofitable,” and recent earnings reports underscore this point. Artists, songwriters and music services alike are dissatisfied with the current financial structure of the online music industry.

It may seem like users are the only ones coming out ahead, but they are also suffering – some in terms of cost, and all in terms of quality.

Inverting the online music value proposition

Because so few users have a financial stake in the current online music market, users’ needs are largely overlooked. Most services cater to a huge base of free listeners, who are getting exactly what they pay (or don’t pay) for – A “Do-It-Yourself” experience that lacks cohesion, consistency, diversity and direction. Meanwhile, paying subscribers get relatively little bang for their bucks.

In order to evolve the online music business model toward profitability, the current value proposition must be inverted: Free and illogical pricing models, commonplace technology features and homogeneous, overplayed content need to be replaced with dramatically superior experiences. Once this shift begins, a growing base of premium subscribers will vote with their wallets to steer music services toward greater innovation and more balanced pricing.

What are users willing to pay for?

1. Human Sensibility:

When done right, human curation is perhaps the highest value any music service company can add to its offering. Along with Digitally Imported, other services have strongly embraced the value of the human touch, including Apple, as evidenced by its strategy with Beats Music.

Recognizing the value of the human touch, some music services are striving to imbue song selection algorithms with more human-inspired traits. By achieving a more “human” experience, they hope to build the value of their offerings and attract morepaid users, a strategy that continues to fall flat.

The problem with this approach is two-fold. First, human curation is defined by individuality, artistry and imagination; there is simply no technology that mirrors these traits.

Second, many music services are missing a crucial step – drastically reducing the overall size of their music catalogs – before song selection begins. Track quantity, once considered a selling point in digital music, has been replaced by track quality. Continual, intensive human editing of the full catalog is the backbone of successful curation. Algorithms laid on top of bloated, unwieldy music catalogs are doomed to dredge up low-value content and disappoint listeners.

2. Scarcity:

Beyoncé’s 2013 album, released exclusively on iTunes, sold a record-breaking 828,773 copies in three days. When access to desirable content is restricted, even for a relatively short period of time, there is a much higher likelihood that users will pay for it.

The power of scarcity is not limited to big-name artists. At Digitally Imported we stream more original, exclusive and first-to-air content than any other online music service, and feature both well-recognized and up-and-coming artists and DJs. Some of this content becomes more widely available after the negotiated exclusivity period ends, but in the meantime, our high proportion of exclusive shows and mixes boosts total listening time and builds loyalty, contributing to our 90% renewal rate among paid monthly subscribers.

3. Discovery:

The prevailing approach to content discovery is fundamentally flawed: User-driven personalization merely reinforces existing habits, rather than diversifying and deepening content selection.

Of the 25 million-plus available digital tracks, only a tiny fraction is of high value to a listener at any given time. Counter to common practices, the most popular music should not dominate users’ limited listening opportunity. Rather, it should be continually moved out of rotation, making room for discovery of new content.

Expert curators, much like traditional radio and club DJs, are the best resources for tapping into trending music, filtering out stale content and resurrecting vintage tracks at the right moments. The resulting experience is authentic, entirely unpredictable, and a perfect balance of fresh, familiar and revived content.

Each act of discovery offers listeners a unique thrill, whereas hearing the hottest hit becomes less exciting with each repetition. Music services will earn more listener loyalty and premium subscribers by cultivating a sense of musical adventure than by recycling overexposed tracks.

Music services: It’s your move

The current financial structure of online music is a pressure cooker. Music services have created a vicious cycle, relying on free offerings to entice rapid user growth, and in turn pressuring the creative community and a small base of paying users to render this model viable.

In reality, this pressure is facing the wrong direction. Rather than pushing artists and songwriters to lower the cost of content, music services must challenge themselves to evolve in order to compel more listeners to invest in experiences they care about. This may be easier said than done. But unless these companies have endless resources to counter mounting financial losses, climbing the value chain is the only way out of the red. [Digital Music News]