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Google’s YouTube Premium Is Poised to Be a Hit | The Street

Why Apple and Spotify Don’t Need to Panic Just Yet

For all its strengths, YouTube Premium’s price ($2 per month more than what most music subscription services cost) makes it slightly less of a threat to the likes of Spotify and Apple than it would be if YouTube stuck with Red’s $10-per-month pricing. And this will be even more true if YouTube doesn’t offer family and student plans that are competitive with Spotify and Apple’s family and student plans (details are scant for now).

In addition to pricing, inertia and switching costs work in the favor of the incumbents: Spotify and Apple Music now have over 125 million subscribers between them, and many of those subs have put a lot of effort into creating libraries and playlists that would have to be rebuilt if they cancelled their subscriptions and signed up for YouTube Music Premium or YouTube Premium. These subs have also generally provided lots of listening data to Spotify and Apple that has been used to personalize their music-listening experiences.

Basic economics seem to have driven YouTube’s decision to charge $12 per month for Premium. $10-per-month music services generally have low margins due to the huge licensing payments collected by music labels. Spotify’s subscription business, for example, only has a gross margin of around 25%. Throw in the value of the advertising revenue YouTube loses by providing an ad-free service, and the cost of financing originals, and there’s no way that the company could charge just $10 per month for YouTube Premium without incurring a lot of red ink. Even at $12 per month, the margins probably aren’t all that high.

It wouldn’t be surprising to see Apple, which is financing a slew of original shows and reportedly plans to launch them in March 2019, adopts a pricing strategy similar to YouTube’s. The company could keep charging $10 per month for Apple Music, and a couple or few dollars per month extra for access to its originals.

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Google’s YouTube Premium Is Poised to Be a Hit.

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