A full 24 hours worth of music (~33 complete albums) at 192 kbps is only 2GB.
Infinity Blade 3 is 1.7 GB. A single photo takes up more space than a song from an album. 40 minutes worth of 4k video maxes out the device (and that's optimistically assuming the apps that come with the phone don't take up any space).
You sound like when data plan providers say "Our average customer doesn't use that much data." Of course they don't. They try to stay within the ridiculous limits providers give them.
iOS 9 alone takes up a few GBs. The only reason the 16 GB option is the base option is because it anchors the price of iPhones. iPhones have an absurdly large profit margin, and price anchoring just provides the average consumer a psychological "out".
Music is definitely a sticking point for me, I've got 30GB of music on my phone, and the same again in applications and games.
Moreover, as many have noticed here, there are only so many minutes in a day, so the actually amount of data you'll download is limited anyway, and the fact that its SC gives you the variety, so I find myself missing very little.
However, for genres where the SC model doesn't work (or at least it isn't present), this doesn't help. When I want to listen to doom metal or psychedelic music, I'm left out and having to resort to what you do. And since I hate poor quality recordings and use flac when I can, my phone runs out of space quickly when I resort to carrying around a music collection.
Streaming them in that quality for two to three hours in per day on average would take a lot of data.
I keep my 50GB+ music collection on a separate device (FiiO X3), which allows me to stick to the lowest storage tier for any phone I'm interested in, and not have to worry about expandable storage (which seems to be on the way out as a trend, unfortunately).
Also, I'm a rather heavy user and my phone tends to only barely last the entire workday and commute before running out (if it lasts at all). Having a separate device for music means I don't need to feel guilty about wasting phone battery when listening to music.
The downside is you end up having to carry 2 devices instead of one, which can honestly be annoying at times, but I'm willing to make that compromise. YMMV of course.
I could never fathom using a phone without reasonable storage capacity. 16GB was bad in 2000. In 2016, anything less than 256GB is a joke, and the joke is really no laughing matter anymore. It has not been for at least a half decade in the mobile space.
Me, I'm the type of guy to have 10gb of music, photos and apps, and offload a lot of stuff to my PC and stream increasingly more. I'm okay with 16.
Is 16 a bit silly? Sure, but it's an easy way to pad the margins a bit and there's just plenty of people for whom 16 is just fine, to the extent that the upgrade option is a decent solution.
e.g. my entire office is on iPhones and they use it for mail and some other stuff, 80% of their storage is unused, will be unused forever, and it makes sense not to pad that even more and increase the base price.
I wish the price bump was a bit smaller if you want to increase your 16gb, more in line with their cost price, but... I'm not at all opposed to the notion that a 16gb base model exists.
Google Play Music has spoiled me -- their station selection is vast. Albums don't even mean anything to me.
Plus I can upload all of my personal music collection to it and listen to it on the go, and it exceeds 2GB easily.
Among computer illiterates in my family it also doesn't seem to be a problem. My mother has been using 16GB iPads and iPod Touches for years and never ran out of storage.
Sure, if you play lot's of > 1GB games (which seems to be typical these days), you don't want a 16GB model.
Mine doesn't have data allowance caps of any kind.
Of course if Apple didn't have to skimp so badly on the base phone the upgrade wouldn't be necessary. Shame so many Android phones are also 16GB. My experience with using microSD cards for more storage is a bit less than spectacular as well with so many of the stupid cards dying suddenly and without warning.
I don't know, since I do not use one, but at least for Spotify it is possible (as tested by my brother).