Fool Me Twice: How Spotify Could Become the New iTunes Store

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Back in 2003, as the music industry was reeling from widespread, Napster-fueled piracy, Apple CEO Steve Jobs made the record labels an offer they couldn’t resist: Give me a license to sell individual tracks but let me sell them cheap enough to be a viable alternative to free, and I’ll wrap them in DRM for you in a way that consumers will accept, so they can’t be copied.

The labels leapt at the deal and the $1.00 download became the new atomic unit of the business.

Though thrilled at first to have an answer to piracy the record companies eventually came to rue the arrangement once they figured out that Apple was using those inexpensive downloads to supercharge the market for its high-margin iPods and later iPhone hardware, and was reaping far more of the value being created by their music than they were. By then, however, they had become captive to Apple’s ecosystem: Thanks to Apple’s proprietary DRM, the only way to sell music to iPod users — at the time the largest segment of the portable music-player install base — was through iTunes, under terms effectively dictated by Apple. Read More »

Competing With Paid

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The rise of subscription streaming services, in both the music and video industries, has given the lie to the old complaint that consumers won’t pay for content online. But to many in the music industry, to say nothing of streaming investors, too many of them still don’t.

Ad-supported free streaming services remain the bête noire of the record labels and music publishers. They rail against YouTube, even as they’re making deals with it, and have fought to restrict the copyright safe harbors that allow YouTube to profit from music posted without license by users. They’ve maintained pressure on Spotify to shift more of its free users to its paid subscription tier, a tune now echoed by potential investors as Spotify eyes an IPO or public listing of its shares, and have begun to restrict when new releases are made available on the service’s free tier. Read More »

Have Netflix, Will Travel: EU Digital Single Market Inches Closer

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Negotiators for the European Commission, the European Parliament, and European Union member countries this week reached agreement on new rules that will allow citizens from one EU country to access digital services they subscribe to, such as Netflix, Spotify, and sports live streams, when traveling in another EU country starting in 2018.

Up to now, exclusive territorial licenses between rights owners and online services, as well as other rules, have generally prevented services from granting access to subscribers from outside their home country.

“Today’s agreement will bring concrete benefits to Europeans. People who have subscribed to their favourite series, music and sports events at home will be able to enjoy them when they travel in Europe,” EU vice-president in charge of the Digital Single Market Andrus Ansip said in a statement. Read More »

Apple Tip-Toes Into Original Video

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The Wall Street Journal reported this week that Apple has begun talks with producers in Hollywood about buy rights to original TV series and movies. If true it would represent at least the third attempt by the iPhone maker to crack the TV code, so far without notable success, although its strategy this time appears to be different from its previous efforts.

I say “appears” because, according to the Journal, Apple itself  “is still working out details of its business strategy built around original content.”

The new shows, which could begin appearing by the end of this year, will reportedly be made available to subscribers of Apple Music, suggesting this isn’t an attempt (yet) to build a direct competitor to Netflix and Amazon Prime. The fact that Apple is targeting individual movies and TV series rather than networks suggests this is also not some sort of skinny bundle play to compete with Sling TV and the new Hulu service. Read More »

Autumn Of The A&R Man

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The International Federation of Phonographic Industry (IFPI) this week released its biannual Investing in Music report and the numbers raised quite a few eyebrows. According to the report, record labels worldwide invested U.S. $4.5 billion last year in A&R ($2.8 billion) and marketing, ($1.7 billion), representing 27 percent of their total revenue, more than the pharmaceutical, aerospace, or technology industry spends on R&D in percentage terms.

His_Master's_VoiceThat represents an increase of 12 percent and 6 percent, respectively, over 2013.

Particularly eye-opening was the report’s claim that it costs a label anywhere from $500,00 to $2 million to “break” a new artist in a major market like the U.S. or U.K., factoring in the “upfront” costs of artist advances, recording, music video production, tour support, and marketing and promotion.

The report is clearly meant to bolster the case for the continued relevance of traditional record companies amid the simmering industry debate over whether artists still need a label deal, given the availability of cheap, DIY recording technology and the myriad independent distributors, aggregators, marketers and other service providers offering to help artists bring their music to market. Read More »

Music For The Masses

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Music streaming has brought a lot of personalization to the experience of listening to music. Faced with the challenge of differentiating their service from competitors featuring substantially the same catalog of music, at a de facto standard price point, streaming services have focused on developing ever-more precise tools for personalizing the listening experience in the hope of keeping users engaged. So, Spotify has its playlists, Apple has its curators, Pandora has its music DNA project.

His_Master's_VoiceMusic rights owners too, in their approach to the streaming business, have also encouraged personalization. Burned badly by free music “sharing” sites, the record labels have been more than happy to reinforce the streaming services’ efforts to turn listening into a personal — and solitary — experience, such as by curating their own Spotify and Apple playlists.

Digital technology itself has also contributed to the bias toward personalization. Use of streaming services is heavily weighted toward mobile devices, particularly phones, which by design are personal, and in general highly personalized devices. Digital distribution also generates the sort of highly granular usage data on which personalization tools rely.

All that personalization has come at a price, however. With everyone cocooned inside their own playlists and cut off from the outside world by earbuds, the communal experience of listening to recorded music with friends or family has become a rarity. Read More »

For Music Biz, First-Half Results Are A Glass Half Full

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The Recording Industry Association of America this week reported that U.S. music sales through the first half of 2012 were up 8.1 percent over the first half of 2015, to $3.4 billion, the industry’s strongest rate of growth in more than a decade.

iphone-artist-spotifyThe surge was due almost entirely to a whopping 112 percent increase in revenue from paid streaming services such as Spotify, Apple Music, and Tidal which more than offset a 17 percent decline in digital downloads (including albums, single tracks, and kiosks), and a 16 percent decline in sales of physical formats (CDs and vinyl).

Revenue from free interactive streaming, such as Spotify’s ad-supported tier, YouTube and Vevo, grew 24 percent but remained a tiny slice (5.9 percent) of the overall revenue pie. Revenue from non-interactive streaming services, primarily Pandora, was up 4 percent.

“Streaming in all its forms accounted for almost half of all recorded music revenues in the first half of 2016,” RIAA CEO Carey Sherman wrote in a post on Medium. “This represents a remarkable transformation and reinvention by a business that was principally physical products just six years ago.” Read More »

A Measure of Success: Frank Ocean, Netflix and the Value of Data

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Frank Ocean’s surprise release “Blonde” debuted at No. 1 this week on the Billboard Top 200 album chart, racking up sales of 275,000 units, despite its not being released as an album in any physical format.

frank-ocean-blonde-x750So what were those 275,000 units? Some 232,000 of them were paid digital album downloads, according to Nielsen Music. The other 43,000 consisted of “equivalent album units.”

Say what?

An “equivalent album unit” (shouldn’t that be “album-equivalent unit?) is a metric devised by Billboard in 2014 to accounting for streaming activity and individual track downloads for charting purposes. Ten individual track downloads from an album as measured by Nielsen, or 1,500 on-demand streams of individual album tracks as reported to Billboard by the major streaming services, are counted as an equivalent album unit. In the case of Blonde, individual track downloads were not available at the time of the albums initial release, but they accrued 65 million streams. Dividing that 65 million by 1,500 yields 43,000 equivalent units. QED. Read More »

Music In the Antitrust Crosshairs

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File this one under “be careful what you wish for.” Two years ago, a group of major music publishers, along with ASCAP and BMI, which collect performance royalties on behalf of songwriters and publishers, asked the Department of Justice to consider changing how it enforces the antitrust consent decrees that have governed the two leading PROs, to allow publishers to withdraw digital rights to their repertoire from the PRO blanket licenses.

DOJ took it under advisement and this week gave its answer, according to a report by Billboard, and it was not at all what the publishers were hoping for.

elizabeth_warrenUnder the decrees, ASCAP and BMI are not allowed to pick and choose which songs in their catalogs to license. They must either grant a blanket license to the entire catalog or not at all. Thus, if a song is in their catalog for one use it’s in it for all uses.

The publishers raised the issue because they were unhappy with the royalty rate that internet radio services (cough — Pandora — cough) were paying under the compulsory performance license available to broadcasters, including internet broadcasters. Those rates are set by the rate courts that oversee the consent decrees and get collected by ASCAP and BMI. Having failed to persuade the courts to raise them, the publishers wanted to be able to withdraw digital rights to their songs in the PROs’ catalogs and negotiate directly with internet broadcasters.

This week, according to the Billboard report, DOJ said no. Read More »

Return Of The Gatekeeper

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Making content available on-demand was supposed to put the consumer in charge. Armed with “personalization” tools and backed by social media filtering the viewer/listener/reader would be king, usurping the power of traditional gatekeepers.

But a funny thing is happening on the way to the throne: consumers increasingly are inviting gatekeepers back into the realm, albeit not necessarily the same ones they had overthrown.

guard-buckhm-palace-shst_w_755Speaking at MIDEM this week, MIDiA analyst Mark Mulligan reported that “The percentage of people who make their own playlists on streaming has dropped by 10 percentage points in just one year,” said Mulligan. “The main playlists which people are using are the playlists which are being pushed to them,” by the streaming services, or in some cases by record labels.

Citing data provided by Spotify, Mulligan noted that in December 2014, Spotify’s Today’s Top Hits playlist had 2.3 million followers and generated 35.4 million streams per month. By April 2016 it had grown to 7.8 million followers and was generating more than 120 million streams a month. Read More »

Licensing Music Streaming’s All-Of-The-Above Business Model

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There’s an old adage in business that there really are only three fundamental business models in the world: I pay, you pay, or somebody else pays. Music streaming services have been built on each of those.

Music has been bundled in with other services at no apparent additional cost (I pay); it has been offered as a subscription service (you pay); and it gangnam1has been made available for free, supported by advertising (somebody else pays). Increasingly, however, streaming services are looking to multiple business models in search of still-elusive profits.

The latest case in point: Pandora. Originally an ad-supported internet radio service, it spent $450 million last month to acquire music concert ticketing and promotion service Ticketfly. This month it dropped another $75 million to buy parts of paid-streaming service Rdio at the latter’s liquidation yard sale. Read More »

Red Zone: Why Apple Music Should Fear YouTube Red

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The most notable feature of YouTube Red is what’s missing. There is no more Music Key, the long-awaited YouTube subscription music service that has been in beta for much of the past year but never gained much traction. Nor will there be any more dedicated subscription channels, where users could get ad-free access to a single creator’s channel.

Instead, for 10 bucks a month, you’ll get ad-free access to virtually everything on the YouTube platform, including YouTube Gaming and Apple_Music_iPhoneYouTube Kids. There’s also a YouTube Music app for those who simply want to use the service for listening to music.

YouTube Red subscribers will also automatically be subscribed to Google Play Music, Google’s subscription streaming and cloud storage service that up to now had cost $10 a month on a standalone basis.

In effect, Google is now making all of its music and video content services available on both a free, ad-supported basis, and an ad-free subscription basis. (Those who are complaining that YouTube is being mean by hiding the videos of creators who have not yet signed up for the subscription program are missing the point. The point is to have two identical services with two distinct monetization strategies, and letting the consumer decide which to use.) Read More »

Music Streaming And The Two Drink Minimum

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Ask the owner of any bar that hosts occasional live music how they make money and they’ll tell you it ain’t from the music. The music is there to draw a crowd to sell more liquor to, which is where the profits are. The cover charge helps defray the cost of the band so it doesn’t all come out of the liquor receipts. These days, the music streaming business is starting to look a lot like those gin joints.

While Spotify, Pandora and Apple are drawing pretty good crowds, none of them are making money from the music. And they’re starting to live_music_signcast about for other ways to make money. Pandora recently plunked down $450 million to buy live-event ticketing service Ticketfly, presumably hoping for some synergy between those who listen to music on Pandora and those who buy tickets to live shows and concerts. Spotify is trying to leverage its music audience to build a business around non-music content, such as online video.

Apple insists it can eventually make money from music streaming, but with Apple it’s always at least as much about finding new users for its devices, where it makes nearly all of its profits, than about any particular service.

All have invested heavily in data and analytics, initially for internal use but almost certainly with an eye toward turning their data into a product in its own right. Read More »

Turning Talking Heads

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With apologies to LBJ, but when you’ve lost David Byrne, you’re losing the argument over whom to blame for music artists’ meager share of the streaming pot.

Two years ago, the former Talking Heads front man came out as the scourge of Spotify, casting the streaming service in an op-ed that ran in the Guardian, as a sort of malevolent force that was destroying all that was good and holy about the music business:

There are a number of ways to stream music online: Pandora is like a radio station that plays stuff you like but doesn’t take requests; YouTube plays talking_heads_album individual songs that folks and corporations have uploaded and Spotify is a music library that plays whatever you want (if they have it), whenever you want it. Some of these services only work when you’re online, but some, like Spotify, allow you to download your playlist songs and carry them around. For many music listeners, the choice is obvious – why would you ever buy a CD or pay for a download when you can stream your favourite albums and artists either for free, or for a nominal monthly charge?…

The amounts these services pay per stream is miniscule – their idea being that if enough people use the service those tiny grains of sand will pile up. Domination and ubiquity are therefore to be encouraged. We should readjust our values because in the web-based world we are told that monopoly is good for us….In future, if artists have to rely almost exclusively on the income from these services, they’ll be out of work within a year.

Other artists, like Dave Lowry of Cracker, joined the sad chorus. But in an op-ed published in the New York Times on Sunday, Byrne struck a very different tone regarding streaming, even managing a (somewhat begrudging) compliment for Spotify for trying to illuminate the industry’s opaque payment system: Read More »