Streaming Is the Future, Spotify Is Not. Let’s talk Solutions.

It’s not that streaming can’t work. It can. It’s that Spotify is a bad business model that has unsustainable economics and exploits artists because it is a wall street financial instrument and not a music company.

We’ve previously published a couple posts on streaming music where we explore how access models and windowing are working for the film industry and could serve as a guide to the record business. We’ve also shown how transactional music purchases have made legal music consumption the best value in the history of recorded music.

The key to building streaming business models that make sense and are sustainable is to increase the subscription fees, utilize well thought-out windowing models and experiment with new pricing tiers for access based services.

Historically the music business has employed the use of special markets such record clubs  (remember 11 CD’s for one penny). It’s not that record clubs were bad, in fact numerous studies found them to be great source of additional revenue if managed in a way that did not cannibalize front line sales. (Remember 12 month record club holdbacks?) Now we need to strike the same balance with streaming services.

So let’s get real, the Spotify business model and streaming math just does not work and can not work in it’s current form.

Here are five suggestions to get music streaming back on track as a viable business model.

1) Minimum Payment Per Play

You want to give your service away? Fine, but artists and rights holders are not going to subsidize your business by devaluing our work. No plays without a minimum royalty–including the “free service”–and all plays pay at paid subscription rates. If you can’t sustain your business doing this, then you need to rethink how your business works. Your bad business model is not our problem. Maybe an unlimited, non-graduated free tier is a really, really, really bad idea. 30 Day trial offer, ok. Virtually unlimited free access, no.

2) Windowing

The music business must embrace windowing to maximize revenues across all distribution channels and platforms. It’s so basic we can’t believe artists and labels are not utilizing this to greater effect. The first 30 days of a new release could be limited to transactional streaming access by the day, week, or the month at different price points. Likewise, perhaps only two songs from an album are made available on streaming platforms for the first year of release. There are many unexplored variations and options.

3) Transactional Streaming

The music business needs to embrace new models such as “transactional streaming” much like VOD exists for film versus transactional downloads or physical product. There is no reason why streaming distributors should have every title, ever released, for one fixed, flat price. Again, new releases in particular should be priced as transactional streams where the consumer can chose between low cost limited access to a new release, or pay more for a transactional download.

4) Tiered Pricing based on Access and Consumer Value Proposition

Just like cable tv and SiriusXM, one possible solution is to create price tiers based on access. For example, catalogs can be curated into genre and lifestyle packages. Creating bundled packages adds value to both the end user and the streaming service. Individual packages can be as little as $4.99 a month, and complete access could priced at $49.99 a month. Again, there are many unexplored variations and options.

5) Move Beyond Stockholm Syndrome

The answer to every attempt to introduce real world economics to the marketplace can not be met with “or else they’ll steal it.” We already know that. They have been stealing it for over a decade (thank you Mr. Ek for your contributions to uTorrent). The film industry is not approaching streaming with a gun to it’s head offering every title ever made on every platform for one low monthly fee. Itunes is the single most successful dedicated online music business ever, and it doesn’t have a “free-tier”.

Isn’t it odd that companies like Pandora and Spotify that are not profitable and don’t support artists are thought to behold some kind of gnostic wisdom of economics that defies all logic and reason? Last year Twitter lost $645 million dollars. Record labels have been profitable for over half a century with a sustainable ecosystem that invests in artists and new talent, while also creating hits and stars. It’s time to leave the rainbow unicorn school of economics and faith healing behind and develop real business models based on real economics.

Anyone remember the dot com bubble? Where is mp3.com now? Things can and do change fast in web/tech. Any talk of the “record industry” without MySpace in 2004 and you would have been laughed out to the room. Where is MySpace now? Spotify can (and very well may) quickly become MySpace. So let us all focus on how to make streaming actually work for all stakeholders and not only those with equity… it’s just math.

RELATED:

Who will be the First Fired Label Execs over Spotify Fiasco & Cannibalization?

Why Spotify is not Netflix (But Maybe It Should Be)

Mythbusting : Music Is Too Expensive!?

Marc Ribot Talks Respecting Artists’ Rights | The Talk House

We’re organizing to fight back. We’re going to give value to the ineffable, uncountable and immeasurable beauty being destroyed. We’re going to give voice to the creators whose work — and lives — are being devalued by tech-corporate greed. We’re going to fight for the sustainability of the culture we all enjoy. We don’t have the lobbying millions of the tech-corporate giants, but we’re going to win. Because the truth is a powerful slingshot.

Editor’s note: If you’re in the New York area, by all means go to “Benefit for Content Creators Coalition (c3): Defend Artists’ Rights: Economic Justice in the Digital Domain!” on Saturday, October 18, 2014 at Roulette.  The show features: John Zorn, Eric Slick (Dr. Dog), Steve Coleman, Marc Ribot, Henry Grimes, Marina Rosenfeld, Trevor Dunn, Brandon Seabrook, Satomi Matsuzaki (Deerhoof), Amir ElSaffar and more. You can buy tickets here.

READ THE FULL INTERVIEW HERE:
http://thetalkhouse.com/music/talks/marc-ribot-talks-respecting-artists-rights/

Mythbusting : Music Is Too Expensive!?

trichordist:

Something to consider amongst the chatter of proposals to reduce streaming subscription costs. We couldn’t think of anything more silly, and here’s why…

Originally posted on The Trichordist:

Music has never been less expensive to own, legally. We often hear that if music were cheaper, artists would sell more, but this is simply not true. Myth busted, read on.

Digital Music News – Worse Than Worst Ever? Tommy Boy Starts Number-Crunching Again…

“The first Beatles album in America came out in 1964 at $4.98 list,” Tommy Boy continued. “In today’s dollars that would be $35 for a 28 minute, monophonic 8-song album.”

In other words, using today’s pricing of $9.99 for an Itunes album would have only cost $1.35 in 1964… Even if you wanted to entertain a $20 CD (are there any $20 CDs these days?), the same would have only cost $2.70 in 1964. That’s nearly half of what it actually cost then.

So in the very worst case scenario, music is STILL 45% less expensive today than it was in 1964! And that’s calculated on…

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Free is a Lie – Aral Balkan – Thinking Digital 2014

At Thinking Digital 2013, Aral Balkan delivered the most watched and favourited Thinking Digital talk of all time.

In 2014, Aral returned to Thinking Digital to deliver a blistering talk about the state of the Internet today. He argues that “free is a lie” and that we (via our personal data) are all being quietly farmed for profit by the superpowers of the Web.

 

Will Spotify IPO Show Managers and Artists Got Options and Stock? Who Will Get Legal Scrutiny?

I can’t wait for the Spotify IPO filing.  That’s when Spotify must disclose all kinds of things.  Like which artists, artists representatives and managers  got stock options.

It’s  entirely possible that a bunch of artists and managers are gonna find themselves on the wrong end of the Securities and Exchange Commission’s pointy stick.

Why? When you present yourself as an expert in the music business and sing the praises of a music business company  going public  without disclosing that you have a financial stake you can end up in a lot of trouble.

Those managers, artist representatives  and artists who have been blogging or writing guest editorials  concerning the financial viability of Spotify and streaming  have the biggest problems.  An attorney can argue that they were part of a conspiracy to defraud investors if the company goes belly up because it has no viable business model.

Even those that spoke at the invitation-only Spotify meetings the last few weeks may be in trouble as well. There may have been  potential investors  in the room or what was said may get repeated to potential investors.  The SEC doesn’t like it when you don’t disclose your financial stake in those situations public or private.

If someone somewhere knows that the company is a piece of shit this is PUMP AND DUMP and then EVERYONE gets investigated. And if you didn’t disclose your financial stake in the company? You’re gonna look guilty whether you are or not.   Might as well put a big target on your back.

Shit, you may be in trouble if you took anything of value from Spotify?  Data? Promotion?  Promise of a job?

Doesn’t matter how smart you may think you are,  it just takes one idiot to screw it up for everyone.

So how do we know that Spotify is gonna tank?  Do the math.   $5 a month streaming subscription even at 100 million households (the penetration of cable and satellite)  70% of revenue to rightsholders means that recorded music is a $4.2 billion dollar business.  That is mass adoption of Spotify shrinks the business dramatically from it’s current 7 billion.  THIS IS SIMPLE MATH AND ANY EXECUTIVE WHO CAN”T DO THIS MATH SHOULD BE FIRED.

But it is highly unlikely that all the streaming services put together will ever reach that level of paid subscriptions.   Why?   they offer a free version.   Why would 100 million subscribers pay for something they get for free?  It’s more likely that streaming creates a much more dramatic drop in recorded music revenue.

Do you think someone like  Lucian Grainge is gonna let his revenue get cut in half? or worse?  No he isn’t.  Therefore Spotify in it’s current incarnation and model dies.  If you don’t want to be investigated by the SEC you better hope that this happens before the IPO.

We also believe (we have access to Soundscan too!) the widely reported dramatic drop in paid downloads radically understates the problem to record labels. Digital downloads have a higher “net” to the recorded music business than physical sales.  Physical sales have much higher expenses associated with their manufacture, distribution and delivery.   Outside of the magic unicorn land of Silicon Valley, profits do matter.  And profits are gonna get nuked this year.  This means real job cuts and real salary reductions.

Finally we should mention we had  moles in many meetings on the recent Spotify roadshow.  Including the manager only meetings.  WE KNOW WHO ATTENDED AND WHAT WAS SAID.  This could really end up being a shit show.

+++++++++++++++++++++++++++++++

Later this week:  How  record executives may be PERSONALLY  liable in potential lawsuits that argue that artists were defrauded in the deals labels cut with Spotify.

 

 

 

Is Google still serving ads on illegal sites?

I searched a website during my panel at Columbia Law School. It’s a website that is well known for infringing content. I also captured the source code. There is code on this website that shows this site is expecting advertising from parts of Google’s Advertising ecosystem. I have reason to believe this site and advertising code will shortly disappear. II post these screenshots here to preserve the evidence.

 

Dilandau.eu  (redirectes to dilandua.la)  by Google’s own DMCA Transparency Report ranks this site as #3 in the number of takedown notices received.

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Here is website.

 

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“served” source code clearly showing the website is expecting “ads by google” to be served into this page.  It also displays some sort of publisher ID which would presumably identify this website to the Google Ad servers.

 

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A second block of code farther down the page which also seems to be waiting for google ads to be served.  Again note the publisher ID.

 

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Why Spotify is not Netflix (But Maybe It Should Be)

Trichordist Editor:

From the “Let’s start talking solutions” file. If Spotify wants to have a conversation with musicians, this may be a starting point for an honest partnership. Let’s see more flexibility in the model.

Originally posted on The Trichordist:

If we are to explore the digital marketplace for both streaming and transactional downloads the music business might do well to look at what the film business is actually doing in the same space. We will quickly see that Spotify is not Netflix, but maybe it should be.

Readers will note the film business has not bought into the faulty logic that the only way to combat internet piracy is to make every film ever made, available instantly, on an all you can eat service for $9.99 a month. Some might argue that is what Netflix is, but people making that argument are obviously not current subscribers!

One thing that has struck us in the comparisons between Spotify and Netflix is that Netflix does not have every film, or even every current film, or even a large percentage of popular films. For the vast inventory that Netflix has, you also…

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We Got Trouble My Friends, Right Here in Music City: The Spotify Meltdown Tour Continues

Originally posted on MUSIC • TECHNOLOGY • POLICY:

I think we’re being run by maniacs for maniacal ends.

John Lennon

The Spotify “artist relations” team continued their swing West last night with a stop in Nashville at City Winery where a songwriter can grab a burger and a glass of red for a mere 350,000 plays–including tip!  And don’t forget to take home a bottle of Tres Amigos, a disruptive little house blend of malbec, bonarda and cab for a modestly priced 400,000 plays.

Now here’s the problem–the Featured Artist Coalition spent a good deal of time putting together these meetings with the best of intentions.  Although I was not present (I live in a flyover state, and you know how that can be), it appears to me that Spotify seems to think that these three events in New York, Nashville and Los Angeles are opportunities to sell their company by repeating their talking points as opposed to…

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Who will be the First Fired Label Execs over Spotify Fiasco & Cannibalization?

We don’t know if the rumors are true, but we’re hearing rumblings from the upper echelons of the music business that top management is very unhappy with the cannibalization of the transactional business that is being accelerated in a death spiral towards a $3b record industry.

Did you guys get this headline on the midyear sales figures, U.S. Music Revenues Down Nearly 5%, Says RIAA. Early end of year estimates are that 2014 could see a double digit year to year drop by as much as 12%. As we’ve said before (and others are catching up) it’s just math.

We’re also hearing panicked and desperate distribution executives wanting to double down on streaming by reducing the subscription fees to accelerate scale (not everything Apple says is good for you, remember?).

So we have to ask, are you kidding us? The only thing that is going to accelerate is how fast you lose your job as you kill what’s left of the transactional business.

If you own a calculator, let’s just do the math one more time, real slow and simple like…

1) Spotify and former uTorrent CEO Daniel Ek says Spotify only needs 40m paid subscribers for streaming to be sustainable for artists. But that math just doesn’t work.

2) $10 per month subscription = $120 per year per subscriber

3) $120 per year, per subscriber paying out 70% of gross to rights holders equals $84 per subscriber, per year.

4) $84 per subscriber, per year x’s 40 million subscribers equals $3.4b per year in top line gross revenue to ALL rights holders. That’s $3.4b for labels, artists, publishers and songwriters combined.

5) $3.4b per year is HALF of the current revenue of $7b per year where the domestic business has been flat lined.

6) Assuming you could DOUBLE the subscription base to 80m PAID in the USA within two years by dropping the price in HALF to $5 per subscriber per month you still only gross (wait for it…) $3.4b a year in revenue.

We know this is shocking to the math impaired, but doubling scale (imagined as it is) while cutting the subscription fees in half, actually nets you the same amount of money. Shocking the things one can learn with a calculator or a spreadsheet.

Do you know how else you can achieve scale faster? Free. Free scales fast.

Free scaled fast for Napster.

Free scaled fast for Grockster.

Free scaled fast for Kazaa.

Free scaled fast for Limewire.

Free scaled fast for BitTorrent.

Free scaled fast for The Pirate Bay.

Free scaled fast for YouTube.

All of these have three  things in common.

1) Infringement as a business.

2) Fast scale.

3) Subsidized by artists and rights holders who are not compensated.

The con men have been conned and the only way out is an exit strategy that is so disconnected from the monetization of music that there is literally no longer a connection between the artist and the revenue they create.

So how realistic is that magic number of 40m paid Spotify subscribers in the US?

Here’s what subscription based services look like right now. Netflix only has 36m subscribers in the US, no free tier, and massive limitations on available titles of both catalog and new releases. Sirius XM, 26.3m in the US as a non-interactive curated service installed in homes, cars and accessible online. Premium Cable has 56m subscribers in the US paying much more than $10 a month and also with many limitations. Spotify… 3m paid subscribers in the US after four years. Tell us again about this strategy of “waiting for scale.” Three Million Paid… Three…

* 3m Spotify Subs Screen Shot
* 26.3m Sirius XM Subs Screen Shot
* 36m Netflix Subs Screen Shot
* 56m Premium Cable Subs Screen Shot
* $7b Music Business Screen Shot

Given the above it’s not surprising that what we’re hearing is that the adults have let the children play with their Silicon Valley toys and they have been left alone along long enough to see the house burn down. And adding insult to injury, Spotify has been a complete artist relations disaster.

We’ve got bad news for digital distribution/ label folk.  The Silicon Valley lifeboat doesn’t have that much room in it for ex-record company executives who are bad at simple math. We know five guys who are not concerned about the future of the record industry and their names are Jimmy, Dre, Trent, Ian and Dave… the rest of you are probably not going to be so lucky.

What is perhaps the greatest irony in all of this is that the great rock & roll swindle has been on the record industry instead of by the record industry, but that’s another post.

So who’s head is going to be on the block when the year end head count reductions start? Hmmm…

RELATED:

Spotify Doesn’t Kill Music Sales like Smoking Doesn’t Cause Cancer…

 

Why Spotify is not Netflix (But Maybe It Should Be)

 

Spotify’s Daniel Ek is Really Bad At Simple Math, “Artists Will Make a Decent Living Off Streaming In Just a Few Years”

 

 

c3 ‪”#thatsongwhen 10k people listened, the artist got paid $60 and the major labels got stock options.”

c3, The Content Creators Coalition is enlisting musicians and songwriters to share their true stories of Spotify plays, payments and thoughts to raise awareness around unsustainable digital service royalty structures. Join in.

If you care about the economic rights of artists in the digital domain, join us in hijacking Spotify’s new twitter hashtag campaign. Got your own numbers to share? Like so: Fun with new Spotify hashtag campaign: “#thatsongwhen 10k people listened, the artist got paid $60 and the major labels got stock options.”

We do believe in digital. But current rates are not sustainable. Spotify is using our music like venture capital and promising better returns later while they pay their employees and hire expensive ad firms to create the above hashtag campaign.

thatsongwhenSarahManningthatsongwhenTessaMakesLove thatsongwhenMarilynCarino

FOLLOW c3 ON FACEBOOK:
https://www.facebook.com/ContentCreatorsCoalition
https://www.facebook.com/pages/ccc-nycorg/