Jay Frank’s Magical Mystery Streaming Math… Or, Brotha Can Ya Spare A Calculator?

Music industry exec and blogger Jay Frank commented on our post BUT SPOTIFY IS PAYING 70% OF GROSS TO ARTISTS, ISN’T THAT FAIR? NO, AND HERE’S WHY…. Jay’s comment is typical of the thinking that has landed the record industry where it is today (losing money and in trouble).

It’s hard to tell from the comment whether Jay actually believes what he’s saying in the same way someone who bought a million dollar house with no money down, on a zero percent, 5 year ARM convinced themselves there was no housing bubble…

If they [Spotify] go from 10m to 100m free users, they’ll be able to charge much larger premium rates, and may even strike deals with some acts. That could easily result in $1b in artist royalties, given some other media models. This now puts Spotify at $3.5b in artist royalties per year. Pretty good.

To your point, though, that’s still half of the $7b number you put out there.

Right, no kidding “that’s still half of the $7b number”. To be fair to Jay, you should read his whole comment in context at the link above.

However, by his own admission he is still coming up short by $3.5b. If you factor that in with the analysis of the projected revenue losses from YouTube’s Music Key that’s another estimated $2.3b in the hole. But the simple truth is much easier to see, revenue keeps dropping as it has for the past 13 years while piracy apologists and digital music snake oil salesmen have yet to show any increase in actual overall net revenue from recorded music sales.

YouTube’s MusicKey Will Cause $2.3 Billion In Music Industry Losses… | Digital Music News
http://www.digitalmusicnews.com/permalink/2014/11/03/youtubes-musickey-will-cause-2-3-billion-music-industry-losses

By Jay’s logic, digital albums would sell for one dollar not ten while digital song downloads would be priced at ten cents and not one dollar. That’s not the case for good reason and illustrates quickly and effectively why Spotify paying 70% of gross is moot. We don’t think labels would agree to getting paid 70% on one dollar album albums and ten cent songs. Of course the labels don’t have 18% equity in Itunes either…

The larger truth and common sense is that Spotify economics don’t work in the same way $1 album downloads and $.10 song downloads don’t work – there’s not enough scale to make the economics sustainable. If Jay truly thinks you can more than double the revenue from transactional downloads by reducing the price by 90% we’ve got a bridge in Brooklyn we’d like to sell him very cheap.

In terms of “highly selective math” Jay continues his comment from above:

To your point, though, that’s still half of the $7b number you put out there. True, but that presumes that Spotify is the only player in town. While they may be a major force, there will also be other internet radio, satellite radio, video streaming, other streaming competitors and probably still physical and digital retail sales. Add to that greater ubiquity in tracking usage with increasing penetration of smart mobile devices combined with declining mobile data cost…and I feel like we’re starting to approach $10b a year.

And that’s just the U.S.

Ok, so let’s see that $10b a year in revenue streams plotted out and lets take a closer look at it. 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.” Spotify is Three Million PaidThree… Oh, and that’s just the U.S.

* 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

Hey, it’s just math… but in the meantime Jay, you may want to look at this:

Streaming Isn’t Saving the Music Industry After All, Data Shows… | Digital Music News
http://www.digitalmusicnews.com/permalink/2014/06/26/streaming-isnt-saving-music-industry-new-data-shows

A Detailed Explanation on Why Streaming Has Failed… | Digital Music News
http://www.digitalmusicnews.com/permalink/2014/10/02/detailed-explanation-streaming-failed

You can email Paul Resnikoff at paul@digitalmusicnews.com

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RELATED:

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

Music Streaming Math, Can It All Add Up?

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

 

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4 thoughts on “Jay Frank’s Magical Mystery Streaming Math… Or, Brotha Can Ya Spare A Calculator?

  1. Funny. I just read the following article from him on Hypebot:
    Understanding Spotify: Access Over Ownership
    http://www.hypebot.com/hypebot/2014/11/understanding-spotify-jay-frank.html?utm_source=feedblitz&utm_medium=FeedBlitzEmail&utm_content=395530&utm_campaign=0

    I felt so strongly about it that I left a detailed comment about how the movie industry doesn’t doesn’t subscribe to a “one size fits all model”, so why should music artists or the music industry? (Netflix Instant doesn’t expect have all the major movie studio releases on their service the same week they hit theaters).

  2. As always, I appreciate the debate. Naturally, I understand that you analyzed my comments in a way that befits your perspective. My perspective on the math comes from a position of a company that is continually benefitting from the growth on Spotify. Instead of being concerned about a rate, we concerned ourselves with marketing. This approach has led to direct business growth, and I know I’m not alone. So where others see a failed model, I see a model where we’re experiencing success and see further growth ahead. That math is working fine.

    To TJR’s comment, I think it’s fine to attempt a variety of strategies on how to best market within and around streaming services. It may not be a clean “one size fits all”, which is fine. My perspective is that to dismiss it outright is to miss a large opportunity for those willing to embrace it.

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