Author: Trichordist Editor

Trichordist Editor

Why Digital Exec’s ARPU is Bad Math and also Bad Philosophy for Artists.

ARPU. Do you know what that is? It’s Average Revenue Per User. Not withstanding the insulting connotation of referring to fans as “users” this is just bad on a number of different levels.

Leaked Sony emails suggest that digital music executives confuse per-capita with ARPU. One of the items we’ve found cruising wikileaks has digital music execs explaining the digital landscape ARPU as follows:

$120 Streaming Subscription

$68 Downloads

$3 Ad-Supported Streaming

We’ll get into the fallacy of the $68 Downloads vs the $120 Streaming Subscriptions in a minute. But first, let’s just look at the fact the industry digital execs actually clocked ad-supported ARPU at $3 per user per year and did it anyway! Seriously? Really? Who thinks going from $68 to $3 is a good idea and then doubles down on trying to get sell in on it? Wow, just wow.

Ok, now back the $68 Downloads ARPU. The question that never seems to be qualified in these ARPU valuations is how many users exactly contribute to the revenue pool to end at up an average of $68 per user? The next question would be how many of those “average” users are paying significantly more than $68? Hell, how many are paying significantly more than $120 per year?

In a basic 80/20 model we would expect that 80% of the revenue would come from 20% of the consumers (er, um… “users”). This means the most valued “users” are now being artificially flattened DOWN to $120 per year.

Streaming Subscription fees as a representative of ARPU doesn’t work, because there are only TWO numbers that can be worked into the average, $120 and zero. So now you have the problem of trying to raise the causal user up to $120 per year while you’ve flattened down your best costumer (er, user). This is the crazy rational behind dropping streaming subscriptions down below $120… But wait… wouldn’t that just also artificially flatten the overall market even lower than the $120 ARPU? Yeah… you bet it would.

It’s truly astounding the lack of ability to use calculators and do simple math. We’ve pointed this out again and again. Even at 90 Million Paid Subscribers at $120 per year, that only generates $7.5b in industry revenue. Ninety Million Paying Subscribers. Just keep saying that over and over until it sinks in.

Subscriptions artificially flatten the market and require extremely high (and largely unrealistic) subscriber numbers because the actual number of “users” consuming music is probably at least double 90 million in the USA. That’s where an ARPU of $68 starts to make sense, somewhere around 110-155 million consumers, but most likely even higher. So, here’s the rub – who really believes that Spotify (or all subscriptions streaming services combined) are going to convert 10s of millions of casual consumers/users into $120 per year ARPU’s? They’re not and that’s why this model is screwed.

ARPUisBAD

For streaming to truly mature the industry needs to embrace tier based, value pricing, so that a truly dynamic and flexible ARPU can be restored. The one size fits all Streaming Subscription ARPU is a lie, and the math shows us why.

 

 

by Trichordist Editor

World Watch: The Safe Harbor Loophole and the Internet of Other People’s Things

Music Technology Policy

“Americans are freedom loving people and nothing says ‘freedom’ like getting away with it.”

From Long, Long Time by Guy Forsyth.

How many times have you heard the expression, “DMCA license”?  The expression is completely baseless, yet it has come to be used to describe an online company that uses music, movies, television, books and images that are intentionally used without rights and commercially until the company receives a take down notice.  The examples given of companies using the “DMCA license”?  Most frequently YouTube, Grooveshark and whatever Michael Robertson is doing at the moment.

If you tell these people that there’s no such thing as a “DMCA license” and that the very expression is internally contradictory, the comeback usually is “Why does YouTube get away with it?”  And of course the answer is the same answer to why does YouTube claim to be struggling to break even–Google is willing to…

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by Trichordist Editor

Has music missed its ‘Netflix moment’? | Music Business Worldwide

Subscription streaming movie service Netflix announced earlier this week that it has reached 62m users around the world – almost exactly the same number as Spotify.

Big difference is, four times as many of Netflix’s customers pay a subscription each month: 60m of them, or 97% of its total consumer base.

READ THE FULL STORY AT MUSIC BUSINESS WORLDWIDE:

Has music missed its ‘Netflix moment’?

 

 

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

 

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

 

BUT SPOTIFY IS PAYING 70% OF GROSS TO ARTISTS, ISN’T THAT FAIR? NO, AND HERE’S WHY…

by Trichordist Editor

Spotify is the Problem, Not Labels. (Well, Mostly…)

There is a narrative that keeps getting repeated by Spotify apologists and propagandists. It goes something like this, “The problem is not that Spotify pays too little to artists it’s that record labels are not paying the artists their fair share of royalties from Spotify.” Ha! When the gross payable is half a cent or less we think this has a lot more to do with Spotify than labels.

But this idea that labels are the problem pretty much means that Spotify ignores or otherwise feels that any artist not signed to a major label is unimportant in this conversation and that’s too bad.

We don’t know how many artists and small DIY indie labels aggregate to Spotify via Tunecore and CDBaby for example but we suspect it’s literally THOUSANDS of artists that are not signed to major labels (or ANY label). These are artists who are collecting either 100% of their Spotify royalties directly (Tunecore) or collecting those royalties after a 9% dist fee (CDBaby).

When Spotify shifts the blame for low royalties they are ignoring and invalidating all of the artists not signed to major labels, or any label. There are no industry middlemen taking Zoe Keating’s royalties from Spotify. The per stream rate is just incredibly, horribly bad. 

There are high profile artists such as Zoe Keating and others who echo the sentiments of artists across all strata’s of the business. The economics of Spotify are just unsustainable from the top down at present rates.

Everyone knows that record labels advance massive amounts of money to develop the careers of those artists signed. These advances are recouped from monies earned in royalties. One can argue about the recoupment mechanics but it doesn’t change the fact that with so little money being generated by Spotify the problem is much greater then the labels.

It’s also interesting that in all the talk of democratization and empowering musicians how little of it appears to be actually happening.

99.9% of Tunecore Artists Make Less Than Minimum Wage…

If the Internet is working for Musicians, Why aren’t more Musicians Working Professionally?

We’ve detailed numerous times how at the top end of the food chain, the Spotify math just doesn’t work and would require more subscribers paying $9.99 a month then any other mature premium subscriber business has achieved to date.

Here’s some context for the chart above. 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

And, just so everyone is clear, we’re not giving the labels a free pass either. But Spotify’s divisive punt to blame the labels for their own bad business model isn’t fair. We’ve reported on the 18% equity stake the labels took as part of their licensing agreements. That’s an 18% equity stake that we’re pretty sure the artists won’t participate in at the time of an IPO or sale (should there be one).

The larger issue in this conversation however is that if Spotify and on demand streaming services can not generate the same or more revenue then transactional sales, then the model is a net negative for artists.  This has nothing to do with labels and everything to do with a flawed business model. Removing the free Ad-Supported tier after a limited time is probably the first, best and most obvious immediate solution but not the only one that should be addressed.

Spotify can not hide behind their bad math by shifting blame to labels when so many artists are getting their royalties from Spotify directly without labels.

 

 

Spotify Must “Adapt Or Die” : Pricing For Sustainability

 

Five Important Questions For Spotify from Artists and Managers

 

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

 

by Trichordist Editor

Who benefits from ad supported streaming? Three guesses.

FOLLOW THE MONEY.

Music Technology Policy

What do you pay for when you pay for a subscription to an ad supported service like Spotify or Pandora?  It stops being ad supported.  So who benefits from that?  Fans and artists who hate advertising.  Artists who get a higher royalty rate.

Who doesn’t benefit?

Well, who do ya think?  Here’s a risk factor from Pandora’s SEC filing that gives you a hint:

We rely upon an agreement with DoubleClick, which is owned by Google, for delivering and monitoring our ads. Failure to renew the agreement on favorable terms, or termination of the agreement, could adversely affect our business.

We use DoubleClick’s ad-serving platform to deliver and monitor ads for our service. There can be no assurance that our agreement with DoubleClick, which is owned by Google, will be extended or renewed upon expiration, that we will be able to extend or renew our agreement with DoubleClick on terms…

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by Trichordist Editor

2012 A Brief History Of Spotify, “It Increases Itunes Sales”… @SXSW #SXSW

Stop us if you’ve heard this one before… Spotify doesn’t cannibalize Itunes sales it actually increases them… Uh huh. That was the rap they wanted us to believe. Smart and cautious artists and labels seem to have been right by avoiding Spotify.

In 2014 Itunes sales are reported to have declined by 12-14% and that is pretty much directly attributed to the cannibalization done by Spotify.

So here’s what they said in 2012…

Spotify Plays Can Increase iTunes Sales. Here’s Proof! | TechCrunch

… there’s no evidence of Spotify or other streaming services negatively impacting music sales. More data like this could encourage artists and labels to promote their streaming music presences, and push acts like The Black Keys and Paul McCartney who’ve pulled their catalogues from Spotify to come back.

Spotify launches new apps, as Universal again defends the service| CMU

Paul Smernicki did some more defending at a Guardian conference. According to Music Ally, Smernick told the conference: “We’ve looked really really hard for evidence of cannibalisation, almost unobjectively. Across the business, we’ve been unable to find that evidence. And in [European] markets where Spotify has launched, the growth in the digital business has been about 40%, in territories where it doesn’t it’s around 10%. There’s a healthy ecosystem and it can be served by many of those services”.

Spotify chief: streaming services boost music sales | The Telegraph UK

Speaking to digital music site Evolver.fm in a pre-Grammys interview, Ek strenuously denied that his streaming service cannibalises sales of music through services such as Apple’s iTunes.

“There’s not a shred of data to suggest that. In fact, all the information available points to streaming services helping to drive sales,” he said.

Does Streaming Cannibalize Albums? | Billboard

Wilson points out that the number of digital downloads has increased-up 15% for albums and 6% for tracks in the first 46 weeks of 2012, according to SoundScan-suggesting that the widespread availability of free on-demand streaming hasn’t led to a sales apocalypse.

Rhapsody chief executive Jon Irwin says, “The only thing streaming music cannibalizes is piracy.”

So there you have it.  Three years later and meanwhile back on earth the actual effects of Spotify on the transactional sales of recorded music have been a disaster. Which is why there are major changes happening at the major labels as Spotify licenses come up for renewal.

by Trichordist Editor

2010 A Brief History Of Spotify, “How Much Do Artists Make?” @SXSW #SXSW (Shill By Shill West)

SXSW Rewind… Back in 2010 during Daniel Ek’s Keynote Speech an audience member who identified themselves as an  independent musician asked how much activity it would take on Spotify to earn just one US Dollar. The 27 year old wunderkind and CEO of the company was stumped for an answer… Five years later we have a pretty good idea why.

2010… #SXSW Rewind…

Live Blog: Spotify CEO Daniel Ek Says Music Service Now Has 320,000 Paid Subscribers | TechCrunch

Q: How many plays equals one dollar?
A: Depends on the type on contract with the publisher/record labels. We share the rev we bring in. You can’t really equate to ‘per play’ we look at all our ad rev. Creates a bucket. For instance how do you account for a purchase of a song. There is no easy answer to your question. Over time our ad revs are growing, number of downloads growing. Amount of rev we bring in is growing.

Will Spotify Be Fair to Artists? | Technology Review

I couldn’t help noticing, however, Ek’s artful dodge to the question of how artists are paid by his service. The subject was broached by an audience member, who identified himself as an independent musician and thanked Ek profusely for the great application. He wanted to know how much he would be paid.

“It’s complicated,” was, in essence, Ek’s reply. But he did reveal that it’s a revenue sharing model; artists get paid a proportion of whatever Spotify gets paid, presumably based on the number of plays on the site they receive.

Ek’s reply was disappointing because this is the million dollar question for many music sites.

Dodgy from the start. What do you expect from one of the co-founders of U-Torrent… Economics only a pirate could understand?

 

A Tale of Two Pirates? Daniel Ek (uTorrent) and Kim Dotcom (Megaupload)

 

USA Spotify Streaming Rates Reveal 58% of Streams Are Free, Pays Only 16% Of Revenue

 

How to Fix Music Streaming in One Word, “Windows”… two more “Pay Gates”…

by Trichordist Editor

YouTube’s Content ID : $375.00 Per Million Views… aka “Block In All Countries”…

We’ve been supplied nearly a year’s worth of Content ID data from a mid-sized indie label. Over the course of about a year here’s what the data shows:

Content ID

After nearly a year and 80 million plays, the net average per play amounts to less than $375.00 per MILLION Plays on YouTube. Ok, that’s just for the sound recording, there are two other parts to the uploaded copyright, the musical composition and the video content itself. Assuming each of the three parts earns an equal share (why would they not, but how would we know given YouTube’s usual secrecy sauce?), then the full amount payable by YouTube for 1 Million plays via Content ID would be $1,125, or $.001125 per play (on average).

We know that on directly uploaded videos where the creator or rights holder is claiming all three copyrights they are being paid more than $1,125 per million plays on average. So why is the revenue reduced when claimed on Content ID?

The other interesting thing about this data is that there is ZERO consistency on what one play is worth. For example, in what world, and under what circumstances is nearly 70,000 plays worth less than $.30? We’ve heard that the major labels may have a per play floor (or indirectly get the equivalent in off the books “breakage”), but after reviewing this data even that is hard to believe.

The lack of openess, transparency and consistency makes it virtually impossible to determine what the true value of a play is within a single category like a Sound Recording let alone comparing the comparable rates paid for Song Writing and the Video itself. Oh yeah, and there’s no audit clauses either – how convenient.

It is still shocking and amazing to us that after a decade YouTube is still not profitable and is being subsidized by Google’s monopoly money from search and data scraping, and yet digital music executives have been trying to sell us on this as the future of revenue for musicians. How is it that after a decade YouTube can not make a profit? If this is the new financial standard for record labels we can see that it’s starting to work! Is this the genius business model labels are embracing? No profit for a decade? If this is the new standard then we suppose everything is fine…

YouTube’s Content ID presents the same problems and challenges of virtually every other ad-supported streaming platform – it’s just math, and it doesn’t work.

There is an even darker side to YouTube that is exposed in Content ID. Even though the video pictured below was eventually removed from YouTube (via a manual DMCA claim) it illustrates the core problem of YouTube in general.

Here’s the music of Jack White being used to sell Sex Tourism and perhaps even Human Trafficking and Sex Slavery.

Note the Ads by Google with the fine print asking YouTube users to “chat now” or “send gift” for asian girls in Thailand and China as well as filipinocupid.com.

Artists have no consent over where their music is being used, or for what their music is impliedly endorsing or selling. It’s not a big leap from the above to political uses where an artist’s song can be exploited to endorse political candidates, ideologies and issues to which the artist is philosophically opposed.  Like human trafficking.

We have a hard time believing artists would lend their consent to these types of videos (if they knew at all), but then again, you never know when dangling that carrot of thirty cents of revenue in front of them…

So in a world where Spotify is paying about $5,000 per million plays on sound recordings, YouTube by comparison is paying less than $375 for the same million plays. So let’s add this up.

On YouTube artists have no consent and are granted no licenses for the (infringing) distribution for the majority of their work and they’re paid less than 1/10th of what Spotify pays for the same sound recording. Wow, just wow. Ya’ll doing the math on this?

If you thought that Spotify was problematic as an ad-supported streaming platform one has to wonder what could possibly be attractive about YouTube… Oh, you don’t have a choice. You do what YouTube and Google tell you to do as we saw with Google’s “notice and shakedown” practices with Zoë Keating and indie labels. The great decade long experiments of ad-supported streaming are a disaster for artists and rights holders while cannibalizing transactional revenues that once sustained the industry.  Not to mention Google taking down an eye popping 180 million infringing videos from YouTube.

Although streaming is no doubt the future of distrbution, the mismanagement of this transition may well be the worst planned in the history of the industry.

Our advice to artists, particularly artists who own their recordings, is it’s time to take a pass on that $375 per million views and toggle your Content ID setting to “Block In All Countries.” How about adding a little scarcity and reality back into the economics of online music distribution? If YouTube wants to monetize your work maybe they can come up with a fair license.

It’s just math. Just say no…

Block_In_All_Countries

OK, let’s review, you can enable Content ID and make $375 per 1 million views, or you can Block In All Countries. The choice seems pretty obvious, doesn’t it? It’s pretty stunning when Spotify start to look like the good guys.

 

 

 

 

 

 

 

 

 

 

 

 

by Trichordist Editor

It’s Just Math : Digital Music Execs Exit, But will the Pivot to Paid Subs Be Enough To Save The Record Biz?

Back in October of 2014 we asked the question “Who will be the First Fired Label Execs over Spotify Fiasco & Cannibalization?“. Now we know. In one week, two senior major label digital music execs have resigned. First Rob Wells on Monday, and on Friday David Ring followed.

Screen Shot 2015-02-24 at 12.18.56 AM

We don’t know if these resignations are related to the realization that Spotify actually is cannibalizing transactional revenues, or that YouTube Music Key will do more and worse, but the timing is suspect given recent statements by label chief Lucian Grange.

“We want to accelerate paid subscriptions… Ad-funded on-demand is not going to sustain the entire ecosystem of the creators as well as the investors” – Lucian Grange

Spotify has been a disaster from bad artist relations to the catalyst for declining transactional revenues. We celebrate the move for more aggressive positioning to paid subscriptions, but even at current rates of $9.99 a month it’s hard to see subs gain the marketshare and revenue needed to compensate for the rapidly declining transactional revenues. In 2014 Itunes revenues dropped by double digits with Apple reporting a decrease of 13%-14% year to year. This following a decrease in overall digital revenues in 2013 (the first decrease ever in digital format sales since their inception).

So that’s two consecutive years of reduced revenue in what should be a growing market segment. So what went wrong? In a word, Spotify. Two more, YouTube.

In other words, Free Doesn’t Pay…

We’ve said it before and we’ll say it again, it’s just math. Below is a table we first published two years ago in February of 2013 when we asked the question, “Music Streaming Math, Can It All Add Up?”.

streamingmath

Although the aggressive move to paid subscriptions is a very positive one, we’re still concerned when looking at the numbers in the tables above when put in the context of the current state of the mature subscription based businesses (see below).

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

Of course none of this is to say that streaming can’t work. It can. It’s that Spotify (and YouTube) are just really bad music business models that have unsustainable economics and exploit artists because they are financial instruments and not a music companies.

Let’s be clear about this. We do believe that streaming is the future of music delivery and distribution, but thus far the transition has been horribly mismanaged. What is needed is clear leadership to define the models and value propositions that work for all stakeholders. We’ve made some suggestions in our common sense post “Streaming Is the Future, Spotify Is Not. Let’s talk Solutions.”

We’re open minded about new business models, but before people get ahead of themselves with wild claims about a $100 Billion Record Business based on magic unicorn math we need to get back to earth, and get out the calculators.

It’s just math.

 

 

by Trichordist Editor