December 1, 2009 The unprecedented shift from multiplication to division.
If you are contemplating the future of music sales revenue, the most alarming thing about inexpensive (they actually call it “premium”) all-you-can-eat streaming models (Spotify, MOG) where music fans pay roughly $72.00 a year (for example) for endless access to all the music in the world (anytime, anywhere, anyplace), is that the $72.00 is divided by (all songs consumed times each song’s play-frequency).
Somebody did the math and determined $72.00 equates to some portion of the historical and statistical average of what rightsholders expected to obtain previoulsy and otherwise. However in 2009, this is the first time where the individual, annual serving-size of the TOTAL recorded music spending pie has been pegged to a finite dollar amount (I don’t count eMusic). It’s also the first time where the size of the pie isn’t proportionately grown each time a new artist appears on someone’s radar…it’s now (in these models) proportionately divided. (“More spins for you, means less revenue for me…”)
Is it time to look at music consumers, each as a stack of seventy-two dollars; everybody get what you can because that’s it? Or, are these models, combined with advancements in music discovery and recommendation, part of a leveling playing field where more and more artists will be heard, thus opening new revenue channels for numerous artists, which ultimately leads to growing the overall pie again?
Consumers seem to love these streaming models, and they are supposed to be the industry’s solution to music theft. However I can’t help but wondering, with the exception of pop stars, if everyone else would be better off selling downloads priced at ten cents each?
Reader Comments (5)
Take a lesson from Google. It is far easier to capture attention span from a user than it is to extract cash from them. Attention span is a commodity can can be sold and converted to cash via advertising.
Make music free for individuals to download/stream but license the servers providing it. Aggressively pursue unlicensed servers. Pursuing unlicensed servers won't make anyone mad, it's obviously a commercial activity.
Free music will cause people to spend endless hours at these licensed sites building their perfect music collections and play lists. More importantly people are receptive to advertising during this activity.
In the current model this potential revenue source is lost. Streaming services don't allow you to edit the stream contents. If you buy tracks you download them and them manage them locally.
Imagine a model where you could purge your iPod and refill it as you please whenever you wanted to. You'd spend a lot of time at a site building various profiles to load into the device. If you switched mp3 players you'd be back again sorting out what to load on it.
Streaming would be a parallel activity. You'd spend hours designing streams, swapping play lists, etc. This also enables cached streaming - something that would really help people on unreliable links.
This exact scenario is going on today. It's called bit torrent. But the attention capture monetization is lost.
Allowing individuals to freely possess music would be a big leap for the music industry. But making this leap opens new revenue generation models that are sustainable.
I can’t help but wondering, with the exception of pop stars, if everyone else would be better off selling downloads priced at ten cents each?
Except that if everyone sold downloads at 10 cents each, someone would start selling them for 5, and someone else 0 and we'd be right back where we started...
Is it time to look at music consumers, each as a stack of seventy-two dollars; everybody get what you can because that’s it?
I realize that your post is specifically talking about streaming, but it's still worth remembering that not everyone streams music as their sole source of music consumption. Maybe we're moving in that direction, but there are still other revenue generating ways of getting at music that many people use and favor.
Also, when a pie is being divided there are two ways to get a bigger piece. Either you can try to find ways to increase your share at the expense of others (ie - lobby for bigger royalty rates, etc.) Or you can increase the size of the whole pie. Streaming services already struggle with crippling rates, so that leaves option two. Pull more listners into the market.
That's one area where technology has already and will likely continue to play a big role. New ways of consuming music - such as streaming - have the potential to get people who wouldn't normally spend any money or effort discovering new music to engage.
I have actually built a number of digital music services, both subscriptions and downloads, and would like to provide some data here, as I feel there's a lot of inaccuracy in the short piece.
Consumers don't love these models. These streaming services have been around for 10 years. They've had complete catalogs for at least 5. Yet in the USA, the number of subscribers for all services is still just around 2 million tops. That's adding Rhapsody, Napster, Zune, etc. together. From a business perspective, most people would rather buy or steal downloads than pay for a subscription. That's why so many of these services have gone out of business. (To be fair, lack of iPod support has also been a big issue).
It's not inexpensive, and it's still more money. According to NARM, NPD, and other sources, the average per-capita expenditure on music in the USA is less than $35, and has been decreasing for the last few years. A typical musician's share of that $35 is going to be very small.
You may think $72 is inexpensive, but it is more than double the average expenditure. Current prices for these services are part of why they haven't caught on. (The main reason Spotify's been getting so much press is their ad-powered service, which is FREE to users, but has not been able to meet its royalty obligations via ad revenue)
If a new product comes along that manages to get a few more people spending more money on music, that is a net good thing, not a bad thing.
Do not assume cannibalization. Around 80% of homes in the USA subscribe to satellite or cable television, paying $50-$100 (or more) per month for TV. Of these same homes, many rent DVDs, buy DVDs, go to the movies, use pay-per-view, and watch Internet television.
Just as it is unrealistic to expect any one of those pieces to "cannibalize" the revenue for all the rest, it is unrealistic to assume Rhapsody, Spotify, Napster, MOG, and Zune will result in complete cannibalization of other music spending. As @refe notes, the net effect of these services is to make the total spend on music for users larger, not smaller. That leads to more money for artists.
It's always been competition for a fixed amount. Economists will (correctly) argue that at the macro level, households/individuals DO only spend a finite amount of money on music. It is completely unreasonable to assume "the pie grows when a new artist appears". That's just not how it works. Even hardcore music fans have limits on how much music they'll buy. You cannot assume people buy every track or CD they want.
The streaming model is arguably more fair. In streaming services, the artists who get played get paid. The average CD is listened to fewer than 10 times after it is purchased. If you play your favorites a ton and the stuff you don't like just a little bit, why should the artists you love NOT get more money? In a streaming service, full and accurate accounting of every play is provided. Artists who create music people regularly and frequently play get more plays than artists who create music people buy and leave on the shelf. Is that so wrong?
I know your "10 cents" is just a strawman figure, but it's not feasible. US copyright law requires a 9.5 cent mechanical royalty payment to the composition copyright holders, and so far the sound recording copyright holders have demanded a 4-5x multiplier of that royalty for their license.
@Jon Smirl - The "iPod" service you allude to has also been available from Rhapsody, Napster, Zune, and now, Spotify. Most don't work with iPods, and Spotify only works with the iPhone/Touch.
I also don't understand why you "don't count eMusic" when they use exactly the same economic structure - paying out shares of a fixed pool.
Ultimately, these music services are another way to expose people to music. While it is true that some users of these services say "I'm never buying a CD again", they're still spending more per year than the average. And as many or more users say "I'm buying more music than I ever have before", due to their ability to try and enjoy everything before making a purchase decision.
Jinsai,
I have to run out for the afternoon. I will provide a more complete response later. I will say one thing now though: consumers do love Spotify and Pandora, and they will probably love the new MOG streaming service. I believe the rate of adoption for Spotify (and probably Pandora) has been greater than any music-related technology or platform launched in the last twenty years; within their respective markets (Europe for Spotify) and delivery mechanisms (3G wireless; iPhone for Pandora, and now growing rapidly on the Internet). Correct me if I am wrong. I am looking forward to digging into your other points.
Cheers,
Bruce
I'm gonna keep it very short...
Let's say your thoughts are right - then the "all-you-can-eat" streaming models are obviously not the future for a lot of artists...
I think the music biz landscape will be much, much more diverse. No one way is the future... They are all the future.