- By Yves Riesel, co-founder Qobuz
Unlimited music streaming is a new method of commercialising recorded music - and it is a poisoned chalice. As far as users are concerned, it is magical. But, when it comes to profits, it can leave a bitter taste in the mouth of many licensed services and platforms. The forthcoming launch of Apple Music will show that the key to creating a truly viable business model in this arena is simple: coming to terms with the fact that free streaming, where the user is not expected to pay for their listening experience, is a mistake, and the argument that it helps fight against piracy is a trap for the naive.
If Evernote doubles its number of users, that will not result in a doubling of their production costs. When it comes to music (or video), however, paying for periods of free use (“freemium”) or totally free use involves the purchase of expensive rights for the distribution platforms. This is perfectly normal: a baker who decides to sweeten the deal for his customers by handing out free bread will indeed have to pay for the extra flour, as well as his staff’s wages.
Up until now, online music platforms have rarely been focussed on the music; they have been about creating financial barriers to the future entry of competitors. The money they collect pays for endless periods of free trials and allows them to keep smaller and less-supported industry competitors at bay and out of the running. In France, this policy was even employed with the support of the government on the occasion of the vote on the Hadopi Bill, as well as the distortion of competition which came with the 2010 introduction of the Orange-Deezer bundle. Ironically this was rolled out under the aegis of the Minister of Culture at the time, who went on to work (rather conveniently) for Orange. The leading platforms have therefore been able to capture the market everywhere, and everywhere they have clung to the lowest common musical denominator. They have been, and always will be, a dangerous obstacle to unique artistic expression.
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However… Some real levers do exist which can be immediately employed to increase the potential revenue that rights holders can get from streaming, which is emerging as users’ preferred form of use. There are at least five such levers:
Stopping free use, and developing users’ willingness to pay.
Bear in mind that, behind the millions of ‘users’ that streaming services announce, there is in fact an unlikely mix of accounts which have simply been compiled from numerous sources, unused accounts, gift offers received from this or that company, and never paid for, etc. The proportion of real subscribers who pay the advertised price is an absolute minority. If everyone paid, even if it was just a couple of euros or a dollar or two, everything would be different. The advent of paying streaming services, which is certainly on its way, is sure to terrify services like Spotify or Deezer who don’t have a lot to say about music itself, and who have made free services their unique selling point for recruiting users.
Reforming reporting methods, and encouraging a more exact distribution of the money that comes in.
A subscriber paying 9.99 per month who spends their days listening to nothing but the saxophonist John Saxo might like to imagine that 100% of their financial contribution (after deductions for taxes, royalties and the platform) would go to the rights holders and eventually to John Saxo. But no: the contributions paid by our niche music lover will just be lost amongst the much larger numbers of mainstream music listeners. The money will be distributed on a pro-rata basis, and this will always work to the disadvantage of minority-interest collections. In the age of Big Data, rebuilding the moral and financial contract that has always linked the fan to the artist should be simple. In the physical world, big distribution does not have the same ability to force the artisan cobbler to adopt the same economic model and distribution system as industrially-produced shoes. Rights holders: understand that your income from streaming platforms, for the time being, depends upon the success of others, and by the same token your revenues are crushed by the pro-rata system.
Segmenting offers, specialising and tailoring platforms.
No consumer is more discerning and diverse than the music lover, but current platforms display a grinding homogeneity that is not at all alleviated by algorithms (which don’t facilitate serendipity, no matter what the hype might say). By creating differentiated offers, the platforms will create a pyramid of willingness to pay, and will increase ARPU. This pyramid can be created through various methods, most of which have yet to be invented: offers based on sound quality, by niche music catalogues, or by the offer of options (see below). Real segmentation will be created by means of setting up a true system of recommendations for services, by style, by their capacity for excellence in a given musical genre, for giving more back to the rights holders in this or that category of music - by the unique relationship, basically, that the platform is able to create between their subscribers and their suppliers. This is why, for example, nearly 50% of the money paid by Qobuz goes to classical and jazz music, while it is probably less than 10% elsewhere.
Labels, rights holders - dare to choose selective distribution!
The different musical contents made available to platforms have distinct, and even divergent, economic logics. A music producer knows this - but it doesn’t even occur to a creator of a musical start-up. A rights holder who has a large back catalogue will more or less have a license to print money, which is quite legitimate, as they will have developed it, or bought it at great expense. This is not the case for an independent label just starting out, for example. The latter of the two could always receive the proceeds from a hit in one of their first albums. Things don’t work like that now, and if Taylor Swift is annoyed with Spotify, that’s why. It’s time to break with the religion of “all the collections, everywhere”, to dare to take up selective distribution, to reject the swindle of “free use that aids promotion”, and stop giving content away for free on certain platforms which is sold for a price elsewhere. Selective distribution in the era of streaming doesn’t mean refusing streaming, but rather a collaboration with platforms which are well-adapted to products that you want to add value to, and daring to then hold them back from other platforms who are perhaps not as well-positioned. Let’s make a comparison with audio-visual media. You’ll never find all the new films on Netflix or CanalPlay. In the same way, whether you are a music producer or an artist, you can’t permit your new products to be run down on a music streaming site for minuscule revenues - at least not unless the platform offers you an additional monetisation solution which is properly adapted to your product.
Moving towards options in subscriptions
To better serve collections which are in development or in the process of being created, ultimately, a model of incremental subscription is needed. It consists of combining the generalised subscription with a system of additional purchases, which in the old days of iTunes was called “à la carte” downloads, and which it would be better renamed “definitive rights acquisition”, as opposed to the “temporary rights” associated with a streaming subscription. This is where the model of tomorrow lies: acquiring “supplements” to a subscription, consisting of this or that production, label, quality, exclusivity, previews not included in the subscription - and ultimately creating additional value for the rights holder.
If we consider the potential of the online music market, as well as the passion of its users, there appears to be nothing difficult at all about implementing solutions so that the market can mature and start assuming its responsibilities towards rights holders.
Streaming today destroys the economic bond of solidarity which has always, throughout the history of recorded music, linked the listener and the repertoire being listened to. Groups of music enthusiasts long ago developed the now famous concept of ‘crowdfunding’. They have always supported and financed their passion for music through their purchases - by respecting an implicit contract linking the producer with their fan base. Before embarking on a project, the producer would evaluate the potential audience, and calibrate their expenditure to match. There was a clear and easily-evaluated relationship between the money invested and commercial expectations, which could be evaluated by means of a simple calculation on a napkin. Of course, the vagaries of unexpected failure or success could all too often have thwarted even the best preparations, but it was possible at least to calculate potential outcomes, and perhaps see nine failures for one success. Streaming, as we know it today, makes this sort of business foresight impossible.
* Yves Riesel is the co-founder of the French Qobuz online music service (streaming and download)