Why Streaming Music Services Are Good For Everybody

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I get it. Change is scary, and being poor is scarier.

However, the seemingly endless top-down fear mongering by many in the entertainment industry regarding the internet’s decimating influence on income for creatives is shortsighted and, well, uncreative.

If you’re joining this conversation for the first time, the basic gist is that streaming music services like Spotify and Rdio pay labels less than pennies per play (though the two parties have struck deals that give labels equity in the streaming services that could pay off big time if/when those services go public), while labels forward only a small slice of an already relatively puny pie to the artists actually making the music. The same applies to the Netflix phenomenon’s effect on the motion picture industry.

In an article entitled “The internet will suck all creative content out of the world,” David Byrne (whose writing I enjoy as much as his music) recently penned, “I don’t have an answer. I wish I could propose something besides what we’ve heard before: ‘Make money on live shows.’ Or, ‘Get corporate support and sell your music to advertisers.'”

Well, here’s my proposition: cannibalization.

What? Allow Wikipedia to help us: “In marketing strategy, cannibalization refers to a reduction in sales volume, sales revenue, or market share of one product as a result of the introduction of a new product by the same producer. While this may seem inherently negative, in the context of a carefully planned strategy, it can be effective, by ultimately growing the market, or better meeting consumer demands.”

I am the Napster generation. I was 13 years old when Napster was born; the service reached its “peak” in February 2001, while I was a freshman in high school. It got shut down before the end of that year. It’s crazy to me that it was available for such a short period of time because I downloaded SO MUCH MUSIC during a really important time in my life. I loved Napster, and was pissed at iTunes for taking over. Why? I didn’t have no money!

Fast forward to 2012 when 25 year old me first tried Spotify. God bless the world. We finally did it. A legal, lighting fast way to listen to basically anything? And in high quality, too? Count. Me. In.

It didn’t take long for me to start paying for Spotify premium. I’m tethered to my iPhone all day, and ads really screw up the flow when you’re on a listening binge (or hosting a party). Also, $9.99/month seems like a miracle to someone who saved up for $25-a-pop CDs as a kid.

Maybe you see where I’m going with this. Maybe not. Let’s go back to Wikipedia. This time, let’s skim the wondrous history of cable TV…

“Cable television first became available in the United States in 1948… In 1975, HBO was the first cable network to be delivered nationwide… HBO was also the first true premium cable (or ‘pay-cable’) network.”

And from the Arkansas Cable Telecommunications Association: “From 1984 through 1992, the industry spent more than $15 billion on the wiring of America, and billions more on program development. This was the largest private construction project since World War II.”

You know those jokes people in the entertainment industry make about the ad industry every five seconds? (Byrne’s article features: “Writers, for example, can’t rely on making money from live performances – what are they supposed to do? Write ad copy?”) Well, the entire half-century marvel of that income stream has relied on one single force: subscription-based television was worth paying for.

Guess who also owes an endless debt of gratitude to this force? David Byrne. Without the 80s MTV craze, the Talking Heads may not have reached a national audience. In fact, the Talking Heads first big hit was one of the most heavily played videos on MTV’s very first day!

(Now’s probably a good time to mention that I do not consider YouTube a legitimate competitor in the music streaming service provider industry, but an absolutely fantastic artistic outlet and advertising route. The horribly inane and only moderately amusing Fox song — tell me how you really feel — is currently #5 on the Spotify global Top List. Gangnam Style was #1 for a while, and most listeners didn’t understand 99% of the lyrics to that. Both are YouTube sensations. Both came out of seemingly nowhere, but both were created by teams of professionals with a lot of experience and artistry behind them. If you build something catchy enough, it can catch.)

So, who cares about cable TV? Everyone (especially David Byrne, I’d hope). I can’t remember where, but I once read something to the effect of “movies may be the pinnacle of stardom, but stars are born on TV.” George Clooney certainly was. As was Robin Williams. I could go on. But this phenomenon, too, is temporally limited by the shifting tides in the way we consume entertainment. Whether in the form of sheet music, vinyl, radio, television, or brain wave transmission, the ubiquity of a media delivery system dictates the profitability of that medium. Did video not kill the radio star?

Furthermore, artists should look to the TV model on their road to acceptance of the fact that music doesn’t have to be something listeners own in order for creators to make money off it.

Great. History done. Back to market theory.

Regarding competition between streaming services, Byrne posits, “My guess is that, as with most web-based businesses, only one will be left standing in the end. There aren’t two Facebooks or Amazons. Domination and monopoly is the name of the game in the web marketplace.”

There’s some wisdom in this. Spotify is a killer service with killer software (aside from not having a single track repeat function, which Byrne would be even wiser to spend his energy fighting for!), and iTunes has true brand stability. I have a feeling iTunes Radio and Spotify will be the big two when the proverbial dust settles. When this happens… what happens?

Premium prices will rise and advertising technology will become more robust and profitable. There will be more money for content publishers.

If content creators keep this in mind when dealing with content publishers (or just self-publish, hello?), it’s good news for everyone.

A recent major step in this direction is Spotify’s new “browse” interface for mobile platforms. There’s Rock, Party, Pop, Mood, Chill, Club, Urban, Workout, etc. Think of these as TV channels. And, as we’ve seen work attractively on iTunes, the more they get educatedly curated, the more people will come to rely on them as a quality channel (as in conduit) for quality entertainment. Of course, I often just go to the Top Lists (broken down by genre or not) for my Spotify listening session because somehow it feels like a democratic rising of the cream. Is Miley’s “Wrecking Ball” the best song I’ve ever heard? Of course not. But I like it, and she’s naked in the video, so there’s my point about YouTube proven pretty solidly.

The problem facing the music industry today isn’t streaming services, but rather a confused consumer base. They don’t want to have to work to play. They want to know where to go to get what’s cool. That used to be a record store. Or MTV. Then it was Napster. Then it was iTunes or YouTube. Now, streaming services offer the potential to create a quantifiable web-based music consumption ecosystem that, if artists like Byrne, Black Keys, Led Zeppelin, and others get on board with, will evolve into a stable commercial vehicle for the music industry, much like cable TV.

Spotify currently has 24 million users, 6 million of whom pay a monthly subscription fee. Spotify is not yet turning a profit itself (talk about commitment to music in the face of economic risk), but have prioritized the growth of their market share. If artists, producers, celebrities, and music bloggers throw support in their direction, instead of making more dust, doesn’t it seem feasible to create an ecosystem where 25 million users are each paying $15/month for access to all the music in the world? With a customer base like that, the per-stream dividends would make Spotify streaming revenue very, very legitimate. (Justin Colletti purports that at only $0.03/play, “streaming arguably becomes a better deal for musicians than iTunes ever was.”) Factor in big fish (30 million users) buying little fish (10 million users), times however many dozens of corporate acquisitions lie ahead, and that’s a lot of market pricing power. Comcast owns 51% of NBCUniversal, for Pete’s sake.

How do we get there? Cannibalize. High profile artists must deliver their music on streaming services and encourage listeners to use those services. Indie artists should do the same. Eventually, people will take for granted that all their favorite music is best accessed thereby, and either listen to a ton of ads, or start paying up (and up and up).

If the industry embraces the potential of the streaming ecosystem, and commits itself to strategic cannibalization, listeners will have a great place to hear great music for an incredibly low price, and the music industry can start to make some real dough again.

New Website

I am thrilled to finally launch my new website! Big thanks to the guys at UltraLinx for their amazing tech skills, and to Laura for helping me get my life together.

I plan to make good use out of this blog, and will be sure the projects section gets updated frequently and accurately. If you catch any errors, please don’t hesitate to let me know.

Much love,
Keith

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