Making an Impact: Assessing Streaming’s Role in the Digital Music Market

The streaming audio market is beginning to take the perturbingly familiar shape of the download market, with one big player stealing all of the momentum and scale.  And the debate about what streaming brings to the broader digital music market continues to divide the industry across ever deepening fault lines.

But leaving aside for a moment the much visited discussions about artist payments and financial viability of the freemium model, what impact is streaming having on the overall digital market?  To help answer that question I’ve compiled IFPI reported data for multiple international territories, including total market size and growth, digital market size and growth, physical share, download share and streaming share and mapped the relationships between them (see figure).

The results show that the streaming impact picture is a complex one with many permutations.  There isn’t a definitive trend that affects all markets in a consistent manner, however a few interesting trends do emerge:

• Streaming tends to get a foothold quicker in territories where the physical market is already in marked decline.  Once it gets established the physical market decline accelerates.  It is not possible yet to definitively conclude whether this is cause or effect.
• Strong streaming markets tend to experience significantly stronger digital growth rates than strong download markets.
• Strong physical markets are more likely to have downloads dominate their digital markets.
• Strong download markets tend to be more static.
• Unsurprisingly the Nordic markets (Spotify’s back yard) are the strongest streaming markets, France remains a mainly download digital market despite Deezer’s efforts, as does the UK.

So the impact of streaming is a nuanced story.  Over two years streaming certainly seems to have brought dynamic digital growth rates to a number of markets, and has accompanied, or driven, an accelerated CD decline.

The fact that downloads are stronger in CD markets is testament to the similarity of these ownership based models.  But perhaps the strong similarity is one of the reasons that downloads aren’t growing the digital market as strongly as streaming is in other markets? Of course downloading has already had years to get established and so there is an argument that it has already contributed its dynamic growth phase to digital.  This is probably true, but it shouldn’t be that way.  With the exception of the US, no major music market has yet passed the 50% digital mark, and across all markets, the majority of music buyers still buy CDs.  Which means that digital is still a long way from being in a position in which it could plausibly be called ‘mature’.

So digital growth does need to be happening at the rates we see in strong streaming markets, and not in strong download markets.  And if streaming is the only tool with which those rates can be achieved then the questions around commercial sustainability (for the services and across the entire music industry value chain) become all the more pressing.

The YouTube Dilemma

Back in January 2011 in my Midem address I posited that YouTube was digital music’s  Killer App with about 25% monthly user penetration across all European adults in 2010, up a few percent from 2009.  I also explained that penetration for the under 25s was about double that.  The most important point though wasn’t the scale of adoption, but adoption relative to other digital music activities: the next most popular digital music activity was P-to-P (with about half the adoption rate of YouTube) and paid downloads were fourth with a paltry 11%.  The key takeaway was that YouTube is succeeding with digital music adoption where other services were not, that YouTube had got something right from a user experience perspective that others hadn’t, and that the industry should do a better job of understanding YouTube’s popularity.

19 months on and the latest Nielsen stats reveal it is still the same story.  In some quarters it’s being viewed as a dramatic sea change in the balance of digital power. It isn’t of course, instead it is the successful consolidation of a market leading position by YouTube.   Some of this has happened organically but much is down to sheer hard work by YouTube.

Plan V

Since my 2011 Midem speech, YouTube have upped their game strategically, adding functionality and investing heavily in content channels.  They’ve done so largely because of the V word…Vevo.  Vevo may have its challenges but strategically it was a master stroke by Universal Music: start pull the best music video out of YouTube, put it into an interface that is so deeply integrated into YouTube that it just feels like another YouTube channel to users, and all the while have YouTube deliver the audience. Unsurprisingly YouTube got nervous, particularly when Vevo started ruminating on taking the service out of YouTube entirely and into Facebook.

YouTube is No MySpace

Music matters massively to YouTube: they kick started the online video revolution with short-form video clips, but the momentum firmly shifted to mid-form video providers like Hulu and iPlayer.  If you scraped music video away YouTube was left with skateboarding dogs and ‘Charlie Bit My Finger’.  Hence YouTube’s investment in features like playlist functionality and $200 million in original content channels.  Back when MySpace was beginning to lose ground to Facebook I suggested that MySpace should stop pretending it was a social network anymore and start focusing instead on being a platform for bands and their fans.  They didn’t and they ended up losing out on both counts.  YouTube, to their credit, have recognized what their strengths are and are playing to them.

Why YouTube is Still Music’s Killer Digital App

YouTube is still digital music’s killer app because:

• It’s free. Of course so are Spotify and Pandora et al but YouTube is free and fully on-demand everywhere.  If you want Spotify on your iPhone you have to pay £/$/€9.99 to do so, but you can listen to unlimited on demand YouTube music for free on the iPhone, it’s even integrated into iOS (for now at least).  In fact nearly two thirds of iPhone users use the iOS YouTube app.
• It has all the catalogue in the world, and more. Because of the way YouTube entered music content licensing through the back door in the days before its acquisition by Google by selling stakes to the major labels, YouTube has ended up with effectively being given clearance for much much more content than every other licensed music service.  Granted YouTube have since implemented a largely effective takedown process, but the fact that YouTube’s catalogue is music uploaded by users means it doesn’t have the same restrictions other services do, such as territory restrictions, music not yet being officially available digitally etc.  If there’s a piece of music in the world then the odds are it is on YouTube.  Which cannot yet be said of other music services.
• It just works.  YouTube is available wherever you are in the world (in the main), on whatever device you own, and you don’t have to register or sign up.  It also has effective discovery tools such as user votes, comments and collaborative filtering, and features like playlists.
• You can download to keep too.  Streaming ripping might not be part of the official YouTube featureset, and recent action has been taken to block one such service, but there are dozens of stream ripping apps out there and they are actively used by a meaningful share of regular YouTube users.
• It’s an audio visual experience. And of course, YouTube is so much more than music.  It’s an interactive, social, audio visual experience designed for the digital age.  Whilst most other licensed music services have little or no video.

It would be pretty hard to compete against that combination of features if it had a 9.99 price tag on it, let alone when all of that is available for free, to all consumers in virtually every territory in the globe. Which brings us to the YouTube dilemma.

The YouTube Dilemma

YouTube is simultaneously the most important licensed digital music service on the planet and one of the biggest challenges to all the other licensed music services.  It used to be that YouTube was clearly a discovery mechanism, and indeed it still is, but it is now also firmly a consumption vehicle.  YouTube has become both the journey and the destination rolled into one.

Of course there are plenty of music fans who use YouTube as a complement to buying music or subscribing and as a means of finding and sampling new artists. But plenty more use it instead of those other options, particularly those young Digital Natives who value free, convenience and ubiquity over audio quality.

So the music industry has a difficult balance to maintain, between ensuring the most valuable digital discovery asset it has its disposal remains vibrant, but at the same time ensuring it doesn’t hinder the opportunity for services which generate much higher revenue per user.

YouTube and parent Google can do a lot to help.  They can accelerate their focus on making YouTube’s content unique with further investment in live concerts, exclusive sessions etc.  More importantly they can more deeply integrate with paid music services.  (And if integrating deeply with Apple and Spotify might be a step too far then this should be the development path for Google’s music strategy.)

Meanwhile the music industry can help redress the balance too.  YouTube has defined what the mass market digital consumer expects a music service to look and feel like: namely it needs to have video, work seamlessly on all devices (not just 1 extra device at a time), and have social features.  YouTube has set the blueprint for the next generation music product, the industry now needs to pick up the baton and transform that prototype into a high quality, premium product.

Streaming Goes Global: Analysing Global Streaming Music With EMI Insight Data

This July EMI’s Insight division launched an unprecedented initiative to share data from their 850,000 interview Global Consumer Insight data.  This dataset covers 25 countries and over 7,400 artists, with twelve people being interviewed at any given moment, 24 hours a day, 7 days a week.

The data is being shared with the data science community in a range of initiatives including  forthcoming Music Data Science Hackcamps.
As hard data continues to be something of a scarce commodity for the streaming music debate I decided to mine EMI’s dataset to create a snapshot of global streaming music adoption, and its influence on the broader music market. I have written up a report which you can download for free here.  Additionally EMI have given me permission to post the data here so that you can play around the data yourselves.  In fact I invite you to go and play around with the data and see if you can find any trends that I missed in my analysis.

Here are some of the key findings from the report (which of course, along with all of the opinions and interpretations are my own and are not, necessarily, EMI’s)

• Streaming has a firm foothold. 32% of consumers across the globe are now using streaming services (see figure 1).  However, adoption is far from uniform.
• Nordics lead the way. Norway and Sweden (the home of Spotify) are respectively the 1^st and 3^rd most active streaming markets globally.  Key to this trend is the relative sophistication of Internet users in these markets.  48% of Norwegians are now streaming music users, as are 43% of Swedes.
• Streaming is a good fit for piracy riddled Spain.  Spain is the 2^nd most active market with 44% streaming penetration.  But whereas consumer sophistication was key to Nordic adoption, in Spain piracy and the legacy of free were the most important drivers.
• Free is a good fit for France too. The role of piracy and free have also been important in France.  French authorities have pushed through the controversial Hadopi legislation but the carrot of Spotify and local streaming success Deezer has delivered immediate results.  Translating streaming usage into purchases though is less successful: just 13%.
• Purchase conversion rates are higher in lower penetration markets. The US, Canada, UK, Germany and Denmark have lower streaming penetration but these markets have much higher streaming-to-paid downloads conversion rates, averaging 23% of streaming users.
• Streaming Drives Music Discovery and Consumption. Although it is still too early to draw definitive conclusions about exactly how much streaming impacts piracy and sales, the case for driving discovery and consumption is much clearer.  55% of global streaming music users state that they now discover new artists and new music as a result of streaming.
• Usage is steady among existing users. Usage among existing streaming users is broadly steady with 19% using streaming more than 12 months previously and 20% more.

Download the complete report here.

Spotify Artist Apps and the Road to Relevance

Spotify yesterday announced the launch of Artist apps for four artists, namely Quincy Jones, Tiësto, Rancid and Disturbed.  This is another important step in Spotify’s music strategy, and one that is more important than may first appear.

Spotify’s App and API strategy (of which I have gone on record as being something of a fan of) may not have had anywhere near as much momentum as hoped, but it is making solid progress and the artist apps will give it a much needed boost.  The artist apps though are part of a bigger bid for relevance and mass market appeal.

When there is So Much Choice that there is No Choice At All

One major problem with streaming music services lies in the fact they provide unlimited access to all the music in the world: there is so much choice that there is no choice at all.  Though Spotify has started work on improving its discovery story – much of it through 3^rd party apps – discovery remains problematic.  Another problem in streaming services the artist’s brand is inherently subjugated to the service’s brand: consumers pay for access to all the music, not for an artist or two.  In the analogue era the artist brand dominated with singles and artist albums.  In the age of the playlist, a la carte cherry picking and unlimited on-demand access, the artist brand often struggles for voice in a sea of discovery noise and clutter. Artist apps though kill the two proverbial birds with the same stone: simultaneously enhancing the artist brand and music discovery.

The Need for the Tangible

A key dynamic of the ownership-to-access transition has been the difficulty of communicating a sense of permanence and tangibility in music service experiences. Playlists may be one of the early defining characteristics of the consumption-era and may deliver great user benefits, but the very fact that they are so easy to create and to delete contributes both to a sense of transience and of having little monetary value.  Thus playlists do not effectively communicate enough tangible value over the CD, which is an illustration of why the majority of digital consumers still buy CDs.  For streaming services – and indeed digital as a whole – to come of age and to appeal to the mass market, they need to develop features that go beyond the excel spreadsheet-music-service approach.  This doesn’t mean a need to deliver ownership but instead to meet some of the fundamental consumer needs and tangibility that physical music experiences deliver.

Artist Apps are a Solid First Step

Spotify artist apps are a step in this direction, delivering an audio visual and curated artist experience.  It is fair to say that the current iteration of artist apps are far from the finished article, the first step on the journey, but at least that journey has been started.  The digital music marketplace more broadly needs to rise to the challenge of ensuring that artist specific experiences like these become a standard feature of digital music experiences.  Spotify artist apps , when set alongside the theoretical music product prototype I sketched out in my ‘Music Format Bill of Rights’ report (see figure) and viewed in the context of the longer term music product and format evolution, are a glimpse into the future.  Spotify needs to kick on from here with full integration of multimedia assets such as video and games, and of course it needs many many more artists, long before which it will also need to have hit upon an elegant means of filing and navigating the apps.  But for now, Spotify artist apps are welcome early step on the road to mass market relevance and digital music product tangibility.

We Need To Talk About Streaming (again)

Last night I participated in a Music Tank seminar on streaming music.  It was a vibrant and valuable debate with a healthy diversity of opinion.  Below are brief highlights of my opening keynote, including some exclusive data from record labels and from Spotify.

Streaming isn’t the paradigm shift, increased convenience of music access is

Streaming is no new thing.  Napster, Rhapsody, YouTube have been with us for many years.  What changed is that Spotify made it work with elegant simplicity, wrapped up in a consumer-friendly value proposition.  Of course Spotify had timing on its side too, coming to market once most of us already had broadband and at a time when a rapidly growing share of us were getting smartphones with data plans.  And of course timing is everything in business.

Timing aside though, we should be careful not to get hung up on the idea of streaming as an alternative format to the download.  It is not.  It is simply a different delivery mechanism for digital music, and when you factor in cached streams the distinction blurs further.  Streaming versus downloading is tech speak.  All music fans are interested in is being able to listen to the music they want, when they want, where they want.

Rebooting the conversation

Streaming music, and Spotify in particular, has been cause of much controversy and debate of late.  I’ll come on to some of the causes later but it is first worth taking stock of what we actually do and don’t know about streaming.

• What we know. Streaming is proving popular with consumers at a time when download growth is slowing. But many artists are not fully comfortable with the model and feel that they don’t get a fair enough deal.  A dynamic which is complicated by the fact there are many different types of artist deals.  Scale is key to streaming being successful (you don’t make money off dozens or hundreds of streams).
• What we don’t know.  We don’t know yet whether streaming cannibalizes sales.  Whatever data you see on either side of the argument we are simply too early in the evolution of streaming to draw conclusions.  There simply isn’t enough empirical data.  We need a few more years yet and even then separating cause from effect is challenging at best.
• What we suspect.  It is looking like streaming does help reduce the amount people use file sharing.  Again, the evidence isn’t definitive and there certainly isn’t sufficient evidence to suggest that the number of people using P2P etc is declining due to streaming, but intensity of usage perhaps.  Smaller artists don’t seem to do that well out of streaming.

 

Access based services are the first post-transition technology products

Any new technology looks more like what came before than what will come next.  After all we only have the past and present as our reference points. Thus when a new set of technologies emerge they begin with transition technologies.  The first car was a steam powered horse-less carriage (see figure 2).  It was a transition to the first internal combustion engine vehicle and it wasn’t until the 1950’s that we really started to see automobile form factors that had fully thrown off the horse drawn carriage heritage.  Digital music is no different.  The download was the steam powered horse-less carriage, a really useful transition tool to help us bridge the gap between analogue and digital, but just that.  Access based services are the first steps towards the internal combustion engine, services that leverage some of the unique capabilities digital presents, rather than just using the web as a delivery mechanism.  But it is still very early days, we are not even at the Model-T yet.

Putting streaming income into context

A number of record labels provided Music Tank with data illustrating the level of income across various platforms which can see here at aggregate level (see figure 3). This chart uses the income from a download as a base of 1 and then income from other sources as a multiple thereof, shown for labels and for artists.  Note that the artist data is 3^rd party licensing income only and does not reflect songwriter income etc.   The data suggests that an artist requires 80 streams to match the income from one download.  However data from artists suggests it is more than 200 streams.  And this rate varies massively depending on the nature of the deal an artist has struck with their label (e.g. whether they are paid on a share of net income basis or on points) and what share intermediaries such as distributors take.  It is also impacted by what deal the label has struck with a service.   One smaller label claims, somewhat dubiously, that the rate for them is closer to 2,000 times.  Whatever the exact rate (and there isn’t just one) you have to  stream a lot of music to get the same income as a download, but much, much less than a web radio stream or radio listens.  It take more than 5,500 national BBC radio listeners to generate the same income as one download in the UK

The labels’ take on streaming

Some record labels also provided Music Tank with some of their views on streaming and how they see it in the bigger revenue picture. Quickly summarized these are:

• Markets with a strong streaming sector also often have stronger overall digital growth
• Streaming is now growing more quickly than downloads
• Streaming can be 50% of an artist’s digital revenue in some markets
• Streaming consumers and download buyers do not strongly overlap
• Streaming subscriber ARPU is often higher than download buyer ARPU

Spotify’s take on streaming

Spotify also put some data on the table (see figure 4) showing how a major global artist’s catalogue fared following the release of their album the same day to stores as to streaming.  Obviously this data is positioned in the context of the cannibalization and ‘windowing’ debates (which I’ve contributed to here). The data doesn’t prove anything either way in terms of cannibalization (i.e. it could be interpreted as streaming activity does well when an album does well or it could also be viewed as lost buyer activity).  However it does make a compelling case for the degree to which an artist’s back catalogue can be significantly boosted on streaming following an album release. There are some well voiced concerns that streaming favours big name artists, the head rather than the long tail, but if it does then it appears to do a good job of mining the long tail of the head!

The potential of Spotify’s Developer API strategy: an API for Music?

In the last 6 months digital music has two developments of potentially seismic proportions that through their subtle brilliance many haven’t yet appreciated their actual importance.  One was Facebook’s content dashboard strategy.  The other was Spotify’s Developer API.  Of course APIs are no new thing, but if Spotify can reach a hundred million plus total users then its API has the potential of becoming a de facto API for music.   Allowing developers to skip seeking licenses from rights owners and using Spotify’s instead.  It is a crucially well timed move, coming just as investors are turning away from investing in services that require licenses (you may have noticed by now that impecable timing is one of Spotify’s strengths).  Investors have tired of funding license advances for services that often, as in the case of Beyond Oblivion, don’t even make it to market.  The labels still get their digital income but investors are left with a debt write off.  Index’s highly influential Saul Klein went as far as stating that he won’t even invest in  start-ups that require rights owner licenses.

Making the right comparisons

Crucial to the streaming debate is making the right comparisons.

• Streaming does not = a download
• Streaming does not = radio
• But Streaming does = (download + radio) ÷ ??

The exact balance is in flux but the conversation must recognize that a direct comparison with either is off the mark.  What we don’t yet know, and won’t for a couple of years, is whether streaming is pulling its users from green field and thus growing the market in a truly additive manner, or whether it is instead catalysing the organic digital transition, converting those consumers who would have gone digital anyway.  If it is the latter then questions about the income from streaming users compared to other digital customers becomes a more pressing one.  If it is the former then it frees us up to look at the scale picture with fewer reservations.  If these customers simply weren’t ever going to adopt a different digital service then we can start to discuss how low we can bring pricing to drive even great numbers.  The elephant in the room is that £/$10 is just too much for mainstream consumers.  It needs to be close to £/$5 to really break into the mainstream.  And you can only make that business case with genuine scale.

Conclusions

• It is too early to make conclusive judgements about streaming affecting sales or piracy in the near-to-mid term
• Long-term, music consumption will shift from ownership to access
• The streaming debate is clouded by conflicting artist statistics and concerns
• More artists need to be better sold the story by labels and by the services themselves, and some deals may even need revisiting.  Greater transparency is key and record labels have a big role to play here – there’s only so much services can do themselves
• Streaming is neither a radio replacement or a download replacement, it has some of the best of both

As for the legacy of streaming?  Streaming will help make Facebook the most important player in the digital music market by 2013.

Why The Access Versus Ownership Debate Isn’t Going to Resolve Itself Anytime Soon

Earlier this week I was at 7 Digital’s Annual Media and Partners Meeting.  At the start of the year 7 Digital hit their 7 Year mark, which in Internet Years is probably equivalent middle age.  7 Digital now have 3 million registered paying customers (of which 30% are active) but what is most interesting is the impact of mobile downloads on their business.    Since launching direct-to-mobile paid downloads the segment has become 7 Digital’s most dynamic growth area: in November 2010 mobile device sales accounted for just 1% of total sales, 1 year on and that share has rocketed to 44%.   (Online sales also grew, so this is a case of strong growth in both relative and absolute terms).

Ownership isn’t dead

7 Digital’s CEO Ben Drury used the data shows that ownership isn’t dead.  He has a point.  In these days of cloud and streaming dominated debates it is easy to be led to believe that ownership is an outdated legacy of the analogue era.  Of course in many ways it is, but the unavoidable fact is that we are in a transition phase in which both ownership and access matter and it is a stage which has many years to yet to run.

In simplistic terms there are two key dynamics which determine the pace of the shift from ownership to access:

• Technology-led change
• Generational-led change

Generational-led change

The generational changes are slowest moving, almost glacial in pace.  Yet they give the impression of being quicker than they actually are, because such a small subset of the total population is currently active in digital music.  These 10-20% of consumers (of which I and probably you are part) are not representative of the total consumer base.  But even among us there are discreet groups.  I am of the age group that grew up with CDs.  I am part of the transition generation that has enthusiastically adopted digital but still understands the value of physical media and ownership. The Digital Natives however (i.e. those consumers who have grown up in the digital age without ever having learned the habit of buying physical media) have entirely different concepts of ownership.  These are the true vanguard of the shift towards access based models.  But they are young, so time rich as they might be they are also currently cash poor.  Thus they are opting for free alternatives, such as YouTube, Pandora, Spotify Free.  Only when they start to acquire increased spending power will they start to be the dynamic force in adoption of paid access based services.

Meanwhile, the digital hold outs – i.e. the majority of the total population – are being left behind as the digital music bandwagon rolls on.  Out of habit some of them still buy CDs (some of them even buy a lot of CDs) but most are just falling out of the habit of buying music.  Their sense of ownership however remains unchanged.  In their world view you either buy music and own it, or you listen to it on the radio or TV.  Their worldview remains wholly un-muddied by cloud and streaming services.

Technology-led change

If Generational-led Change is the slow moving backdrop to the access / ownership debate, then Technology-led Change is the fast moving current, the rip tide.  It is technological change which underpins Spotify’s conversion of 2.5 million paying customers (Napster and Rhapsody both offered portable rentals years earlier, but not cached streams).  It is technological change which Pandora has to thank for its 100 million users (adoption only truly lifted off with the launch of the Pandora iPhone App).  Better technology and better connectivity are making the constraints of access based services less visible.

Yet almost paradoxically Technology (in both its advances and limitations) is simultaneously building the case of access and extending the life span of ownership (see figure):

• Pay once. Whether subscription fees are hidden or premium, users know that access to content ends when the subscription does.  Paying individually for a la carte downloads and CDs might be intrusive and clunky, but the fact remains that consumers know they then have guaranteed lifetime of product ownership.  Consumers still ‘get’ ownership and paying (or indeed downloading for free) once and owning for ever is an exceptionally easy concept to communicate. Score: Ownership 1, Access 0
• Play on anything. Subscription services have made great strides in device ubiquity, primarily via smartphone apps, but non-smartphone users are left out in the cold, as are non-paying streaming users. MP3 is the common currency of digital music.  MP3 files play on virtually every connected device consumers have.  Ownership gives the greatest chance of device ubiquity.  Score: Ownership 2, Access 0
• Play anywhere.  Consumers can take their MP3 playing devices with them most places and not have to worry about network connectivity.  However memory size restraints often mean they can only take a portion of their music with them.  Smart use of local device stream caching is freeing subscription services of the chain of the PC but network connectivity remains core to their value proposition and we are far away yet from the ephemeral promise of ubiquitous connectivity.  Score: Ownership 3, Access 0
• Play everything.  Download stores and CD stores have great catalogue, but access is as metered as it gets.  To fill your iPod with paid downloads costs tens of thousands of dollars.  To fill it with subscription music costs less than $10 a month.  It is in the context of unlimited access to vast catalogues of music that streaming services come alive, leaving ownership casting covetous glances from afar. Score: Ownership 3, Access 1
• Share with everyone.  Music has always been an inherently social experience (from the earliest prehistoric musicians playing around the fire through to mix tapes).  But in the digital age music is massively social.  Or at least it is for streaming services.  Sharing owned music means making or lending individual copies.  For streaming services, playlists, APIs and Facebook  place social connectivity at the core of the streaming experience.    Score: Ownership 3, Access 2

So it looks like a narrow victory for ownership, but I’d argue that a tie is a more accurate assessment, because ‘Play everything’ and ‘Share with everyone’ are so important that they carry extra weight.  These factors are core to what makes music different in the digital age.  They are foundations stones for building new pillars of value around music in the post-physical era.

Ownership and Access will co-exist for years to come

And so we have a situation where the case for Access is building all the time, driven by advances in technology (especially mobile), but those same advances also bring limits which extend the case for Ownership.  Mobile is becoming core to the digital music experience, and will only become more so over the coming years.  Right now it is simultaneously encouraging people to buy downloads to guarantee portable access to their music as well as allowing subscription users to take their streaming experience with them on the go.

There is no doubt that Access based models are the future of music, but there are many, many years yet in which Ownership based models will continue to play a pivotal role.  Ownership and Access better learn to get along together, because they are going to be roommates for a long time yet.

The Awkward, Unanswered Questions That Led to Coldplay’s Spotify Embargo

Coldplay have opted to not have their latest album Mylo Xyloto made available on streaming services…all of them, though of course Spotify is the core motive for this move.  It is yet another thrust of the wedge which is inserting itself between the streaming service and artists.

The download / streaming revenue disparity

Coldplay – with apparently begrudging support of their label EMI-  have made a business decision that they would prefer to have a smaller number of people listening to Mylo Xyloto to ensure that a larger number of them are buying it.  The problem with Spotify is that it generates so little income per activity to artists compared to downloads, but this is not just a Spotify issue.  In my earlier post showing PledgeMusic’s Benji Rogers’ digital income I showed how the average pay out per activity for streaming services (premium ones included) is over 300 times smaller than the average pay out per activity on iTunes.   Now to be clear, we are not comparing apples with apples here (no pun intended).  An activity on iTunes is a one-off paid download, whilst an activity on a streaming service is one stream and that play could occur multiple times for the same song.  Yet it still leaves a rather large number of plays required before you start catching up with an iTunes pay out.

The three possible reasons why artists get so little from streaming services

So what is broken with the model?  Streaming services already feel that they pay out too much to rights owners: services typically pay out in the region of 80% of their income to rights holders. So increasing their royalty payments would likely put many services out of business, unless of course they hiked their prices. But 9.99 a month is a hard enough sell as it is, let alone anything higher.

So where is the money going? Here are three possible scenarios:

• The long tail is getting mined, and some.  One possibility is that users of streaming services are spending their time listening to such a vast diversity of catalogue that any one artist only gets a minimal amount of plays and thus only small pay outs.  However, with discovery features so weak on most services, the opposite is more likely to be true for the majority of users.  Indeed 24/7’s CEO Frank Taubert once stated that a third of 24/7’s catalogue had never been downloaded, not even once. (24/7 remember is the service that powers the remarkably successful TDC Play unlimited music service in Denmark).
• Messy metadata is to blame. Streaming service metadata is a complex beast.  With so many different sets of fields from different rights holders having to be blended into one massive dataset by each service, and each time in a slightly different way.  There is always going to be room for error.  This may be causing some proportion – possibly a significant share – of plays not getting reported.  When Benji Rogers decided to test how well Spotify paid out, he left his albums on permanent stream for a month.  Yet his digital income reports for that month not only fell well short of that number of plays, some of the catalogue was listed as not having even been played once.  Given the complexity of rights reporting it is unrealistic not to expect at least some loss of  data quality along the path of point-of-listening: in-service reporting; in-service data cleansing; data warehousing; distributing data to rights holders; rights holder data analysis; rights holder accounting; rights holder pay outs to artists.
• Rights holders aren’t distributing all royalties appropriately. The conspiracy theory is that the big bad labels are collecting swathes of digital income from streaming services and then secretly squirreling away the majority of it for themselves.  Though this is less likely than it may seem, there are a number of label practices which can cumulatively contribute to creating the effect.  All artist/label contracts have stipulations about recouping costs – some of which are skewed against artists – and most have different stipulations about digital pay outs.  So there are contractual and accounting reasons why some artists will not see all the income they expect.  The notoriously Byzantine accounting practices of major labels are another potential related factor.  The Achilles Heel of major label public relations, questionable accounting practices have resulted in many an artist horror story.   The possibility of sums of unpaid royalties, stuck in escrow somewhere until forgotten about is every artist’s nightmare.

The likelihood is that all three scenarios play a role.  I don’t believe that any party, Spotify or the labels included, have intentionally embarked on strategies to cheat artists out of money.  But there is a distinct possibility that not all involved parties are exactly incentivized to plug the holes in their processes to thus bring the increased accuracy and effectiveness which could result in larger artist pay outs.

Digital commercial practices complicate matters further

The waters are further muddied by major labels becoming stake holders in some digital services, raising the prospect of portions of income from those services being joint venture income and therefore not subject to reimbursement to artists.  Add to that the issue of the large advances services have to pay labels in anticipation of actual revenues, how much of that is paid to artists, and when, and especially if the service doesn’t ever generate the income guaranteed by its advance.

All these are valid issues that would benefit markedly from an open dialogue across the value chain.  Spotify is left looking like the pantomime villain but is likely no more than a cog in a machine that nobody seems to really want to fix other than the artists.

But fixed it must be.  Spotify and YouTube massively outpace most other digital music services in adoption and usage, yet they deliver a tiny fraction of the income.  Artists cannot afford for these services to behave like radio (i.e. the tool to drive sales) when they are also becoming the end product for many music fans.

The case is clear for a transparent and robust dialogue between labels, artists and services.

Coldplay have the benefit of being big enough to dictate terms.  Most other artists don’t have that benefit.  Greater transparency, effectiveness and accuracy in revenue reporting and distribution will help drive not only artist trust, but, via increased income, greater support too.  The alternative is that piracy gets another free shot at goal, which is what Coldplay have already likely delivered, driving many Spotify users back to Torrents to find Mylo Xyloto for themselves.