Jay-Z’s ambitions for TIDAL has triggered a lot of discussion about how streaming models can evolve. One focus has been exclusives with a number of references to TIDAL ‘doing a Netflix’ by commissioning exclusives. Netflix can attribute much of its growth over the last couple of years to its flagship ‘Netflix Originals’ such as ‘House Of Cards’ and ‘Orange Is the New Black’. It is an appealing model but the Netflix Originals approach cannot so easily be transferred to music.
There are three main types of exclusives:
1. Service Window: album is released exclusively to a single music service for a fixed period of time e.g. only on TIDAL for 1 month
2. Tier Window: album is released across one type of music service tier before others e.g. only on paid subscription tiers for 3 months
3. Service Exclusive: music service acquires exclusive rights to an album so that it will never appear anywhere else unless the service decides to let it
The first two will become increasingly common components of the streaming landscape over the next couple of years. Daniel Ek and Spotify fought a brave rear guard action against Taylor Swift and Big Machine to ensure the Tier Window model did not carve out a beachhead with ‘1989’ but it is an inevitability. If free tiers are to have a long term role alongside paid tiers they have to be more clearly differentiated.
TIDAL and Apple look set to become the heavyweight players in the Service Window, duking it out for the biggest releases. TIDAL will argue it pays out more to rights holders (75% compared to 70%) while Apple will argue that it can directly drive download sales (which is where everyone still makes their real sales revenue). Apple will have to play that card carefully though as it stands just as much chance of accelerating download cannibalization as it does driving new sales.
When Is A Label A Label?
The really interesting, and potentially most disruptive, exclusive is the Service Exclusive. This model would start blurring the distinction between what constitutes a music service and what defines a record label. If, for example, TIDAL was to buy out the rights of the next Beyonce album or sign a deal for the next two Calvin Harris albums TIDAL would effectively become the record label for those releases.
The irony is that this ‘ownership of the masters model’ by streaming services is emerging just as the next generation labels are distancing themselves from it. A new breed of ‘labels’ such as Kobalt’s AWAL and Cooking Vinyl’s Essential Music are focussing on providing label services without taking ownership of the masters and in turn putting the label and artist relationship on a more equitable agency / client basis. But there are far more impactful challenges to the Service Exclusive model for music than simply being out of step with where the label model is heading:
- Scarcity: ‘House Of Cards’ is only available on Netflix (and some download to own stores such as iTunes). It is a scarce asset, which is not something that can be said about any piece of recorded music. As TIDAL found with the near instantaneous Beyonce YouTube leak, music scarcity is ephemeral in the YouTube age. As long as YouTube is allowed to hide behind its perverse interpretation of ‘Fair Use’ and ‘Safe Harbour’ there will be no music scarcity. (Of course true scarcity is gone for good, but if that can be made to only mean P2P then the problem is manageable, as it is for TV content).
- Consumer expectations: Consumers have learned to expect their video experiences to be fragmented across different platforms and services, to not find everything in one place. For music consumers however the understanding is that catalogues are either near-complete or useless. So if all music services suddenly started having high profile gaps then subscribers would be more likely to unsubscribe entirely than they would be to take up multiple subscriptions. Ironically the net result could be a return to download sales at the expense of subscriptions. Talk about going full circle….
- Industry relationships: Netflix started out as a pure licensee, paying TV companies for their shows. Now it competes with them directly when commissioning new shows. It has become a frenemy for TV companies and is finding many of its relationships less favourable than before. And this is in an industry that is built up the frenemy hybrid licensee-licensor model. The music industry does not behave this way, so any service that took up the Service Exclusive model could reasonably expect itself to find itself developing tense relations with labels. Which could manifest in those labels giving competitor services preferential treatment for their own exclusives. Labels have long feared the disintermediation threat posed by the web. It is unlikely to materialize any time soon but they are not exactly going to encourage retail partners to kick-start the process.
- Appetite for risk: Buying up the rights to the latest release of an established superstar is the easy part, and we already have some precedents though neither were exactly run away successes (Jay-Z’s ‘Magna Carta Holy Grail’ with Samsung and U2’s ‘Songs Of Innocence’ with Apple). But being a label, at least a good one, isn’t simply about signing proven quantities, it is about taking risks on new emerging talent. And that doesn’t simply mean having a DIY platform on a streaming service – though that can act as a great talent identification tool. If streaming services want to start playing at the label game they need to also start nurturing and marketing talent.
- Limited horizons: Stream is still only a small fraction of recorded music revenue. There are few non-Nordic artists that rely on streaming for the majority of their sales income. That will change but not for a few years yet. So a release that only exists on streaming, let along a single streaming service, is only going to deliver on a fraction of its potential. TIDAL and Apple especially could easily choose to loss-lead and pay over the odds for Service Exclusives to ensure artists aren’t left out of pocket. But that only fixes part of the problem. An artist locked into one single streaming service will see his or her brand diminish. ‘House Of Cards’ may be one of Kevin Spacey’s most assured performances yet only a few tens of millions of people globally have ever seen it. If it had been on network TV the audience would have been hundreds of millions. With touring becoming the main way many artists make money the album is the marketing vehicle and if that album is locked behind the pay wall of one single music service the marketing potential is neutered.
Streaming music services will find themselves locked in total war over the coming years and while Apple’s cash reserves will likely make that warfare appear asymmetrical at times, exclusives of some kind or another will be utilised by most of the services. Just don’t expect them to deliver them Netflix-like success because that’s not going to happen.
The record industry has a short memory. Remember the early days of downloads when all the majors had their own download sites? They all failed because fans are looking for artists, not labels. Then came iTunes and people could find what they were looking for, because iTunes had almost everything. Exclusives will do the same to streaming services they did to download sites —
unless a streaming platform has almost everything fans will not be willing to subscribe to it. Ultimately, everything else will fail.
Mark – your structured analysis and insights (as always) are pure gold. While religiously agnostic, it always feels like a universal sermon of truth. Appreciate the work you do for and on behalf of the industry. Let me know if I can ever be of help in advancing the mission! Paul
@Klaus, I worked through those early days and don’t remember all the majors having their own download sites – everyone looked at it, for sure, and most of them still have platforms which are used for specialist or artist-specific direct to fan products, but I don’t think anyone seriously envisaged being a mainstream retailer.
The more common argument is that we *should* have all got together and made our own service, and not let iTunes take the market. Although that would have had a whole different set of criticisms thrown at it.
The point about scarcity is the one which hits home the most, for me. If I have to wait a week, or a month, before I can hear a record on Spotify (for example), that’s fine. There are plenty of other things to do in the meantime. It’s not like tickets.
Check out the History of Download Retail and you will find the major efforts I was talking about.
Dead right again, Mark! The other big problem with exclusives, in relation to TIDAL, is this: let’s say I’m a Jay-Z fan and he decides to create scarcity around the release in one of the three ways. Why wouldn’t I just buy the album which would be cheaper than streaming TIDAL? Also, we’ve seen what happens when you try to lock down music… It just increases piracy. A simple Google search of the new Jay Z album with the word “torrent” will bring it up for free.
We’ve both said it : experiences are the only viable monetizable revenue source in the 21st century for artists – not trying to figure out ways to make the old model of selling recorded music work again.
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Mark excellent analysis. Well thought through sub categories of the evolving Service Exclusive model, a key differentiator in cloud music platforms.
Also, exclusivity really only causes an impact if it’s relevant to a critical mass of your subscriber base. How many people would unsubscribe to a service due to the lack of the latest Jay Z or Calvin Harris album? No one I know, they are all interested in the back catalogue of various classic rock and blues artists., and are effectively substituting for their vinyl collection. They’d be more likely to notice if the latest Steve Hackett album was withheld…..
Surely streaming service owners can’t assume that everyone of their subscribers likes one particular genre of music, in fact they can’t because they know exactly who’s streaming what. So why think that having particular exclusives would create any problems?
Exclusives will only fragment the market. Ultimately, even streaming services are only stores. Unless a customer can find what he is looking for in a store, he will never go back.
And people would have to spend multiple monthly subscription fees to access all the music they are interested in. It will be a transition phase until someone comes up with a viable business model that pays enough to content owners and gives punters access to everything at an affordable price.
Thanks for these thoughts. I find video services are not satisfying in the way they are fragmented. As Klaus said, people don’t look for producers or right owners, they look for titles or genres. The illegal offer (like Pop Corn Time or regular torrents) make legal offers particularly limited because not universal (no pun intended).
Hopefully the music industry passed this early stage, and I’m afraid it will be hard to come back in time. Unless illegal websites can be closed efficiently by right owners, which seems to be more and more the case!
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