Zoe Keating’s Experience Shows Us Why YouTube’ Attitudes To Its Creators Must Change

It is easy to think of the internet as a mature medium, especially for those who were born into the internet era. However we are still at the earliest of stages. We are where radio was in the 1930’s and where TV was in the 1950’s: the first signs of the future markets are in place but the real maturation is yet to come. The greats of those early days, the Marconis and the RCAs, are now long gone but at the time they looked like they would rule forever. A similar long view should be taken to the internet. The dominant powers of the web (YouTube, Google search, Amazon, Facebook) may appear to have unassailable market leads but their time will come. Using more recent history, there was a time when AOL and MySpace looked irreplaceable. So why does all this matter to YouTube? The problem with absolute power is that it corrupts absolutely. YouTube, like those other dominant powers, has fallen victim to hubris. It is behaving like the unregulated de facto monopoly that it is. And in doing so it is taking its creators for granted. Right now that is bad for creators. Soon it may be bad for YouTube too. It Is Time For YouTube To Reassess It s Relationship With Content Creators Online video is truly coming of age. YouTube was one of the ice breakers and remains one the very biggest web destinations but the world is changing. YouTube has changed too of course, migrating skate boarding dogs, through music video to fostering a generation of YouTube stars like PewDiePie, Zoella and Smosh. But just as YouTube had to reinvent itself in the wake of the mid form revolution driven by Hulu et al so the time has come for another reinvention, but this one requires a change in business practices rather than product innovation. Most crucially YouTube needs to reassess its relationships with content creators and owners. When the first YouTube stars started to rise to prominence YouTube was almost positioned as a benefactor, giving the gift of a platform for these people to become stars. But now, a few years on, with millions of subscribers each, these stars are beginning to understand their real potential. In just the same way that a traditional TV star does not feel a debt of gratitude or a commitment to life long servitude to the TV channel that broke him or her, so YouTube stars are now beginning to reassess their options. The online video landscape though is dramatically less competitive than the TV landscape so options are limited. But where there is demand for change and no monopoly of supply of content, change will come. This is the context into which new video service Vessel has launched, offering YouTube stars cold hard cash payments and significantly bigger revenue shares, in return for giving just a few days of exclusivity. Be sure that few days window will change, but for now it is a low risk, high gain option for YouTube stars. Expect plenty more to follow Vessel’s lead. YouTube Is Abusing Its Position Of Absolute Power That should be where the story ends, well starts. But because the dominant internet companies are not subject to the same level of regulation as traditional companies they are able to abuse their power in order to try to maintain their strangle hold. YouTube found itself subject to extensive ire when it tried to foist a hugely restrictive contract on indie labels for its then forthcoming YouTube Music Key service. The indie sector was eventually able, via its licensing arm Merlin, to secure more favourable terms, but the same contract remains on the table for individual creators. Zoe Keating, an artist who sets the gold standard for DIY artists, has been a vocal advocate for YouTube channels as a revenue source. But now YouTube is trying to strong-arm her into signing what looks pretty much like that same original Music Key contract. Their demands include an effective Most Favoured Nation clause whereby anytime she uploads any music to the web she must upload it also to YouTube at exactly the same time. The contract also states a five year period and that failure to sign the contract will result in YouTube blocking both her channel and Keating’s ability (via Content ID) to get revenue from her own music uploaded without permission by others. The implications are:

  • Music must always be available free on YouTube first on the web
  • Artists must take a 5 year bet on streaming, even though there are massive doubts about its sustainability for artists

But it is the Content ID clause that is most nefarious. Content ID is not an added value service YouTube provides to content owners, it is the obligation of a responsible partner designed to help content creators protect their intellectual property. YouTube implemented Content ID in response to rights owners, labels in particular, who were unhappy about their content being uploaded by users without their permission. YouTube’s willingness to use Content ID as a contractual lever betrays a blatant disregard for copyright. Asymmetrical Conflict Zoe Keating is a rare talent and also a rare voice. She is willing to expose her entire digital music commercial life in a way very few artists are willing to. She is standing up to YouTube in a David and Goliath like manner but the deck is stacked against her because YouTube is able to abuse its de facto monopolistic position without any fear of regulatory intervention. If they get their way with independent music creators, expect them to take the exact same approach to other independent video creators in a bid to neuter the threat from disruptive new entrants like Vessel.  Rather than simply try to future proof itself against the emerging competition YouTube should focus on trying to be the best possible place for its creators to be to build prosperous careers. Instead it is trying to lock them in like prison inmates. Ultimately though this sort of action from YouTube reveals strategic hubris, arrogance and complacency. All of which are classic signs of an incumbent company teetering on the brink of disruption. As the Enron experience showed us, no company is too big to fail. And as my former colleague Michael Gartenberg used to say ‘cemeteries are full of irreplaceable people’.

Five Long Term Music Industry Predictions (And How Disney Will Rule The World)

The new year is typically a time for predictions for the year. But at the midway point of the decade, rather than do some short term predictions I think this is a good time to take a look at the longer term outlook for the music industry. Here are five long term music industry predictions:

1 – Disney will become the world’s biggest music company

Consumers are buying less music and there are more ways to easily get free music than ever before, both of which make selling music harder than ever. Major labels have addressed this by doubling down on pop acts (Rihanna, Katy Perry, Rita Ora, Ariana Grande etc.) which have a more predictable route to market. Video (YouTube) and very young audiences (also YouTube) underpin the success of these artists. While the majors have been pivoting around this very specific slice of mainstream, Disney has quietly been building an entire entertainment empire for this generation of pop focused youth. Unlike the majors, Disney has TV shows and channels targeted at each key kids and youth age group and uses them to bring artists through. They start them out kids TV shows such as The Wizards of Waverly Place (Selena Gomez), Hannah Montana (Miley Cyrus) and Sonny With A Chance (Demi Lovato). Disney then very carefully matures these fledgling stars as their audiences age so that by the time they and their audiences are fully fledged teens, they are fully-fledged pop stars. At which point they have shaken off most of their bubble gum imagery and have conveniently acquired a little edge, a specific positioning and a personality. It is a highly effective process. Each of those three Disney stars are only in their early 20’s but already have multiple albums under their belt. Disney will not only continue to excel at this model, they will most likely become the biggest pop label on the planet. Which given where music sales are heading (pop accounted for 44% of the top 10 US album sales in 2014) could well mean Disney even overtakes Universal to become the biggest music company of all.

2 – The western pop music industry will increasingly resemble Bollywood

2014 was the first year film soundtracks accounted for 2 of the top 10 selling US albums (‘Frozen’ and ‘Guardians Of The Galaxy’), generating 4.4 million sales and 30% of the top 10 overall. And both albums were Disney. In India music plays a supporting role to film in revenue terms but is culturally centre stage, the beating heart of Bollywood film. The music and film require depend on each other for context and relevance. We are set for this model to become increasingly pervasive in western markets. Just as video underpins the success of pop stars, it creates an audience bond to music in film and TV, turning the music into the soundtrack of memorable, fun and moving moments. Triggering the same emotional chemistry music does in real life. With music sales still tumbling but movie sales holding up, expect movie soundtracks to become an ever bigger part of music sales, and for the dividing line between film star and pop star to blur entirely. Expect Disney to, again, be the key force.

3 – Live music will lose ground to other live entertainment

Live has been the music industry’s ‘get out of jail free’ card, holding up total revenues while sales revenue declined. The balance of power has shifted with sales revenue now just a third of the total revenue mix, down from 60% at the start of the century. But cracks are already appearing with price increases underpinning much of the live revenue growth in recent years and the big revenue polarised between ageing rockers and pop divas of the moment. There are only weak signs of a next generation of stadium filling rock bands. The big live venues are already looking for alternative ways of getting bums on seats, with TV show spin offs in particular proving successful. Venues and promoters love TV show tie-ups because they bring big TV cross promotion which helps ensure commercial success.   TV comedy shows are now doing 10 to 12 night sell outs in 10,000 capacity venues. You don’t see many artists doing that. Shows like Disney On Ice (yes, Disney again) fill out the biggest venues with ease. And it is not just the top end that is moving away from music. Comedians like the UK’s John Bishop play tours that happily play a small club one night and an arena the next. Expect the live market to shift more towards a broader range of entertainment, especially TV tie ins, squeezing out many music acts in the process.

4 – Old world copyright establishments will lose relevance 

The fragmented nature of global music rights, especially on the publishing side, has long been a thorn in the side of digital music.   The system of multiple national rights bodies and commercial rights owners administering different parts of music rights across the globe hinders the ability of the digital music industry to be truly global. A handful of rights bodies are pushing the innovation needle, others are not. The distinctions between recording, performance, mechanical etc. served well in the analogue era when there was a clear distinction between a sale and a performance. But in the streaming dominated landscape they are less useful. Additionally the entire range of audio visual elements that an artist comprises in the digital era can be prohibitively difficult to put into a single product. This is because the rights are usually held by so many different stakeholders, each with different priorities and appetites for risk. Expect music companies, artists and their managers to increasingly collect as many rights as possible into one place so they can create multimedia experiences without having to navigate a licensing minefield. In doing so, more and more monetization will happen outside of the traditional licensing frameworks. Whether that be because all of the revenue occurs in a single platform (e.g. YouTube) or because new licensing /collection bodies are used such as Audiam or Global Rights Management administer the rights. Creative Commons might play a bigger role but the real focus is going to be on being able to license more easily AND monetize more effectively.

5– Labels will become agencies

Finally we have agencies or what you might call labels, but I’m going to call them agencies, because that is what they need to become. The label model is already going under dramatic transformation with the advent of label services companies like Cooking Vinyl’s Essential and Kobalt’s AWAL, and of fan funding platforms like Pledge and Kick Starter. All of these are parts of the story of the 21st century label, where the relationship between label and artist is progressively transformed from contracted employee to that of an agency-client model.   Labels that follow this model will be the success stories. And these labels will also have to stop thinking within the old world constraints of what constitutes the work of a label versus a publisher versus a creative agency versus a dev company. In the multimedia digital era a 21st century labels needs to do all of this and be able to work in partnership with the creator to exploit all those rights by having them together under one roof.

Streaming is changing the music world right here, right now, and there is an understandable amount of focus on it. But it is just one part of a rapidly changing music industry. This decade has already wrought more fundamental change than any previous one and the rate of change is going to continue to accelerate for the next five years. All of the rules are being rewritten, all of the reference points redefined. This is nothing short of the birth of a new music industry. The blessing of a generation is to be born into interesting times, and these times are most certainly that.

What Spotify’s December Growth Tells Us About Pricing

Spotify just announced the addition of 2.5 million paying since mid November to reach 15 million total subscribers. This is unprecedented growth not just for Spotify but for the subscription market as a whole. It also comes at a time when Spotify needs the best possible numbers to keep labels on board during its crucial renegotiations. But what is most interesting is what the growth tells us about pricing.

spotify 15 million

Long term readers will know that I firmly believe there is a watertight case for reducing the price of subscriptions. Only about 10% of music buyers spend $10 or more a month on music (across all recorded music formats) and most of those have already been converted to subscriptions. While there is absolutely a case that some consumers can be ‘educated’ to spend more on music, in just the same way cell phones educated them to spend more on telephony, many simply will not because there are such compelling free alternatives.

Spotify Made 9.99 Feel Close To Free 

There are two short term and two long term drivers of Spotify’s December growth:

  • Long Term 1: Student plans – effective discount: 50%
  • Long Term 2: Family plans- effective discount: 50%
  • Short Term 3: Holiday gifting - effective discount: 100%
  • Short Term 4: Holiday 0.99 promotion – effective discount: 90%

Of all of those the 0.99 for 3 months holiday promotion had the biggest impact. There is an argument that customers acquired this way are effectively monetized trialists and it is highly likely a large share, perhaps even the majority, will not continue to pay after the promotion is ended. But that almost misses the point. What the surge in adoption at lower price points shows us is a purer measure of the demand curve for on demand subscriptions, without the distortion of the 9.99 price point. Of course 0.99 is not a feasible long term price point but 4.99 is, or perhaps more realistically for now, 7.99 is.

Some of those trialists will unsubscribe after 3 months, some will forget to unsubscribe and some will decide that 9.99 is actually pretty good value. The net effect for Spotify will be more subscribers than it would have had without the campaign.

Taylor Swift, Labels and Investors

The stellar growth is also intended to catch the eyes of various other vested interests. For investors ahead of a potential IPO these numbers help show that Spotify may have its best days ahead of it. For labels this, ‘conveniently’, creates the best possible numbers for them to consider during contract negotiations. And for Taylor Swift it shows that for all her windowing antics Spotify grew faster than ever. In fact, the wall-to-wall media coverage of the ‘Swiftify’ debacle actually boosted Spotify’s profile and may even have modestly helped the numbers.

2015 will be a huge year for Spotify with the super heavyweights Apple and Google both playing their subscription hands and with growing label concerns about the freemium model. It would be naïve to suggest Spotify will not feel the pressure of those factors alongside the continued growth of competitors such as Rhpasody, Rdio and Deezer. But starting the year with 2.5 million new holiday season subscribers is about as good a start as Spotify could possibly have hoped for.

Streaming Report Card 2014

2014 was the year streaming broke through to mainstream consciousness, not because of the marketing prowess of Spotify but because Taylor Swift decided to withdraw her content from the Swedish streaming heavyweight and other freemium services. It was a mixed year of momentous achievement and intensifying controversy, which makes it an opportune moment for an end of term report card.

Growth – 8/10

No complaints here. Impressive growth for both paid and free streaming with a likely combined annual growth of about 50% and total subscribers getting to about 35 million. Although there are some signs of slowdown this is to be expected as much of the addressable audience for the 9.99 price point is reached. In fact the growth slowdown was less pronounced than expected in some markets. If it hadn’t been for the fact that download sales for the year will be down about 10% this would have been a 9/10.

Transparency – 2/10

Two years ago I asked the CEOs of 10 leading streaming companies what the coming years would hold. Unfortunately for 5 of them it meant looking for a new job. One thing most were in agreement on however was the need to introduce far greater transparency for artists. Two years on and the issue is every bit as problematic. For the most part the discontent has been voiced by smaller artists or those later in their careers, but not by frontline artists in their prime. Until last week that is, when Ed Sheeran told the BBC that it is ‘fact’ that labels are holding money back from artists. Some time soon, some time very soon, labels are going to have to get on top of this if they want the model to work.

Platform – 5/10

I had high hopes for Spotify’s app platform, it looked like it was heralding the dawn of the ‘music platform’ that the digital market has needed, well, forever. Unfortunately label wrangling ensured that Spotify was not able to get the deals to allow app developers to monetize their apps so the venture was effectively still born, save for the highly credible efforts of some traditional media brands, such as the BBC, Now! And Deutsche Grammophon who didn’t have to worry about making money from the apps. Luckily the streaming companies haven’t given up on the ‘streaming as a platform’ vision and a host of integrations with the likes of Bandpage and PledgeMusic have the potential to help artists transform streaming cents into digital dollars.

Pricing – 3/10

I’ve been banging the pricing drum for so long the stick has broken. Unfortunately there was pitifully little progress in 2014, with label fears of cannibalising 9.99 dominating thoughts. On the plus side there is a huge amount of negotiating activity taking place right now and that should bear fruit in 2015. Expect Apple to try to get to market with the same 7.99 that YouTube’s Music Key is currently in market with (and expect that short term promotion for YouTube to eventually become permanent). And if 7.99 is the new 9.99 then prices will have to cascade. 4.99 will be the new 3.99, 3.99 will become 2.99 and so forth. And there remains the super urgent need for PAYG pricing leveraging in app payments. I predicted pricing innovation in 2012 and 2013 and it didn’t happen. Here’s to third time lucky.

Global expansion – 6/10

Deezer had already set a great precedent for rolling out into a vast number of global territories and Spotify played an admirable game of catch up in 2013 which continued with another five new countries in 2014. Rdio’s acquisition of Indian streaming service Dhingana was another interesting move.  Meaningful revenue is yet to follow in these Rest of World markets though – the US and Europe accounted for more than four fifths of global streaming revenue in 2014.  But the foundations have been laid and that in itself is an important step worthy of credit.

Sustainability – 4/10

The ripple effects of Taylor Swift’s windowing antics will be felt throughout 2015 with countless other big artists and their managers already making it very clear to labels that they want to do the same. The sooner Spotify can agree to having the free tier treated as a distinct window the sooner the streaming space can start rebuilding.   The whole ‘changing download dollars into streaming cents’ issue continues to haunt streaming though. And with streaming services struggling to see a route to operational profitability the perennial issue of sustainability remains a festering wound. The emerging generation of artists such as Avicii and Ed Sheeran who have never known a life of platinum album sales will learn how to prosper in the streaming era. The rest will have to learn to reinvent themselves, fast, really fast.

Overall Streaming gets a 6/10 for a year that saw huge progress but also the persistence of perennial problems that must be fixed for the sector to succeed.

Why It Is Time To Make YouTube Look Less Like Spotify And More Like Pandora

2014 has been a dramatic year for the music industry and may prove to be one of its most significant. The brief history of digital music is peppered with milestones such as Napster rising its head in 1999, the launch of the iTunes Music Store in 2003, Spotify in 2008. The 2014 legacy looks set to be more nuanced but equally important: it is the year in which streaming started to truly transform the music industry. The significance though lies in how the music industry is responding. With download sales tumbling, royalty rates still being questioned, and Taylor Swift’s hugely publicised windowing, the music industry is taking a long hard look at what role streaming should play. Spotify and Soundcloud will find themselves in the cross hairs, but there is also a case for redefining YouTube’s remit too.

Don’t Throw Out Freemium With the Windowing Bathwater 

Swift’s windowing move centred around free streaming. If Spotify had been willing to treat the free tier as a separate window from its paid tier, the odds are it would have got ‘1989’. Spotify’s argument that weakening the free tier could affect their ability to convert is logical. But ultimately the purpose of the free tier is to persuade people to pay to stream, not to deliver a fantastic free experience. I first made the case for windowing back in 2009 and I remain convinced it will be crucial to long term success.

By playing an all-or-nothing negotiating game freemium services risk being left with the latter. And it would be a tragedy if freemium got thrown out with the windowing bath water. Windowing will quite simply make free tiers more palatable. Windowing can drive huge success. Look at Netflix: with 50 million subscribes gloably Netflix has the traditional broadcast industry running scared yet is far more heavily windowed than Spotify – how many new movies do you find on Netflix?

One Rule For YouTube Another For The Rest

But the core problem is that Spotify does not exist in a vacuum. While Swift windowed Spotify her videos stayed on YouTube and Vevo. Unless YouTube is treated with a similar approach to other free services then any windowing efforts will simply drive more traffic to YouTube rather than drive more sales or subscriptions. 5 years ago a YouTube stream could be seen as driving sales, now a YouTube stream drives another YouTube stream.

Among the Top 10 fastest growing YouTube channels (in terms of views), half are music. More people are streaming more music on YouTube than ever. The reason YouTube remains untouchable has much to do with the fact labels still see it as a promotional vehicle despite the fact it has become a fully fledge consumption platform. Without doubt YouTube plays the discovery role for youth that radio does for older generations. But it is also the end point for youth.

Time For A New Role For YouTube

So what is the solution? Simple. If YouTube is the radio equivalent for youth, make it look and feel more like radio, not like Spotify premium with video. Instead, make YouTube look like Pandora with video. If YouTube is all about promotion then swap out unlimited on demand mobile plays for DMCA compliant stations. Let any user search and discover a new song but once they have discovered it the next few music videos are automatically selected related videos.

I remember Beggars’ Martin Mills quoting music industry veteran Rob Dickens:

‘If you play what I want when I want I’ll accept it is promotion. If it is what you want when you want it is business.’

That is at the core of what makes a streaming service additive versus substitutive. This is why Pandora stands out as a complement to ‘sales’ revenue and why YouTube no longer can. If YouTube’s core value to the music business is still discovery then this approach is how that role can be protected without damaging the ability of subscription services to proposer.

Do Not Conflate Music Key With YouTube

Now of course, YouTube has its own subscription service too in the form of Music Key, which is great: YouTube is a hugely welcome addition to the subscription market. But this does not mean YouTube music videos should be free on demand to all. Only 3% of UK and US consumers say they would pay for Music Key (and consumer surveys typically over report on intent to purchase).   Instead, YouTube’s free on demand music videos should be only available for users that register for Music Key. This would be Music Key’s freemium base, not the entire installed base of YouTube users.

With on demand free music it is all about the conversion path: how many of those consumers that listen for free are likely to pay. With YouTube’s 1 billion users it is a tiny per cent so there is little business rationale for letting them take the Ferrari out for a test drive when they are only ever going to get the bus.

Is 9.99 too expensive for most free music users? Of course it is. Should PAYG options be added in to the mix? Yes, absolutely. But none of those will work unless the music industry takes a consistent and fair approach to freemium.

Turning YouTube into a video enabled Pandora is clearly a controversial proposal and it will have huge opposition. It may even cause some meaningful disruption in the mid term, but unless equally meaningful change is made the music industry will remain locked on course to a future in which subscription services will never be able to realise their full potential.

How Data And Mobile Apps Shape Spotify’s Quest For Profitability

Spotify’s has announced the 2013 financial results for its global parent company. The headline is a -12% operating loss, down from a -19% loss in 2012. The numbers are in stark contrast to the small operating profits recently reported in Spotify’s UK and France subsidiaries. Both were able to do so because only a portion of Spotify’s costs reside in those businesses. This raises the interesting point of Spotify making efforts to report an operating profit where ever it possibly can to help build an evidence base that its model is sustainable. Which contrasts sharply with Pandora’s prolonged efforts to do what it can to not make a profit in order to help its rate lobby efforts.

Having spent the last few weeks knee deep in a client project exploring the profitability of digital music services I had a stronger than usual sense of ‘told you so’ when Spotify’s numbers came out. The headline of rights costs being the large cash drain on the subscription business model is well known, but there are other accelerating costs that are less well known. Spotify’s research and development costs rose by 92% between 2012 and 2013.

Music services find themselves running to keep up in the mobile world. Mobile apps are how the vast majority of subscribers interact with streaming services yet mobile app development is only an ancillary competence of subscription services. Unlike a King.com, a Supercell or a Mojang, Spotify’s core operating structures are built around cloud distribution, content management and music programming. Spotify and other subscription services are now having to develop mobile as core competence too and the rapid rate of innovation and change in mobile experiences mean that this more resembles an arms race that it does a standard operating cost.

The other big change is data. Streaming services generate vast quantities of usage data and making sense of that data is an ever more important task for streaming services of all kinds, not just music. Netflix spends $150 million on recommendations alone and has 150 staff just for this single data driven task.   Call it ‘big data’ if you will, but managing large data sets effectively is crucial to the success of streaming services for everything from managing churn through to rights holder reporting.

The key takeaway? Scale will definitely help streaming subscription services move closer towards profitability (as Spotify’s narrowing loss attests) but costs are also going to continue to rise for any streaming service that takes competencies such as app development and data intelligence seriously.

A Quick Note On Charts

Context: I spent a couple of years working in an Internet measurement company in the early 2000’s so I have some direct experience of measurement methodologies.

If streaming is changing the music industry then it is only logical that the way in which the market is measured should change too. We are in a transition phase where consumers are abandoning ownership for access, and also often swapping spending for free. It is a period of uncertainty and there is an understandable clamour to make sense of it with new approaches to measurement. Hence Billboard’s decision to incorporate streams into its album charts (with 1,500 streams equalling one ‘sale’) and other moves such as the UK’s Official Charts Company’s incorporation of streaming. But it is not just the methodologies of the charts that are changing, their entire purpose is shifting. In fact, before we reinvent charts we need to be clear about what purpose we want them to serve.

Sales charts have historically served a number of purposes:

  • Driving sales: securing a high 1st week chart position dramatically increases the chances of more sales because it unlocks opportunities such as (more) radio play, TV coverage, retailer promotion etc.
  • Driving awareness: by being in the charts music gets in front of consumers which matters because they typically exhibit herd like behaviour. Chart success can beget chart success.
  • Measuring popularity: charts give a snapshot of what is popular with music fans

Adding downloads was a very natural and entirely logical step for charts. Downloads after all are still a sale. So all of the objectives remained intact. But adding streaming changes things. You might be able to make a direct revenue comparison with sales (i.e. 1,500 streams = 1 sale) but that obscures a much more diverse consumption picture. The simple fact is that many streams are not a sales equivalent.

A subscriber listening to an album a few times through on a paid streaming tier can reasonably be considered analogous to an album purchase (in entirety in behavioural terms and in fraction in revenue terms). But a YouTube user that listens to a handful of tracks from an album just once cannot reasonably be considered anything like an album sale. Instead this is far more analogous to radio listening.

Using a revenue determined measure to define the link between streaming and sales changes the nature of a chart and in turn also what purposes it serves best. It becomes something that sits between sales and audience measurement. And, done carefully, that can be OK, but this needs to be recognized. A chart that includes free streams cannot though be considered a sales chart.

Capturing streaming activity is crucial but the issues are where and how. Radio play charts are a fantastic tool and help identify taste trends. This is where free streaming data most naturally sits, along with other inputs such as Shazams and also social data captured by the likes of Next Big Sound and musicmetric. In this increasingly complex consumption landscape a broad range of inputs are needed to paint an accurate measure of music fan interest and behaviour.

But try to do that simultaneously with measuring sales and you end up with a diluted mish mash that does not do either job properly.

Spotify, Apple, YouTube And The Streaming Pincer Movement

The Financial Times yesterday reported that Apple is planning on integrating Beats Music into an iOS update as early as the first quarter of 2015. Which means the entire base of Apple’s 500 odd million iOS devices suddenly become Apple’s acquisition funnel. As I wrote back in May, this was always the strategy Apple was most likely to pursue. Of course being available to 500 iTunes customers is not anything like converting them all. Just ask U2. But it does give Beats Music – if Apple keep the name – a reach like no other subscriptions service on the planet. Especially if Apple is willing to roll out free trials to them all.   Currently just 8% of consumers in the US and UK have experienced a subscription trial, which translates into approximately 30 million people. Even if Apple does not quickly succeed in taking subscriptions to the mainstream it is about to take subscription trials to the mainstream, which is the crucial first step.

streaming pincer

Add this to YouTube’s recently announced Music Key subscription service, which should be aspiring to get 5 million or so subscribers in its first year to be considered a success, and a picture emerges of Spotify squeezed in the middle of a streaming pincer movement (see figure). In the near term Apple will be hoping to win back a lot of its lost high spending iTunes customers from Spotify. Longer term it will be looking to grow the market.

None of this means anything like the end for Spotify. Instead it will force Spotify to up its already high quality game. Competitive markets thrive far more than ones in which one or two key players dominate. It could mean that Spotify’s potential flotation or sale value is tempered for a while, which could push out Spotify’s exit timelines until it has proven its worth in a more competitive marketplace. But Spotify has the distinct advantage of being a) the incumbent and b) a pure play. Spotify, Deezer and Rhapsody are all in this game simply for music. That means each and every one of them has a laser focus on making the best possible music service proposition they can. The same is quite simply not the case for either Apple or YouTube. They will need to leverage that asset in their conversations with rights holders to ensure they are given more flexibility in terms to drive true marketplace innovation and experimentation.

subs numbers 11 14

But Spotify et al would be foolish to underestimate the scale of the challenge they will face. Apple has the largest installed base of digital music buyers on the planet (see figure). As creditable as Spotify’s 12.5 million paying subscribers is, it pales compared to Apple’s 200 million iTunes music buyers. Also Apple has many additional assets at its disposal. Integrating into iOS is just one tactic it can employ. Spotify et al depend on Apple’s platform for much of their survival. But there is no reason Apple has to play truly fair. Amazon set a platform precedent with its treatment of Hachette that Apple will have been watching closely. Don’t expect anything too obvious, but little tricks like tilting app store optimizing in favour of Beats over Spotify can go a long way.

Things are hotting up, no doubt. But Apple’s arrival in the subscription market will take the sector to a whole new level, and a high tide should rise all boats.

10 Thoughts On YouTube Music Key

Google just announced its long anticipated YouTube Music Key. You can find out all you need to know about its potential impact on the wider market in MIDiA’s report ‘Unlocking YouTube: How YouTube Will Change Music Subscriptions’. Here are 10 further thoughts:

  1. Identity crisis: We are at a crucial juncture in YouTube’s life. As I wrote last week, artists and labels have a conflicted view of YouTube. 10 million streams on YouTube is a marketing success but 10 million Spotify streams are lost sales. So following that logic does that mean 10 million Music Key free streams are better than 10 million Music Key paid streams?! Either way it will force the industry to reconsider its views on YouTube as a marketing vs a consumption channel. Streaming in order to buy was a model with clear outcomes. Streaming in order to stream is not. Music Key will act as a catalyst for the broader narrative of reassessing YouTube’s music industry role now that the end destination is increasingly streaming itself.
  2. YouTube just got a fantastic upgrade to its free tier: As part of the deal for the paid tier YouTube got new discovery features and full album streaming. Full album streams on YouTube have always been a contentious issue, now they are there officially. This small but crucial product feature transforms YouTube free from a discovery service to a fully-fledged destination.
  3. Two services for the price of one: YouTube Music Key and Google Play Music All Access are for now bundled together but ultimately there is little sense in keeping them both. Just as Ian Rogers is busy trying to integrate iTunes Radio and Beats into a single value proposition, so some one will have to do the same at Google. Let’s just hope the result isn’t a service called Google’s YouTube Play Music Key All Access…
  4. Is 7.99 the new 9.99?: Last month I suggested that the main subscription price point of 9.99 should come down to 7.99. Music Key will be priced at 7.99 for an indeterminate period to its first wave of users. Expect Google to use this as a test case for 7.99 as the permanent price point.   And if it works, expect other services to get the same deal.
  5. Spotify competition: 1 year from now Spotify will still be the leading subscription service but it will be facing fierce competition from YouTube and from Apple. It will also most likely have lost a bunch of subscribers to both. Just as Apple stole Amazon’s music buyers and then Spotify stole them from Apple, expect YouTube and Apple to steal (and steal back) a number of them. Also, neither Apple nor Spotify have video, yet. So with the same catalogue and similar pricing they need something else to differentiate. For now Music Key has the differentiation upper hand.
  6. Vevo competition: Music Key’s core addressable market is super engaged YouTube and Vevo music fans. 15% of Vevo music consumers accounts for in the region of 67% of its music ad revenue. If Music Key converts even half of those users to Music Key, it will leave a gaping hole in Vevo’s ad revenue
  7. Windowing: Taylor Swift has taken the windowing debate to a new level, adding further weight to the argument that free tiers should be treated as a separate window from paid. Google made it clear at the launch of Music Key that a song is on free and paid, not one or the other. While a growing number of artists would willingly sacrifice being on both tiers of Spotify how many would risk not being on YouTube?
  8. Rippers: 12% of consumers and 25% of under 25’s use YouTube rippers like iMusic Tubee Free which effectively do what Music Key does (remove ads, offline caching, playlists etc.). These sorts of apps are of course readily available from the Google Play Store. If Google is serious about Music Key being success they will need to crack down hard on these apps.
  9. What does success look like?: YouTube has 1 billion monthly users and about 140 million weekly music video users. That’s a massive audience to covert from, approximately three times bigger than Spotify’s monthly user base. Given that YouTube already sucks so much revenue potential out of the subscription space (25% of all consumers say they don’t pay for subscriptions because they get all their music for free from YouTube) YouTube’s measure of success needs to be much higher than any other music service. 6 million or so subscribers in year one would be a good start.
  10. Too little innovation, for now: If YouTube can harness all of its unique assets it can create the best music subscription service on the planet. Music Key isn’t yet anywhere near that but it is only a beta product, so expect YouTube to up its innovation game and put further blue water between it and the rest.