The Art of Windowing: Why 4:44 is a Different Kind of Exclusive

This is a guest post from MIDiA’s Media and Music Analyst Zach Fuller.

For a brief moment last year, windowing seemed like the future of music streaming. Already common practice in the film-industry, the strategy was being touted as a way of utilising artist fan engagement to drive registrations (both freemium and paid) to streaming services, thus engendering the payment behaviours that would ultimately grow the industry. Yet, as MIDiA addressed last year, Frank Ocean’s bait-and-switch manoeuvre with Universal in August 2016 sent shockwaves through an industry still acclimatising to streaming economics. Arriving on the coat-tails of a windowing gold-rush that had seen releases by Beyonce, Kanye West and Chance the Rapper all utilising the strategy, Ocean’s move effectively put the brakes on the practice, leaving Universal CEO Lucian Grainge allegedly so infuriated that he ordered a company-wide halt to any further windowing projects.

Fast forward to 2017 and Jay-Z’s 4:44 has brought windowing back to the fore. Whilst numerous personal revelations (as well as receiving Jay-Z’s best critical response since 2003’s The Black Album) have meant blanket press coverage across social and traditional media, it is also notable that 4:44 is the first major windowing project to arrive this year. This is despite 2017 presenting two substantial windowing  opportunities with Ed Sheeran’s new album and Harry Styles’ self-titled debut  – however neither were windowed on any service. Jay-Z however, is in a very different position to most artists. Aside from owning his own streaming service, Jay-Z’s control over his artistic output extends back to the very beginning of his career. He co-founded his own label, Roc-A-Fella Records (distributed through Universal), to release his debut back in 1996, and as was reported last year, he is now in full control of his own master rights. Such self-determination over one’s career at the scale of his audience is rare, thus enabling 4:44’s window release while the rest of the industry retreats from such practices.

Audience reticence can also be attributed to the unlikelihood this is a move to build TIDAL’s user base. Kanye West claimed his 2016 release ‘The Life of Pablo’, ‘My album will never never never be on Apple. And it will never be for sale… You can only get it on Tidal.’ This position lasted around a week, with Kanye now allegedly having left TIDAL over unpaid royalties. Similarly, Beyonce’s TIDAL exclusive lasted just 24-hours. It is therefore fair to assume that music fans have become naturally suspicious about the nature of windowing and how long they will have access to exclusive content should they subscribe to a particular service. This accounts for the trend of free-trial hopping between streaming services as well as the fact that Jay-Z’s album has already been subject to high levels of piracy.

Streaming services themselves also continue to exhibit agnostic positions on windowing. Apple Music’s Jimmy Iovine earlier this year seemed to infer the company would move away from such practices, stating ‘We’ll still do some stuff with the occasional artist. The labels don’t seem to like it and ultimately it’s their content.’ Spotify on the other hand, having previously stated they were against windowing, have in recent months suggested they may transition towards windowing certain releases on their premium tier. For these reasons, 4:44’s window should be considered less about swelling the subscriber base, as was the intention of windowing efforts last year, but rather reaching his most engaged audience first. Jay-Z’s fanbase are likely to be already on the platform when taking into account the immediate rush of subscribers that followed its release last year. Interestingly MIDiA Research’s consumer survey data shows that Tidal subscribers over-indexing as older and more prominently male than on other competing streaming music services. Whilst TIDAL’s problems are therefore unlikely to subside with this release, 4:44 could at the very least resume the dialogue on how windowing will be employed going forward in growing streaming’s paid users.

Welcome To The Post-DIY Era

I recently took part in the True Music Forum in Madrid, an event organized by Boiler Room. I was on a panel that explored whether DIY is now coming of age with a host of high profile artists, most of them urban artists, bypassing or twisting the traditional label model and still achieving stand-out success. On the surface, these look like golden years for DIY, and in many ways they are, but much of what is happening at the top end of the scale has little to do with DIY. Streaming is transforming how artists view recorded music income and is making it possible for artists to pick and choose what label capabilities they want. But more often than not, it is a variation of the label model that succeeds rather than a replacement of it. This is the start of the post-DIY movement.

The First Wave Of DIY

Firstly, to be clear, DIY is alive and well, better than it has ever been in fact. With labels increasingly only signing artists once they have seen them build up following and ‘a story’, it is becoming increasingly common for artists to spend the formative stages of their careers ‘DIY’, releasing their own music, managing their social campaigns, making their own videos, booking their own tours etc. Added to that, the combination of streaming, direct-to-fan platforms and social apps have combined to make it possible to build niche audiences on a global scale. So it is now possible for a new tier of artists to exist, a tier of artists that may never dent the charts (for whatever they may be worth these days) but that can build solid, sustainable careers by engaging their fans directly. Stalwarts like Bandcamp and CD Baby have never had it so good, while a whole crop of new entrants, such as the much hyped BandLab is emerging to drive the market forward. And of course, Soundcloud, for all its financial challenges, provides artists with a platform to engage massive audiences globally without need for any middleman whatsoever.

DIY Versus Empowered Superstars

That is the DIY movement that will go down in history as one of the most culturally significant legacies of the Napster market shock. An organic, grass roots musicians’ revolution. Now though, we are seeing the emergence of a more commercially minded take on DIY, one that draws on the practices of its predecessor but that combines them with the big label model to take full advantage of the best of both worlds. This new breed of superstar DIY artist enjoys the benefit of fiercely held independence with world class distribution and marketing. They are taking the tools of DIY but not all of the ethos. The superstar DIY artist typically builds a strong brand and buzz (and often, but not always, a big live following) and then uses that as a platform to strike a deal with a major label (or a major label subsidiary company) to get the benefits of major label scale without giving up control (nor masters). This can take various forms, such as:

• Using a major label’s distribution company (e.g. Stormzy’s ‘Gang Signs & Prayer’ is distributed via Warner’s ADA)
• Setting up a label within a major label (e.g. Drake’s Ovo Sounds is part of Warner Music Group)
• Creating a tactical joint venture with a label for a specific release

In each scenario the artist retains large amounts of control (or at least more than in a traditional label deal) but gets the support of world class, global infrastructure and marketing. The artists picks the services s/he wants, like an advertiser does with a full- service ad agency. The label services and standalone distributor models have been around for some time, but now they are being used by business savvy, super ambitious superstars in-the-making. And the artist gets to retain an aura of authenticity and independence.

For those artists that want to push the needle even further, streaming services are emerging as an additional weapon in the armoury. Chance the Rapper revealed that Apple paid him $500,000 to become the exclusive streaming partner for ‘Coloring Book’, following hot on the heels of Frank Ocean’s Apple Music exclusive for ‘Blonde’. Apple is setting itself up as a modern day equivalent of the Medici – the medieval Italian family that was a driving force in the Renaissance through its patronage of artists such as Rafael, Leonardo Da Vinci and Michelangelo. Some time or another, Spotify will follow Apple’s lead. The superstar artist fits this streaming-service-as-label model best because an artist with big potential is going to deliver much better ROI for streaming services that are eager to drive market share and differentiation via original content.

Hip Hop Is Setting The Innovation Bar

Urban music, and hip hop in particular, has become a hotbed of artist-led business innovation. Although hip hop has always had stronger commercial sensibilities than other genres, streaming has brought the business innovation to the fore, ranging from the original hip hop superstar businessman Jay Z and his Tidal service, through Frank Ocean’s Apple Music released ‘Blonde’ to Stormzy’s streaming record breaking streaming success.  And the innovation is happening at the grass roots of hip hop too. As the brilliant Kieran Yates noted on the Boiler Room DIY panel, many UK Grime artists are now signing publishing deals before label deals as a) this can often mean bigger advances in today’s indie music market, and b) there is a perception that this means giving up less control, which in turn empowers the artist to strike a better deal with a label, or label-owned company. This also opens up a world of opportunity for independent music marketing agencies etc who can become part of new, agile teams.

Streaming has been continually rewriting the rule book for many years now, but we are entering a period of even faster change, with many of the more fundamental effects being the indirect consequences, such as the rise of post-DIY. It would be wrong, however, to think of this as a ‘death of the label’ narrative. Because the labels (majors and indies) are being smart enough to be as flexible and agile as artists need them to be. Artists are changing and labels are changing just as fast to meet their new needs and terms of reference. Perhaps, the best way to capture the approach of the new era of post-DIY artist is to go back to Jay Z’s classic ‘Diamonds From Sierra Leone’ lyric: I’m not a businessman; I’m a business, man!

 

How Apple Music And Tidal Transformed Streaming (And Why Apple May Be Buying Tidal)

 

It is 15 months since the launch of Tidal (which was 2 months after Jay-Z’s Project Panther Bidco bought Aspiro) and it is 12 months since the launch of Apple Music (which was a year after Apple bought Beats Music). The streaming world has changed a lot in that time and both those companies have had a disproportionately large amount on influence on the market’s direction of travel. Their arrivals defined Spotify’s role as incumbent while simultaneously casting Apple and Beats as challengers. They have performed their roles of disruptive entrants well, reshaping the competitive marketplace with a strong focus on brand and artist exclusives. Now reports emerge that Apple is in talks to buy Tidal. First victory in the exclusives war or overspending for market share?

When Is An Exclusive And Exclusive?

In the streaming video world an exclusive means exactly that. If you want to watch ‘House Of Cards’ you need Netflix, if you want to watch ‘Man In The High Castle’ you need Amazon Prime. But in music the rules are far more flexible.

Looking at the flagpole exclusives across Apple Music, Tidal and Spotify, most of these are available on other platforms as downloads, while many are available to stream. For example, Beyoncé’s ‘Lemonade’ is only available to stream via Tidal but was available to download on iTunes within 24 hours of release. Understandably, the exclusive albums of each company’s respective godfather are genuinely exclusive. But Rihanna’s ‘Anti’ was given away by Samsung while Spotify’s rock legends exclusives are streaming only.

Apple is beginning to push the envelope though, pitching creative solutions to labels and artists, resulting in output like videos for The Weekend and Drake. At the same time it is beginning to look suspiciously like a record label with the release of Chance The Rapper’s ‘Colouring Book’ mixtape. The net result of all this clamouring to be seen as the ‘home’ of an artist is resounding confusion and frustration for music fans. An avid TV fan may well accept the need to have both a Netflix and Amazon subscription because no video service claims to have all the TV shows and movies on the planet. However, the central proposition of streaming music services is exactly that…or at least it was until Tidal and Apple Music upset the the apple cart (ahem). The irony is that in scoring a quick win against Spotify, Tidal and Apple may have fundamentally undermined the long term positioning of the entire streaming music product.

Exclusives Cannot Recreate The 1990s

Apple Music’s head of original content Larry Jackson has said he wants to make Apple Music to emulate the success of MTV in the 80’s and the 90’s, creating the sense that artists ‘live there’. It is an admirable goal but the music world of the 2010’s is a dramatically different one. In those days there was scarcity (you had to buy music to listen on demand) and there was a finite amount of radio and TV. It was possible to control both the message and the audience. Now we are in the Era of Distributed Audiences where people are simultaneously in multiple digital places, with artists and labels racing after them in all those places. No amount of exclusive windowing is going to change that. The genie is well and truly out of the bottle.

The Economics Of Exclusives

Where the streaming video and streaming music markets match up is that content budgets are currently being used to drive user acquisition. While streaming services have a long way to go before they reach Netflix’s $6 billion annual content budget, both types of streaming service will overspend to get market share and will reel budgets back in later. So it should be no surprise that the amounts being spent on artists don’t really add up.

For example, Apple is reported to have spent $19 million on Drake and was rumoured to have bid up to $25 million for Harry Styles. If Styles had signed, even if he had racked up the same number of streams as Drake on Spotify in 2015 (1.8 billion, the highest number of any artist) he would still only have generated gross revenue of $18 million and net revenue of revenue of around $14 million, leaving something like an $8 million loss for Apple when Apple Music’s additional retailer margin is factored in. Apple would however have been able to make up the remainder on album sales, but Styles would have needed to have shifted a good number of albums. (Adele’s ‘25’, the biggest selling download album in the US in 2015 drove around $15 million in label revenue.) So for now, it takes selling albums to make the economics of streaming exclusives add up.

Jay-Z paid $56 million for Aspiro’s 512,000 subscribers, $110 per subscriber. Assuming he’d want a similar per subscriber price, that would put Tidal’s price tag at around $440 million. That’s no small amount of money for around 5% of the global subscriber market. Or to put it another way, Apple could another 23 Drake exclusives for that money which most likely would have a bigger impact on subscriber growth. Indeed, on all growth measures Apple Music has outperformed Tidal over the last 12 months, adding 12.5 million new subscribers to Tidal’s 3.1 million, growing by an average of 1.4 million subscribers a month compared to 0.3 million for Tidal. Apple even has the edge in % growth terms (352% compared to 328%).

So why is Apple in the market for Tidal (albeit reportedly)? Probably more than anything it is about taking an irritatingly threatening competitor out of the market. Tidal has been stealing Beat’s core customer base from right under its nose. It’s no coincidence that Apple Music’s exclusives strategy has had a strong urban bias. Apple wants its Beats customers back, just like it wants its iTunes customers back from Spotify.

Even if Apple does buy Tidal, don’t expect the exclusives wars to go away. Indeed, Spotify just acquired its own exclusives supremo in the shape of Troy Carter, and Apple clearly has its mind set on continuing to spend heavily. So the next few years of streaming will be  defined by streaming services getting closer to artists (with Connect becoming much more important for Apple) which in turn will see the distinctions between what constitutes a streaming service and a record label blur all the more.

As science fiction write William Gibson wrote: the future is already here, it’s just not evenly distributed yet…

 

The Problem With Streaming Exclusives

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.

How TIDAL Can Deliver On Its Promises

The continued media feeding frenzy around Jay-Z’s TIDAL demonstrates just how valuable star power is for cutting through the clutter.  What has helped sustain interest is Jay-Z’s vision for delivering better value to artists and better experiences for music fans.  It is a tall order given that TIDAL has to operate under the same basic licensing framework as all other streaming services, the nub of which is paying c. 70% of all revenues to rights holders and having no control over how much of that gets paid back to artists and songwriters.  Working within the constraints of the standard subscription model TIDAL will quite simply not be able to deliver on its aspirations.  But if TIDAL is willing to create a new model to layer on top of it, then it can do something truly transformational.  Here’s how.

The Problem With Streaming

First we need to look at the issue TIDAL has to fix.  The problem with streaming services is that they inadvertently weaken music fans relationships with musical works.  In the pre-streaming, music sales model consumers paid for an album or single and matched their cash investment with an investment of time in listening to it.  The alternative was to listen to their older music collection or the radio.  So even duff albums not only got money spent on them, they got listened to a few times by their buyers.  And even if they didn’t get listened to even once the artist still got paid.   So a portion of music sales revenue had no relationship to the quality of the music.  Streaming changed that, effectively making the music itself more accountable to its audience.

With streaming, music fans don’t need to waste time listening to music they don’t like upon first listen.  They can bypass the duff.  They also tend to listen less to any single piece of music in general because they have so much other music to choose from at no additional cost.  Artists earning a 150th per stream of what they earn from a download is thus only part of the problem.  Most of the time their mainstream fans (and by that I mean not their top 10% of super fans) aren’t listening to them enough.

Scale Will Come, But It Will Take Time

The theory is that this will be fixed by scale, that a massive installed base of users will result in bigger listening volumes.  But it’s not that easy.  To illustrated, let’s assume people listen to albums an average of 5 times each then you need 30 times as many people to listen to generate the same income as a sale.  So until we get much bigger scale from streaming (e.g. 150m+ subscribers globally) we need to look at how to encourage music fans to concentrate their listening more on the artists they really like.  This is where TIDAL can come into play:

• Artist channels: Earlier this year I laid out a vision for artist subscriptions.  In this model subscribers pay an additional fee (say $1 or $2) to their standard streaming subscription to get access exclusive programming, content and other experiences from an artist. Subscribers choose from a selection of artist channels and subscribe individually or pay for a bundle.  Think of it like adding sports or movies to your Pay TV subscription.
• Additional content: Because subscriptions already give you access to all the music in the world (well most of it) subscribers will not be paying their extra $1 or $2 to get to the artist’s music. (Taking the music out of the core subscription and locking it into premium channels is a bad idea and doesn’t fix the artist income issue as we’ll see in a moment).  Instead fans will be paying for a mixture of additional content (live streams, interviews, acoustic sessions, photos, videos, games, curated playlists, mobile content, handwritten lyrics etc.) that will be delivered as a curated, programmed whole.  These channels will need to ascribe to the D.I.S.C. principles i.e. they music be Dynamic, Interactive, Social, Curated.  Sure each of the individual components could probably be found somewhere on the web but the real value is the entirety of the experience.
• Artist revenue share: Where this model gets really interesting is how artists get paid. If all the additional content that is delivered is outside of the standard label catalogue then TIDAL could, after some basic costs are accounted for, split the entire additional $1 or $2 subscription fee 50/50 with the artist.  Or if TIDAL is that serious about making things better for artists, they could give all of the net profits to the artist. (Label 360 deals might complicate things a bit for some artists but they will not account for large percentages). Just how songwriters would benefit is a bit more complex as many artists have multiple songwriters etc. but TIDAL could set aside a songwriter pot to be distributed based on plays of the artist’s core music.

Right now TIDAL is a music service pretty much like the others but with bold ambitions.  This is one way that TIDAL can turn worthy words into meaningful actions. There aren’t too many other ways it can do so.  And of course any of the other streaming incumbents could do this too.  The difference is that that they have had a lot of time to do it and have not done so, yet at least.

So TIDAL, come show us how it is done.  Over to you Jay-Z.

Jay-Z, Becoming An HBO For Streaming, And Digital Music Bling

Jay-Z just made his much hyped entrance into streaming official with his star studded but awkward signing ceremony for TIDAL. Once having navigated a few objections from minor shareholders, Jay-Z’s first major act after successfully buying the not-very-appropriately-named-for-a-hip-hop-superstar WiMP was to rebrand it to TIDAL, the name that WiMP’s high quality service had been operating under. Jay-Z is unashamedly bringing his superstar power to bear to make as big a splash as possible, but once the tidal wave of hype has subsided will there be enough to transform the market?

On the surface Jay-Z did not get too much for his $56m WiMP TIDAL acquisition: a streaming provider that actually lost 11% of its subscribers last year, of whom 77% are tied up in telco bundles and that has a total global subscriber market share of about 1%. The much vaunted TIDAL part of the company as just 17,000 subscribers.

But of course the deal was never about what WiMP has done to date, it was an instant entry point into the streaming music landscape. It is the streaming equivalent of buying a plot of land that has already been granted planning permission, with the slight convenience of the previous owner already having started building a little edifice in the corner of the plot. Now Jay-Z is clearing the site and laying the foundations for a construction of far greater ambition.

One of the problems with streaming music services to date is that they have generally lacked personality. This is a combination of being technology led, having to be all things to all people and having to keep the big labels happy. Jay-Z is shovelling bucket loads of stardust on TIDAL, leaning on his superstar contacts help get the launch off to a star studded bang and even making them shareholders. But it will require much more than the support of a few music biz a-listers to make TIDAL a success:

• TIDAL is creating an aspirational, premium streaming brand: In many respects TIDAL is filling the aspirational music brand space that Beats vacated when it was acquired by Apple. High quality audio and video editorial (powered by the RADR division of TIDAL) are a natural fit with this positioning. Most consumers do not actually care that much about high quality audio (only a fifth consider it an important part of a music services) and even can actually tell the difference. But that’s not the point. This is about aspiration. Just in the same way that most Beats customers buy the headphones because they represent quality rather than because of their frequency response ranges. $19.99 is not meant to be a mass market price point. It is streaming bling for those who want people to know they have the best.
• TIDAL wants to be the HBO of streaming music: One key differentiation point for TIDAL is an exclusive first streaming release window for artists. What they’ll get in return is unclear, and it certainly won’t halt the decline of sales, but it nonetheless creates a clear perception of value to artists and to subscribers. It helps solidify TIDAL’s positioning as a premium brand, the streaming music equivalent of HBO.
• Even TIDAL can’t fix the underlying problem with royalties: One of the big issues surrounding streaming is the fact artists and songwriters do not feel they are earning enough. Yet with 80% of subscription fees heading back to rights owners there is clearly not much scope for increasing the payouts. Even doubling the subscription price (on the $19.99 tier) only means artists are getting paid (at best) in double cent increments rather than single cents. The underlying dynamics remain the same i.e. you need a lot more people streaming an album to make the same money you would from selling it. In fact, you would require roughly 15 as many people, listening an average of 5 times each.
• A next generation label: Somewhere down the line TIDAL might follow Netflix’s lead and start creating TIDAL Originals, signing artists directly. Doing this would present a whole set of ways in which TIDAL could start to experiment with generating more value for artists. But it would also put TIDAL in a difficult position. Right now TV broadcasters are starting to reassess their relationship with Netflix because now it is competing directly with them for shows and talent. Netflix has bought itself some time by dint of being such a valuable revenue stream for TV companies, but the more it pushes its own content, the more TV companies want to clip its wings. Expect the same scenario to play out for TIDAL if goes this route.

TIDAL is a welcome addition to the streaming space and brings some much needed star quality. But the path ahead is far from clear. Jay-Z will need all the luck and superstar support he can get to make waves with TIDAL.

What $500 Million And Jay-Z Say About the State Of Streaming In 2015

2014 was a big year for streaming, 2015 will be bigger. Apple entering the fray is the catalyst. Apple enters a market when it is ready for primetime. Apple lets the pioneers establish the market, prove the model and create consumer mindshare before it comes in and most often assumes a leadership role. Apple is certainly leaving it later than normal with subscriptions but it is still the same classic follower model, and the marketplace knows it. Hence Jay-Z’s reported €50 million interest in Norwegian streaming service WiMP and Spotify’s reported pursuit of a further $500 million. The first move is ‘let’s get in a market Apple is about to make huge’ and the second is an Apple war chest

Spotify’s 2014 growth was little short of spectacular, especially its December surge. But it is still not enough to IPO on. Not because 15 million subscribers in itself is not a huge achievement – it is – but because the market place is holding its breath, waiting to see what Apple does. Apple remains the world’s largest digital music company and is on the verge of becoming the world’s leading shipper of smartphones. But most crucially Apple has the iTunes ecosystem and a deep, deep understanding of the world’s most valuable content consumers. If anyone can take subscriptions to the mainstream Apple can. And in the process it will likely take back a chunk of the iTunes Music buyers that Spotify ‘stole’. Which is not to say that Spotify will not be able to continue to grow, but instead that rapid growth will be harder when Apple is snapping at its heels.

Pricing will be key, as will the role of free. If Apple succeeds in bringing the standard price point down to 7.99 (and perhaps a subsidised price point of 4.99) then a whole new swathe of users will be brought into the marketplace. Still not the mainstream, but certainly getting towards the higher end of the mainstream that Netflix competes in. And certainly a bigger marketplace than the current one. If Spotify finds its free tier heavily capped then it will lose much of its customer acquisition strength, which may force it to spend more heavily on traditional acquisition tactics like app marketing and TV ad spots.

In this expanded marketplace a $500 million war chest would give Spotify the ability expand into new territories, double down on churn management and market in core markets. The intent will most likely be to weather the Apple storm and to be in solid enough shape the other end to IPO. As we have seen in the smartphone and tablet business, Apple can be leader but still leave plenty enough space for a vibrant and competitive marketplace. That is the scenario Spotify, Deezer, Rdio, Rhapsody and Jay-Z’s new plaything-to-be WiMP will be hoping for.

Lady Gaga, O2 Tracks and the Reinvention of the Pre-Release Sale Cycle

Back in the glory days of music sales, long before the web had done away with scarcity, albums and singles could hit the top of the charts on pre-sales alone.  Those days are long gone, but exclusive pre-release listening initiatives are beginning to reinvent the pre-release sale cycle.  There have been a number of diverse efforts of late including Daft Punk’s ‘Random Access Memories’ being streamed exclusively on iTunes a week prior to release and Jay-Z’s Samsung ‘Magna Carta Holy Grail’ hard bundle.   This week sees the arrival of another high profile artist effort: Lady Gaga’s ‘Artpop’ is going to be available one week ahead of release exclusively in the UK on mobile music service O2 Tracks.  Done right, pre-release digital previews could be a crucial shot in the arm for music sales.

The debate around whether streaming cannibalizes downloads is going to run for a few years yet, and we’ll probably only have enough data to draw definitive conclusions when streaming’s ascent and downloading’s descent are irrevocably set.  Until then, the challenge is how best to leverage the capabilities of existing digital platforms to drive sales of both downloads and good old fashioned CDs and LPs.  Previewing on an all your can eat streaming service will always both drive and cannibalize sales, just in the same way that radio has always done so.  But build the preview experience into the structure of a music store and the chances of conversion are much higher.  Daft Punk’s iTunes preview was a run away success because it was in the heart of the globe’s biggest music retailer (though of course the impact of the uber effective marketing campaign cannot be discounted).

Powered by UK music start up MusicQubed, O2 Tracks is far from a download store (it delivers users a small selection of handpicked playlists for £1 a week) but it is nonetheless a proven driver of music sales.  MusicQubed reports that O2 Tracks users frequently click to purchase tracks in the app, with stores such as iTunes providing the fulfillment. Thus O2 Tracks is an opportunity to drive hype (O2 are investing heavily in marketing the preview project) and to drive sales.

Lady Gaga is truly a digital era artist, with music sales that are strong but overshadowed by super high social engagement metrics such as Facebook Likes and YouTube views (see this chart for more). So while Lady Gaga’s management will be most interested in the strong marketing support from O2 and will in part measure success in terms of social footprint, her label Polydor will of course be paying much closer attention to conversions to sales.  O2 Tracks should deliver on both counts.

As more pre-release digital initiatives are run we will get a better sense of what works best, and where.  As that data builds I expect a clear case to emerge of a more structured and consistent approach to pre-release marketing.  A crucial ingredient will be exclusive extra content, not just the album itself (the O2 Tracks ‘Artpop’ preview includes an eight minute interview with Lady Gaga). This is the sort of content that delivers genuine added value to core fans of any given artist and that helps build even more reason for fans to listen to pre-release album previews.  The days of albums regularly topping the charts on pre-sales alone may be a thing of the past, but the pre-release sales cycle is waking up to a whole new lease of life in the digital age.