Ad Supported Is 56% Of US Streaming Revenue

Late 2014 a minor crisis emerged in the music industry, with major record labels at one stage looking like they were going to kill off freemium.  The outcome of the Freemium Wars was actually less dramatic, resulting instead in an effective continuation of the status quo.  The labels had however made it very clear to Spotify who held the whip hand.  Though their tones have softened, major label execs retain an at best sceptical view of free streaming.  The net result is that freemium has almost become the inconvenient streaming truth that no one really talks about.  However free is too big to ignore.  In fact free is much bigger than some would like to admit.

freemium what freemium

According to the IFPI ad supported streaming accounted for just 19% of all US streaming revenues in 2014, down from a high of 30% in 2011.  Which points to the success of subscriptions.  Except that those numbers ignore a major part of the equation: Pandora (and other semi-interactive radio services).  The IFPI has Pandora hidden away with cloud locker services, SiriusXM and a mixture of other revenues in ‘Other Digital’.  Extracting the semi-interactive radio revenues that count as label trade revenues wasn’t the most straight forward of tasks but it was worth the effort.  Once Pandora is added into the mix it emerges that 56% of US streaming revenues are from free, ad supported services.  While that share is down from a high of 66% in 2012 it remained flat in 2013 and 2014.  Which means that however fast subscriptions grew Pandora, Slacker, Rhapsody UnRadio and co grew even faster in order to offset the decline in on demand ad supported income.

us subscriber growth and pandora

Semi-interactive radio revenues grew by 40% in 2014 compared to 35% for subscriptions.  Subscriptions had grown much faster in 2013 (76% compared to 25%) but Pandora and co found their mojo again in 2014.  None of this is to suggest that subscriptions aren’t making great progress but it does show us that free is more than an inconvenient truth, it is both the most widely adopted behaviour and the largest revenue source in the US (which accounts for 48% of global digital revenues).

The music industry is beginning to get its head around the fact that the role of streaming as a retail channel (i.e. subscriptions) is always going to be smaller (in reach terms at least) than its role as a radio channel (i.e. free streaming).  This more accurate view of the US streaming market shows us that free is even more important than many thought.

Free streaming also has much bigger growth potential. The percentage of consumers that have the inclination to pay 9.99 a month for music is inherently limited, thus constraining subscriptions to a niche addressable audience.  Music radio listening by contrast has near ubiquitous reach.  Most significantly Pandora currently only represents about 10% of all US radio listening time.  The addressable market is much bigger and the vast majority of it remains untapped.

The Global Implications Of The BBCs Streaming Strategy

Yesterday the BBC’s Director General Tony Hall laid out a vision for the future of the BBC (for an excellent take on this see the blog post from MIDiA’s video analyst Tim Mulligan, and yes the name may look familiar, he’s my brother!).  The BBC has long played a crucial innovation role in the digital content economy but it has yet to carve out a convincing role for itself in online music.  It has built up a compelling YouTube content offering and it has pursued a streaming coexistence strategy with its innovative Playlister initiative but the bigger play has yet to be made.  That looks set to change, with the announcement that the BBC is planning to launch a ‘New Music Discovery Service’, which would make the 50,000 tracks broadcast by the BBC every month available to stream for a limited period.  The initiative is interesting in itself but its implications are more profound and could have global repercussions.

Radio Still Rules The Roost But The Streaming Fox Is At The Door

Radio is still by far the main way most people interact with music.  75% of consumers listen to music radio regularly compared to 39% that stream for free. Radio also remains the main way in which people discover new music and its DJs are still some of the most influential tastemakers on the planet cf Apple poaching Zane Lowe from the BBC’s Radio 1.  But things are undoubtedly changing.  Music radio penetration among 16-24 year olds falls to 65% while streaming rises to 54%.  In Sweden streaming has overtaken music radio among 16-24 year olds.  All of this without even considering YouTube which has overtaken radio for 16-24 year olds in markets as diverse as UK, US, Sweden, Germany and Mexico and is on the verge of doing so in France.  (All consumer data is from MIDiA Research).  Radio held its own throughout the digital revolution of the last 15 years but the cracks are now there for all to see.  Most radio broadcasters do not yet have the assets to properly navigate the digital transition.  In most markets there is no dedicated digital platform (the US and UK are two notable exceptions) so broadcasters rely increasingly on mobile streaming for engaging audiences digitally.  Which means they are one swipe of a finger away from a bewildering array of radio alternatives.  It is this dynamic that underpins the BBC’s approach to streaming.

The Tyranny Of Choice

Though streaming had been around long before Spotify (hello Rhapsody) the Swedish upstart simply made the model work.  It did so by fixing buffering and by giving consumers frictionless (i.e. not cost and easy to use) access to all the music in the world.  By fixing that problem Spotify inadvertently created a new problem: the Tyranny of Choice.  Consumers are paralysed by excessive choice.  The Tyranny of Choice is of course not solely Spotify’s fault but it was certainly a catalyst for it. With the traditional gatekeepers / curators (delete as appropriate according to your worldview) increasingly bypassed by data-driven discovery, mainstream music fans are left feeling utterly bewildered.

Consumers Don’t Get Curation

The BBC is keenly aware of its value as a curator and quite frankly thinks it can do a better job than pure play streaming services.  It is probably right.  But what it doesn’t yet know how to do is communicate and deliver that value outside of the framework of radio.  The problem with curation is most people don’t think they need it.  Just 5% of consumers state they want discovery and recommendation features from streaming services.  Yet these are in the main the very same consumers that listen to music radio, which of course is all about discovery and recommendation.  The difference is that it doesn’t feel like it.

Setting Curation Free

This the challenge for the BBC and all radio broadcasters: how can they take the essence of DJ led programming and translate that into the streaming environment.  Apple’s approach of simply taking programmed radio and building on demand streaming around it is one bold approach but it is just a first step. The BBC, and other publicly funded broadcasters, have the advantage of being able to take the long view, of planning for long term evolution rather than focusing on ‘flipping’ their start up or keeping shareholders happy each quarter.

The BBC is placing the bet that giving its curation the maximum ability to permeate and interact with the streaming marketplace will give it the best chance of delineating which models will work and how best to bottle up that curation magic dust.  It is also a bold move because if it follows its course this could see the BBC’s content, curation and editorial break free of the confines of the BBC.  Because if it works well enough out in the ‘streaming wild’ why would a user need to even visit a BBC property.  The BBC is setting curation free.  It is a strategy that gives a hat tip to BuzzFeed, a company with a stated intent to distribute content as widely as possible even if that ultimately means killing off the BuzzFeed website.  A quote from BuzzFeed’s CEO Jonah Peretti sums up the thinking perfectly: “Content might still be King but distribution is Queen, and she wears the trousers.”

So watch the BBC’s streaming endeavours closely because the outcomes will likely provide blueprints for thriving in the streaming era for media companies of all types and sizes right across the globe.

Apple Music: A Platform Play With Hidden Nuance

Today Apple finally announced its long, long anticipated entry into the streaming music space with Apple Music. Apple has spent the last few years as the sleeping giant of streaming music watching Spotify et al seize the innovation mantle and dominate both consumer behaviour and the industry narrative. With all the anticipation expectations were understandably high, too high perhaps. Thus in many respects Apple Music underwhelmed (a 9.99 on demand service;  a 24/7 live broadcast radio offering Beats1; a fan / artist engagement platform Artist Connect). But there is also more than first meets the eye, there is a nuanced strategy at play.

Radio Takes Centre Stage

Placing radio centre stage is smart, as that’s how Apple will engage the early follower consumer, who will be Apple’s core target (other than winning back some existing Spotify users). Remember, Apple’s core priority is delivering the best possible music experience to as many of its device owners as possible. A 9.99 subscription service that works for 10% of them is much less interesting than a free radio service that works for 500 million of them.

There’s no little irony that Apple triggered an industry knee jerk reaction against free music only to go and put free music at the core of its streaming play. Of course the crucial difference here is that the free music is not on demand. Apple is using radio, real time broadcast and high profile DJs as a way of bringing context and meaning to internet radio for the Apple mainstream (which of course is slightly different from the broader mainstream). Whether Beats1 is enough on its own for that purpose is another question.  Beats2 and 3 to follow shortly?

Taking The First Step Towards A Platform Play?

Apple continues to be ridiculed for its failed Ping! music social network. While it was no killer app it nonetheless represented an attempt to turn iTunes into a music platform. Now that same strategy has been rekindled with the launch of Artist Connect. This is Apple’s attempt to turn itself into an artist-fan engagement platform. Artist-fan engagement is the gold dust of the digital era music business. It’s the scarce, invaluable commodity that music fans crave in a post-scarcity music world. The non-music content is also interesting. Artists can push photos, videos and works in progress to their fans. This combines elements of the D.I.S.C. music format I wrote about here and also the Agile Music concept I wrote about in 2011. There is no reason why music should be a creative full stop in the digital era nor why the static audio file should be the be all and end all. Music fans want more than just the song.

There’s no shortage of competition in this space but while DIY sites of various guises are niche, Apple presents the opportunity to reach more than a hundred million of the world’s most valuable (i.e. highest spending) music fans. Sure some of them now pay for Spotify but they’re still iTunes users also.  If Apple’s featureset for artist is strong enough, expect strong uptake, especially from the bigger labels and artists.

Apple Is Making A Play For A Bigger Role Than Ever In Music

The long term implications are intriguing. If Apple establishes itself as one of the key engagement platforms it will change some of the core dynamics of music marketing. All the while strengthening its hand and establishing an indispensable role for itself if it doesn’t make meaningful inroads into the subscription market. Consider it a back up plan. But even more interestingly, if it succeeds at both subscriptions and marketing then it suddenly has more power than it ever did in the hey day of the iTunes Store. Apple could emerge with the power to break and then make an artist. Once it gets there record labels will rightly start casting nervous glances over their shoulders.

Rdio Goes After The Squeezed Middle

Streaming monetization is polarized between premium subscriptions on one end and free streaming on the other. The middle ground that was the scale heartland of the CD and the download is disappearing and taking with it the mainstream consumer.  It is into this environment Rdio just announced a new $3.99 tier.

mind the gap

Mid priced subscription tiers are thin on the ground.  We have a couple in the UK (MTV Trax and O2 Tracks from MusicQubed, Blinkbox Music, now owned by Guevara) and a number of ad free radio offerings from Pandora, Rhapsody and Slacker.  It is a heavily underserved segment as the slide above shows.  The mainstream streaming subscription market is squeezed between premium and nothing.  The average music spend of a consumer is around $3 a month, so $9.99 subscriptions are far out of reach of most consumers.  $3.99 however is far, far closer to a realistic price point for the mass market.

Regular readers will know that I have been a long term advocate of lower priced subscriptions and micro-billing / Pay As You Go pricing models to entice the more mainstream user.  The labels have been super cautious because they are scared of cheaper services cannibalizing the premium tier.  The concern is a valid one but ultimately if a bunch of 9.99 users aren’t getting full value from an unlimited service they are going to bail out eventually anyway.  At least with mid priced subscriptions they have somewhere to land instead of disappearing straight to free streaming.

monetization pyramid

Currently streaming monetization is split between the top and the bottom of the monetization pyramid and this needs to change.  Rdio’s new Select tier gives users ad free radio plus 25 songs of their choice each day. That might not sound like a lot of tracks but for the majority of mass market music listeners that will be more than enough.  In fact in some respects it could almost be too much.  What matters for the mass market listener is less the number of tracks and more how the tracks they like are surfaced to them.  Curation is a much-overused term these days, but expert curation and programming is crucial to engaging the mainstream.  Radio is still so popular because most mainstream consumers are lean back customers that want to be led on a music journey not to have to hack their way through the musical undergrowth themselves.

Monetizing The Revenue No-Man’s Land

The leap from zero to 9.99 is far too big and Rdio Select is an important step towards monetizing the revenue no-man’s land between free and premium.  Of course zero to anything is still a major hurdle but the success of iTunes (250 million global buyers) shows us once you make the first step small enough, consumers will follow.  The simple fact is that the streaming market will not be sustainable without the mainstream engaged as paying customers on the same sort of scale that was achieved with downloads.  An even simpler fact is that 9.99 will not achieve that end.

A Manifesto For The Future Of Free Music

In the thankfully long gone days of DRM downloads it could be fairly said that ‘music was born free yet everywhere it is in chains’. Now it is free of DRM and, for most consumers, of price also. Of course the majority of consumers have always spent most of their time listening to music for free via TV or radio. But the internet transformed free into something that was every bit as good as the paid for product. So yes, most people have always listened to music for free most of the time, but they listened to what broadcasters decided they would listen to. In the old model free music was something that would sate the appetite of the passive fan but was not be enough for the dedicated fan. Free music thus very clearly played a ‘discovery’ role for the core music fans. On demand free though has changed the equation entirely. For many consumers the free stream is the destination not the discovery journey. So 50 million YouTube views is no longer a marketing success but instead x million lost sales or paid streams.

For younger consumers the picture is particularly stark. 56% stream for free, 65% listen to music radio and 76% watch YouTube music videos. Compare and contrast to over 25s where the rates are 35%, 47% and 76%.   In short, free is more likely to be something that drives spending among over 25s because it is predominately programmed while among under 25’s it is less likely to do so because it is on demand.

Free needs recalibrating. Here are a set of objectives to help fix free, a Manifesto for the Future of Free Music:

  • Set the objectives: One of the problems with free is there is too little clarity around what purpose it is meant to serve. And this is because it is simultaneously serving multiple purposes: to monetize the masses (ad supported), to drive sales (discovery), to drive subscriptions (freemium). All three are worthy goals but unchecked each one also competes with the other. A consistent industry vision is needed.
  • Programme more: Free has a massive role to play in digital music, but it needs to better targeted. A super engaged music fan should not be able to sate their on demand appetite on free. In short, free music needs to be less on demand and more programmed. That is not to say YouTube or Soundcloud need to become Pandora, but they do need to explore meeting somewhere midway.
  • Use data to segment: It is not enough to simply say users can choose between different services, they services need to better use their data to determine who gets what experience within them. Someone who watches 20 YouTube music videos a day is clearly a target for a Music Key subscription. That person should not just be marketed Music Key, s/he should also have their free experience progressively dialled down to push them towards it.
  • Fix the models: Pandora is a highly viable ad business that happens to have a radio service built on it. There is a world of difference between Pandora’s ad business and Spotify’s. Spotify’s deals with the rights holders essentially preclude it from making free a viable business, which is fair enough. But it does create the unfortunate vicious circle of there never being a case for Spotify investing enough in ad sales infrastructure to drive up CPMs enough to boost ad supported revenue. Labels and publishers need to think hard about what tweaks may need to be made to business models if they want freemium services to be strong enough financially to drive a vibrant subscription market. Not fixing the models will only skew the market to the companies with ulterior business models who can afford to perpetually lose money on free.
  • Don’t give up on free fans: A generation weaned on free music will grow up craving more free music. Just because free dominates younger consumers’ digital lexicon now does not mean that it will inherently always do so. Don’t give up on the lost generation of music consumers with the default position of free.
  • Strike the right balance: This is simultaneously the most important and most difficult part to get right. YouTube, Soundcloud and Spotify’s free tier are legal alternatives to piracy. Turn back the dial too much on the legal sources and illegal ones will flourish again. However the fact that more than a third of free streamers use stream ripper apps to turn streams into downloads means that the distinction between licensed and pirated has long since blurred. Nonetheless the balance needs to be better struck, probably somewhere equidistant between YouTube and Pandora. Ultimately it will require lots of real time honing and perfecting to get the right mix.

Free music will always be part of the equation and it has become a key part of the music industry’s armoury. But there is a difference between a controlled burn and an out of control forest fire. The freemium wars have already accounted for some high profile scalps and more controversy will follow. Free will remain a crucial part of the landscape but it is time for a reassessment of its role and that must encompass all elements of on demand free, not just Spotify.

It’s Windowing Jim, But Not As We Know It

Back in 2009 I wrote a report for Forrester Research entitled ‘Music Release Windows: The Product Innovation That The Music Industry Can’t Do Without’ (you can read the summary blog post here, and the ‘money’ graphic is here).  In the report I proposed that the music industry should adopt three release windows based around a ‘Preview’ window for premium customers, a ‘Mainstream Pay’ window for CDs and downloads and a ‘Free to Air’ window for ad supported streaming.  With all of the brouhaha surrounding the Atoms for Peace withdrawal from Spotify, release windows, and the role of streaming services more widely, are very much back centre stage.  But whereas I strongly believe in the case for release windows, I believe that, as per my 2009 report, that paid subscriptions should be in the first window, not the last.  It is free-to-consumer, ad supported streaming that needs to be pushed to the back of the queue and it is high time that the windowing and streaming debate in general makes a clear distinction between the two very different propositions.

Subscription Service Hold Outs Actually Hit the Best Fans Hardest

Music fans that pay 9.99 for a Rhapsody, Spotify, Deezer or Rdio subscription are among the globe’s most valuable music consumers.  These music fans need treating as such, almost regardless of the business models that may surround their consumption points of choice.  It is not their fault that the music industry and tech sector contrived to construct business models that have propagated doubt and division among many of the industry’s key stakeholders.   This is not to dismiss the absolutely crucial issues of sustainability and equitability, but instead to raise the issue of who is paying most the price of windowing?  The services or the fans?  There isn’t a clear-cut answer, and the decision dynamics are analogous to those of applying economic sanctions on a nation state.

Delay Releases to Free Platforms, Not Paid Ones

But if we for the moment view the issue through the lens of the music fan, then it becomes abundantly clear that if a high value music fan deserves to be treated like a VIP then something analogous to the opposite is true for those consumers that choose not to pay for music.  This is the case for why the ad supported tiers of music subscription services, along with Pandora, the radio and YouTube should all be put into the last release window.  This is already how the movie industry behaves.  Now clearly this proposal is not without controversy.  The music industry’s entire discovery mechanisms revolve around putting the best content on free-to-air platforms first under the remit of promotion. But this proposal does not have to be the death knell for that approach, as long as the potential of digital platforms are properly harnessed:

  • Think of subscription services as ecosystems not silos: There used to be a physical journey between the radio and the music store.  Now in subscription services discovery and consumption are symbiotically joined. This means that the radio promotion approach can be played out in subscription services and in doing so reach the most valuable customers based on their music preferences. Thus when the radio window hits weeks later it will be targeting a largely distinct group of consumers for whom it will still be the first time they have heard the music.  And for those that are subscribers and radio listeners, the few weeks delay may prod them into reengaging with the album they first heard on their subscription service.
  • Window albums not singles: Singles are invaluable tools for promoting albums and tours.  There is less need to apply windows to singles, or rather to the lead singles from the album.  To protect the value of the premium release window though, it is important that only one single hits the free to air channels before the album hits the first window. Else the impression is given of too much content being too widely available elsewhere.
  • Combat scarcity with new products: Of course the biggest challenge to windowing is the lack of scarcity i.e. what’s the point in turning off the tap if its available elsewhere?  There are two answers to this 1) by ensuring content is available first only on the premium platforms, the availability of content on free platforms is markedly reduced (radio and YouTube account for the VAST MAJORITY of music listening, P2P is in decline) 2) more has to be added to the premium music products to make the windowed content act as a complement to a rich, curated product experience not available elsewhere.  Two examples of how to do this are artist subscriptions and D.I.S.C. products.

Holding Back from Paid Subscription Tiers Can Be a Missed Opportunity

It is still too early in the emergence of widespread streaming adoption to draw definitive conclusions about the impact of windowing but there is a growing body of useful evidence.  Spotify’s Will Page this week released a report that brings some invaluable evidence and analysis (you can read the report here). Although Will is obviously on Spotify’s pay roll and Spotify clearly have an agenda to push, Will is a diligently objective economist with an impressive track record at the UK’s PRS for Music, and his work should not be dismissed on the grounds of assumed bias.  In the report Will pulls data from Spotify for streams, GfK for sales and Musicmetric to compare the performance of albums across all three channels for windowed and non-windowed albums.  The broad conclusions on the sample of albums tracked is that non-windowed albums did not appear to lose sales  but that windowed albums had much higher piracy rates.  Significant caution is required when interpreting this type of analysis, principally because it is impossible to definitively identify causal relationships e.g. the marketing strategy of one artist might tend towards piracy activity than another, as might the geographical location of the artist and the global distribution strategy.  But even with these caveats, the report presents some solid directional data. The market needs much more data like this and I will be adding to the data pool later this summer with a white paper that I’ve been working on for some months now.

Windowing Doesn’t Solve the Streaming Debate, But It’s Not Meant Too

Windowing does not address most of the broader issues that currently surround streaming.  It can however be an important part of the equation if, and only if, it is done on the basis of distinguishing between free-to-air streaming and paid streaming.  Though not quite as distinct as an iTunes download is from a Torrent download, the parallel is nonetheless provides useful context.  This is not to discredit the huge value of radio, YouTube and Vevo in driving music discovery, nor the equally strong value of freemium service free tiers in acquiring customers.  This is not a proposal to remove content from free-to-air channels, but instead one to simply not put everything there straight away. As the music discovery journey and consumption destination become ever more entwined, it is time to think long and hard about just how much leg needs to be shown to make a fan fall in love with an artist’s music.

Streaming’s Dirty Dozen

Atoms for Peace’s Thom Yorke and Nigel Goodrich’s much publicized decision to withdraw their music from Spotify added to a small but growing band of streaming hold-outs. Rather than add to the surplus of Atoms commentary, instead here are a dozen of the most pressing issues surrounding streaming.  They are presented in no particular order and are a mix of both positive and negative trends and implications:

  1. Technology has made access models ready for prime time. Downloads (both paid and P2P) made perfect sense in the days of dial-up, slower broadband and GPRS.  But now ubiquitous high-speed connectivity and cached streaming mean consumers don’t need to get as hung up about downloading to own anymore.  Access models are ready for primetime and Apple would be in, driving the market if it wasn’t so terrified about trashing its ability to 32 and 64 GB iPhones and iPads (when everything’s in the cloud who needs local storage capacity?).  Of course being ready for primetime doesn’t mean the world will change tomorrow.  There is always a long ‘flash-to-bang’ for new technology to manifest itself as consumer behavior.  But the inescapable fact is that downloads will eventually become a digital anachronism, an evolutionary dead end.  Though again, not tomorrow, because they remain the perfect route for new converts to digital to switch from the CD and because it remains Apple’s core mode, and Apple is the beating heart of the digital music market.  But the shift will come.  Consumer behavior is moving on and if business models don’t catch up then the illegal sector will fill the vacuum.
  2. Everything has happened before and will happen again. 10 years ago when Apple launched the iTunes Music Store artists were up in arms just as they are now, terrified that it would kill the CD and that it would result in consumers dissecting albums.  To some degree both those came to pass but you will be hard pressed to find an artist now who does not consider iTunes to be one of, often ‘the’, key source of recorded music income.  As the cliché management phrase goes ‘change is difficult’, but it is.  No one ever really knows how things will pan out and if you have a degree of stability the last thing you want is to jeopardize that.  Taking risks is fine when its someone else’s money and company, but not when it is your livelihood. So it is utterly understandable why there is so much fear among artists and songwriters, but there has to be a belief that the market will find an equilibrium.  If the streaming model is unsustainable for any part of the music industry food-chain it will ultimately have to rebalance. Services can’t exist without labels, labels can’t exist without artists, artists can’t exist without songwriters. The concern is whether some artists, services and labels could end up as collateral damage in the process.
  3. Transition not cannibalization.  Streaming will replace downloads, that much is incontrovertibly true.  It won’t happen immediately, but it will happen.  To consider the process as ‘cannibalization’ however misses the bigger picture of an inevitable transition in behavior.  You could argue that the car cannibalized the steam train, but the answer would not have been to ban the production of cars.  The consumer behavior shift is happening, business models will catch up.
  4. Scale might not benefit artists as well as labels and publishers. The holy grail of streaming is ‘scale’.  When it is reached all will be well, so the argument goes.  Clearly the amount of income will be dramatically better with 100 million paying subscribers but scale may be slower to benefit artists and songwriters.  This is because a label and a publisher both have a big pool of catalogue, so a 50% increase across hundreds of thousands of works is going to be measured in millions of dollars while for an artist with a couple of albums it will be measured in hundreds of dollars.
  5. Fuzzy data: Artists have become empowered with their ability to shed light on streaming by publishing their payouts.  But there are so many variables (what sort of deal they are on, whether they are a songwriter, whether they are recouped etc) that even averaging the data out is problematic. There are other problems too.  Many of the artists who pay most attention to the economics of music are later on in their careers, sometime in the sunset of their careers so their overall popularity is on the wane.  But a factor that impacts all artists is the delay between consumption and reporting, i.e. finding out how much they get paid. With labels the delay is typically quarterly, but with collection societies it is often a year.  So much of the data artists are looking at is a year out of date, representative of where the market was 12 months ago but not now.  And with the streaming market changing so quickly, this has big implications.
  6. Windowing might work some of the time.  There is a steady flow of high profile albums that have been held back from streaming services but there is no definitive evidence on how streaming impacts album sales. Coldplay and Adele both held back and had hugely successful album sales. Yet the three artists with the biggest first week album sales in 2013 (Justin Timberlake, Jay-Z and Daft Punk) were all available on streaming services the week of release.  There is a very strong case for holding back new releases from free streaming services (why should free customers get new releases the same time as paying customers?) but the case for paid streaming is less robust.
  7. The journey is becoming the destination too.  Nowhere more so than YouTube. The difference with YouTube is that everyone now accepts it as a crucial marketing vehicle.  The problem though is that for so many people YouTube is not just the discovery journey but also the destination itself, what’s more YouTube is the globe’s most popular digital music destination.  So instead of driving sales it replaces them for many users.  This is particularly true among younger music fans.  So even if YouTube was paying out the same amount as subscription services (which it isn’t) artists have a much, much bigger cannibalization risk in YouTube than they do in Spotify et al.  This is the core of the streaming challenge – the distinction between what constitutes promotion and consumption is blurring to the point of irrelevance.  Right now many of the positioning and commercial mechanics of free streaming services and tiers is that of promotion, even though they are also consumption.
  8. Pricing and product must evolve. Streaming pricing and product sets must evolve.  9.99 is not a mass market price point, however good value it may represent.  In fact it is the entire monthly spend of the top 10% of music buyers.  Much more needs to be done around testing pricing elasticity, else subscriptions will never break out of their aficionado niche.  There are a few interesting experiments, such as MusicQubed and Bloom.fm which focus on curating small amounts of content at low price points.  But much more needs to be done on this front, the leap from free to 9.99 is too big. There must also be innovation in the product experience, and Deezer’s, Spotify’s and Soundcloud’s developer platforms all look like great environments for such innovation to occur, but they’re not enough on their own.  Product and pricing need to be used strategically to target services at discreet consumer segments. The 2000’s taught us that one size does not fit all for digital music, the same applies to subscriptions.  One key way the mainstream services can start segmenting their offerings is by providing artist channel subscriptions were a user pays $/£/€1 per month per artist.
  9. Income comparisons are not binary.  A comparison of the amount of money earned (across all rights holders) from a paid stream (c.$0.01) versus that of a paid download (c.$0.70) is always going to look catastrophic.  But these rates are points on a much larger scale, with the download at one end and terrestrial radio at the other.  In the US terrestrial radio does not pay anything to record labels and in Europe rates are far, far smaller than streaming services.  The assumption has always been that radio is so important a discovery channel that paltry rates are tolerable.  But if music sales are diminishing then radio has the same ‘journey as destination’ problem as YouTube.  The challenge for artists and songwriters is to work out where the sweet spot on the scale is for them. Where is right balance between discovery and income generation?
  10. Rethinking the life-time value of a song.  In the past the commercial value of most songs peaked during the course of a few months, tailed off steadily for another few months and then nearly flat-lined thereafter.  For big artists and big hits the tail off would be longer and the flat-line would be replaced with a steady after life.  Streaming changes that in three ways: i) fewer song purchase transactions occur, meaning less money up-front, ii) money is generated direct from listening long after the original release iii) streaming services drive strong consumption of catalogue.  So artists will see a shift from immediate big income to long-term steady income. The question of whether one will equal the other will become clear in the next 2 to 3 years.  See my consumption analysis for a view of where it may get to.
  11. The listener net widens. While it is clear that an album being listened to a dozen times on Spotify is much less valuable to an artist than if it had been bought on iTunes, that comparison assumes it is a case of one or the other.  But what is becoming increasingly clear is that more artists are getting listened to by more people.  The absence of the price barrier means people are eagerly trying out new artists.  And in many cases the listener would never have bought the album anyway.  What’s more, after having streamed it a few times, they may even realise they just don’t like it that much.  In the analogue era that would have just been a disinterested listen to a single on the radio, with streaming it is direct revenue. The artist is thus getting money from a consumer that does not even like them enough to proactively spend money on them.  It may be small revenue, but it is ‘found revenue’ that would not have existed anywhere else.
  12. Things will get much worse unless more change happens.  Digital music revenue is not growing quickly enough, in fact growth is slowing.  Global digital revenues grew more slowly in both absolute and percentage terms in 2012 than they did in 2011. Globally digital is still only 38% of music sales and in Japan, which may become the world’s largest music market this year, 80% of sales are physical and digital has been in decline since 2009.  It is wrong to assume that the market will naturally ‘go digital’.  At the current trajectory it will not.  Experimentation with new models and products is crucial.  We are back in the ‘throw it all at the wall and see what sticks’ phase we were in during 2007-9.  This time though artists and songwriters are part of this, both because they have found their voice and because DIY/Direct-to-Fan services are part of the mix.  The next five years will be the most important phase of change the music business has ever gone through.  The last 10 years has given us a solid foundation of options but it has also created a hornet’s nest of inequities, mistrust, misgivings, threats and disruption.  Labels, publishers, songwriters, artists, music services, tech companies must all learn how to create a sustainable music ecosystem that benefits all parties.  A naïve aspiration?  Perhaps, but the current ‘what’s in it for me?’ ethos will only result in unnecessarily dismembering an industry that is perhaps finally ready to start on the path to recovery.