Amongst the top stories this month, alongside Ebola and other evils, was Taylor Swifts new album launch ‘1989’. There was also a follow up announcement that she will be removing her entire discography from Spotify  and other streaming services. Given the popularity of music streaming, this move is the equivalent of launching a new airline that lets you book your ticket in everyway except online. You would expect there to be an outrage by Taylor Swift fans and a decline in her popularity, but the results have been on the contrary. Taylor Swift is now the highest selling artist since the good old days of CDs in 2002..
So is that way forward for artists? Thome Yorke of the Radio Head fame called Spotify ‘the last fart of a dying industry’. An estimated royalty payment of $0.006/play sounds pretty low, however it is still more than $0 that many users pay for downloading illegal music. With year on year losses for Spotify, it would appear that perhaps music streaming itself is bad business.
On the other hand, music streaming appears to be the ultimate model for the music industry. As a listener, I have access to an infinite collection of music, available to me at all times and with no storage constraint. Services like Spotify and Pandora deploy algorithms that help fans curate their own radio stations, thereby reducing search and discovery costs. Moreover, the (almost) perpetual access to music at any time has reduced the incentives to own music and thus the digital sales services such as iTunes are under strain. For artists and record labels, streaming services provide an avenue to create micro-communities and the opportunity to monetize tracks beyond the one-time purchase model that has been around for decades.
Just last year, iTunes sales decreased by 13% while streaming sites posted an increase of 28 %. So are we nearing the absolute shift from the digital sales model to the streaming model? I would argue that we still have some time till that happens, and here is why:
1. No Network effects: Incremental users play little role in making the service more attractive to other users. On the other hand, for artists (the developers) and labels (the publishers) there is no additional cost or effort to create music for a streaming platform.
2. Low switching costs: As more an more digital music devices become portable and connected, music players are more software driven (music players on laptops, apps on iPhones and iPods) than hardware (CD Player, legacy iPod). Therefore, although the shift for the user to a streaming service is simple, there is no lock in that prevents a user from switching back.
3. Low Scale advantage: The current royalty model for streaming services is based on a per-play basis. Unlike the conventional model of fixed lump-sum royalty payments, there is little benefit of having more song streaming for services like Spotify that shares revenues 70%-30% in favor of artists/labels.
4. Cost structure of the pop Industry: Although the improvements in technology have drastically reduced the cost for recording and distributing music – the music industry is still largely a fixed cost business, primarily because of the marketing and advertising investments needed to cut through a crowded artist space. Record labels therefore are better off getting a return on their investment from a quick succession of $0.99/track sales on iTunes than $0.006/stream on Spotify.
The current structure of royalty payments and the music business is an impediment to the growth of streaming. Despite the 70-30 revenue split in favor of the label, artists complain of being paid unfairly by streaming services. I do not think we will have more artists pulling out of Spotify, infact we can expect Taylor Swift’s music to soon return to Spotify. Moreover, I think going forward this will be strategy used by most artists – launch albums exclusively for digital sales, and then re-launch on streaming platforms for eternal recurring revenues per play.
While the digitalization of music has been underway for well over a decade, there continues to be a steady flow of new services emerging to satisfy all forms of digital music distribution. Platforms such as Pandora and Spotify are well known across even the least tech savvy of circles, though these services are just the tip of a rapidly growing streaming music revolution. Actually owning music is already becoming a thing of the past – with increased wifi and wireless coverage rendering any smart mobile device into an on demand personal jukebox. This comes without the need to ever download and, in most cases – purchase, any music. Leading the next wave of on-demand music delivery are three innovative startups – each approaching the landscape from very different angles – and in so doing, providing consumers with a variety of novel ways to experience new music.
Founded in 2008, SoundCloud is the leading social sound platform with over 20 million registered users1. Referred to early on as the “YouTube of audio”2, SoundCloud enables users to record any sound – whether that be a music record, full album, demo instrumentals, or even a live set. The audio file is then uploaded onto SoundCloud’s servers and then available for streaming across any computer or mobile device. SoundCloud is a way for new artists to get their music out to a wider array of fans (think the next gen distribution platform previously provided by MySpace) and for established artists to consolidate some of their non-core activities such as podcasts, remixed tracks, and live concert recordings. Whether you’re looking for Swedish House Mafia’s set from Coachella, a teaser from Usher’s soon to be released single, or Kaskade’s weekly mix, SoundCloud has it all – and does so with fervent artist support – often a rarity in the world of “free music.” In addition, Soundcloud’s API enables virtually any website to embed a SoundCloud player on their page – greatly broadening the platform’s reach around the web without login requirements.
Like virtually all social networks, SoundCloud allows users to follow one another – providing a live update feed of all the latest tracks and sets from their favorite artists. Also, fans can insert text comments directly into the audio feed – providing means to actually communicate with musicians through the music and enabling a real-time conversation that can act as beta test for new songs. Comments like “love the beat drop here”, “this guitar riff works well”, and “speed up the tempo” are common and represent the ability to crowd source feedback – which can be very helpful for up and coming artists. The band R.E.M. even launched a crowd sourced contest to remix tracks from their recent album2.
Perhaps most important to fueling user growth among the masses is continuing to ensure that top artists remain engaged on the site. To that end, SoundCloud offers an array of data analytics tools for premium members to get detailed dashboards such as who is listening to their music, what demographics they are popular with, and where their music is being shared. This is also SoundCloud’s primary monetization form at the moment – charging for premium monthly subscriptions to the small % of users who want access to this toolkit and ability to upload more content on the servers. Some speculate that with their latest partnership with payments company Adyen2, the company may pivot into a platform for selling individual tracks a la iTunes and Amazon, but the company remains mum on their strategic direction. Regardless, SoundCloud still represents a great means to connect with your favorite artists and opens up an entirely new channel of music that you’ll never be able to find in stores.
Check it out at: www.soundcloud.com.
Turntable came virtually out of nowhere when it launched to rave reviews in the summer of 2011. Drawing huge word of mouth interest among the tech set in Silicon Valley, the site experienced incredibly fast growth and within just 3 months was streaming over 1 million songs per day3. Much of this was due to the fact that turntable had ushered in a new form of digital music: synchronous listening.
The site is based around the concept of a DJ chat room. When a user logs into the site, they create a profile and select an avatar, a character design not unlike those seen on the Nintendo Wii. Next, they can join or create a DJ room. It is here where the magic happens. The room itself looks like a cartoon version of a club / small concert hall– a dance floor at the back with a DJ booth at the front with giant animated speakers propping up the stage. Users can hop up on the decks by clicking on one of the 5 available slots above the turntables. Next, they can either select songs from the turntable database or even upload their own tracks. Along with the other DJs, they will then be responsible for curating and delivering music to any other users in the room – who are all listening real time.
It is this concept of shared listening that drives the uniqueness of the platform. No longer are you plugged into your own playlist, listening by yourself. Suddenly you have the opportunity to stream your music to up to 100 people all at once. It is akin to bringing the concert experience to the desktop (and mobile device with their app). The idea that you listening alongside your friends or family or even strangers completely changes how you digest the music as it imitates the same “buzz” you’d experience at a live show. Social mechanisms on the site also reinforce this. A live chat window allows users to be in constant communication while a meter at the bottom lets them either “Awesome” or “Lame” a song – too many “Lame” clicks from the crowd and the song skips to the next DJ. There’s a bit of an endorphin rush as a DJ when you start a track and the crowd starts responding excitedly in the chat window. Additionally, when you click “Awesome”, your avatar starts to bob its head up and down – seeing a wave of avatars doing this in unison means the crowd is rocking out to your selection. While this does not make one a digital Tiesto, it sure feels like it – and it’s that notion that keeps me coming back for more.
Find me on: www.turntable.fm (My username is Mateofish)
If we think about the streaming music spectrum, on one side is On Demand listening. Spotify is the best example of this – a service that features limitless choice in song selection, and by definition enables the highest degree of customization in curating playlists. Users must actively pick and choose what they want to hear by building up a playlist one song at a time.
On the other side is Leanback listening. Pandora and other internet radio services sit here and require minimal user engagement – simply enter the type of music you want listen to, sit back, and consume whatever the service deems relevant to your initial query.
Music services have to date largely clustered around these two ends of the spectrum – presenting a gap in the middle that the team at Playground is looking to fill with their app called Playground. Playground is based on the concept of personalized playlist discovery – the notion that people want to listen to music that is relevant to their tastes and preferences, while not wanting to have to build their own library. From a user experience standpoint, playground’s mechanics are very simple and easy to use. Upon logging in, users are presented with a beautifully laid out set of tiles that represent playlists that other users on the service have created. Overlaid is the playlist name as well as a representative track – e.g. “Energy Mix” (Deadmau5 – Some Chords). Like many streaming companies, Playground functions on an internet radio license – meaning that users cannot see the track ahead of them, and they can only skip tracks a limited number of times within a given playlist.
The nuts and bolts of the service are what drive its value beyond simply being a more social form of Pandora. By using Facebook Connect, Playground is able to gather insights about your listening habits on other music services – and uses this information in conjunction with internal data in its algorithm to constantly deliver you the most relevant playlists on your homepage. In essence, the service is able to offer users the best of both worlds – allowing greater pick up and play than Spotify, and analytics that have the potential to drive greater playlist relevance than Pandora. As Playground Founder Vivek Agrawal notes – “With Spotify, the music content is unsurpassed in terms of volume, but getting what you want is difficult. With Playground, we’ve provided a means to shortcut the playlist building process and allowing users to quickly get to the content they want.” As the company begins to explore various business model functions around the service, Agrawal notes that a dual model makes sense – free with ads, while a modest monthly subscription would allow for exclusive content and no ads. In the meantime, the company continues to hammer out new updates to its beta release so don’t miss out on being a part of the early user base by downloading Playground from the Apple App Store or checking it out their site www.playground.fm.
 SoundCloud CrunchBase Profile http://www.crunchbase.com/company/soundcloud
 Steve O’Hear, “Monetization Baby: SoundCloud Planning To Let Users Sell Tracks? Adyen Chosen To Power Payments (Updated).” Aug. 13th, 2012.http://techcrunch.com/2012/08/13/monetization-baby-soundcloud-planning-to-let-users-sell-tracks-adyen-chosen-to-power-payments/
 Alexia Tsotis, “Billy Chasen And Seth Goldstein: Turntable.fm Was Less Of A Pivot And More Of A Restart.” Sept 14th, 2011. http://techcrunch.com/2011/09/14/billy-chasen-and-seth-goldstein-turntable-fm-was-less-of-a-pivot-and-more-of-a-restart/
The music industry is perhaps one of those most affected by the advent of the Internet. Higher internet penetration and greater bandwidth have allowed more and more people to download music online. Online services that have emerged at the turn of the century such as Napster, Kazaa, and BitTorrent have made peer-to-peer file sharing increasingly easy (albeit illegal). This has resulted in a surge in music piracy, significant infringements on music copyrights and substantial losses to the music industry.
Later disruptions to the traditional music business model included YouTube, where artists could present their music and music videos without having to go through the more conventional “MTV” route; and of course, iTunes, which has made it very effective for consumers to buy a single song off an album. The combination of the iPod and iTunes store has made the need to buy a CD or any other form of physical record virtually obsolete. Consumers can now “break up” an album and choose only the song(s) they like – instead of buying the record in its entirety – at a significantly lower price per song (between $0.99 and $1.29 per track[i].) The latest wave of change in the way people consume music is the growing use of online streaming. Many people now do not buy songs at all; instead they stream them using music sites such as Spotify and Pandora. In this new model record labels and artists make money out of advertising revenue and ever-smaller music licensing fees.
As a result of these successive disruptions to the music industry brought about by the Internet, it is estimated that in the last decade, album sales dropped by a quarter in the period between 2001 and 2005[ii]. Album sales went from an all-time high of 785 million units in 2000 to a little over 247 million units in 2010[iii]. The highest revenue source for record labels in 2011 was iTunes, generating $3.2bn. A distant second is Spotify, which, between its free and paid subscription models, now stands at 23mn subscribers[iv].
Of course, there is the counter argument that instead of killing the music industry, the Internet has actually set music free. Instead of being at the mercy of one of the four major record labels (Warner Music Group, Sony Music, Universal Music, and EMI[v]), musicians now get to produce their own music, share it online with their fans (inexpensively or free of charge), and leverage social media to build a strong following. This ultimately gives them more creative freedom and stronger leverage to negotiate better deals with the majors. What is more, the ubiquity and low cost of offering music online allowed for the fragmentation of the music market. It is now possible for artists with very peculiar tastes in music to express themselves creatively and yet still find a niche market interested in their offering. This would have never been possible with the large music labels looking only for artists with reasonably wide appeal[vi].
By opening up more avenues for artists to reach their audiences and establish a dedicated fan base, sources of revenue other than record sales have become more salient. Examples of these alternative revenue sources include live music ticket sales, merchandise sales, and music licensing for television shows[vii]. While record sales have been facing a steady decline, revenues from concerts and music festivals have in fact been on the rise[viii]. David Laing from the University of Liverpool estimated that live music revenues stood at $25bn in 2010[ix]. A live show experience is virtually immune to piracy and is arguably very hard to replicate via other media[x].
It seems, however, that that is exactly what the new online platform VyRT (https://beta.vyrt.com/) is trying to do. From its “About” page: “VyRT gives Artists the opportunity to sell digital tickets to live events that are broadcast worldwide in an online social theater.” For a pay-per-view fee (around $10), virtual ticket holders gain access to a fully-produced, high quality live stream of their favorite artist’s live show; which they can then enjoy either on their laptop screen in their PJs with a pint of ice cream, or on an internet-enabled home entertainment system during a viewing party with their friends. In addition to the live broadcast, VyRT offers extra perks such as backstage access and artist Q&A. It also adds a social component to the fans’ experience by allowing them to interact with each other and with the artists via live chats and comments.
VyRT is still a pretty young platform (it is still in beta testing.) So far, it has supported three events by the band Thirty Seconds to Mars (Jared Leto, lead singer of the band, is actually the entrepreneur behind VyRT.) Earlier this month, VyRT acquired its first “outside” client by featuring the Jonas Brothers’ performance at Radio City Music Hall in New York.
I have personally viewed one of the Thirty Seconds to Mars performances on VyRT (yes, I was in my PJs with a pint of ice cream) and I must admit, I have thoroughly enjoyed the experience. While there are still a few technical glitches that the beta version is trying to hash out (especially with the live chat feature), it definitely felt a lot more than an impersonal, one-dimensional live stream. The streaming quality was remarkably good, with a crisp image, clear sound, and few – if any – interruptions. For 10 bucks a show, I definitely felt that I was getting my money’s worth.
Of course, the question remains as to whether VyRT, and potential similar platforms, would do to live music what iTunes and Spotify have done to recorded music. My assessment is no. While VyRT is certainly entertaining, it is still very difficult to replicate the sheer energy of a live show. Instead of being a substitute cannibalizing the concert business, I view VyRT more as a complement, catering to those around the world who, like me, would not have been able to attend the live show anyway. In that regard, VyRT is reaching new customers and opening up a whole new revenue source, in addition to actually building up demand for both the records and the live shows. After my VyRT experience, I for one am not only ready for another one, but also for a real, loud, all-out-crazy concert.
After Apple’s most recent triumph over Samsung in the legal battle concerning the highly valuable intellectual property of rounded rectangles and pinch to zoom, it is with a stroke of poetic justice that the U.S. Patent and Trademark Office denied Apple its attempts to trademark its “Music” app icon, deciding that it is too similar in appearance to Myspace’s own music icon, acquired from iLike in 2009.
You would be forgiven for wondering whether Myspace is still around, given its meteoric decline in the wake of rival social network Facebook’s ascent to global social dominance. But you may not want to write Myspace off just yet; its recent redesign has left many tech journalists hoping for a comeback.
Naysayers may cite the overwhelming network effects enjoyed by Facebook, as well as the relatively lackluster performance of Google+, despite enormous investment by Google. However, less than 10 years ago, the “dominant” social network was not Facebook, but Friendster, which gained several million users within months of its launch before being overtaken and ultimately acquired by Facebook. Myspace itself, which enjoyed a user base of over a million users before Facebook launched, is a testament to the fallibility of incumbent social networks. The key to Facebook’s success of course, was expanding from the niche of Harvard University, and thereafter to other Ivy League universities, then to other college campuses, then high schools, and so on.
With its redesign, Myspace appears to be taking a page out of Facebook’s (ahem) book, looking to expand from the niche of musicians looking to be discovered, just as Zuckerberg et al. did with colleges. Admittedly, this isn’t the first time Myspace has made a run at the music niche—arguably, Myspace’s embedded music player is the one feature that has kept it limping along for the past few years—but the new redesign takes the focus on musicians to a whole new level. As seen in its recently released video preview, the redesign brings the media player to the forefront in an omnipresent toolbar at the bottom of the screen, and adds “mixes” (social playlists), trending entertainment news (laid out in the increasingly ubiquitous Pinterest-style image grid), radio stations, music videos, music events, as well as a set of analytics tools for artists to track their fan base.
The redesign also reveals several other mobilization strategies that Myspace seems to be employing to overcome the weight of Facebook’s network effects. The site allows you to login with your Facebook credentials, for starters, and can push status updates to both Facebook and Twitter, providing a sort of “backwards compatibility” with other social networks. Several of the features (e.g., trending articles, music catalogues) appear to offer significant standalone value, making the experience of being the only one of your friends using Myspace a little less lonely. Additionally, Specific Media’s and Justin Timberlake’s co-ownership of the new Myspace allow it to simultaneously invest in the complementary media content that will help the new platform flourish. And, of course, the notable absence of advertisements from the new Myspace suggests, for the time being, a willingness of Specific Media and Timberlake to subsidize the growth of the platform in its infancy, in hopes of monetizing the increased traffic down the road.
In an interview last year, former Facebook president Sean Parker suggested that Myspace could have avoided its decline by simply copying Facebook rapidly. Perhaps Facebook’s current preoccupation with placating an increasingly dissatisfied Wall Street will allow the new Myspace to flourish under Facebook’s reign, just as the old Myspace did for Facebook.
Subscription music services have been dominating the news recently with the U.S. launch of Spotify and the new IHeartRadio, plus free offerings from MOG and RDIO, and the recent purchase of Napster by Rhapsody. There is a sea change occurring in all content industries moving towards streaming and subscription rather than ownership and amongst them- Spotify has been both the most visible and the most vilified of the new companies.
While some believe that Spotify has a diruptive business model and will kill i-tune. (http://blogs.hbr.org/cs/2011/07/why_spotify_will_kill_itunes.html). Other’s are sighting it’s great mobilization success – signing up more than a million subscribers within couple of weeks as the service coized up to facebook; a great reason for celebration. Perhaps not! Specially in light of the fact that not only has the service never been profitable, but it’s loss is increasing. In 2009, spotify has lost $26 million and losses ballooned to $41 million in 2010.
Though many say – so what? A digital company posting big losses in its initial years is nothing new and spotify launched in Oct 2008, after all. And even though these numbers don’t paint the best picture, they show revenues climbing almost twice as fast as expenses. I believe making Spotify profitable sooner than later would & should be company’s greatest priority. History has shown time & gain that start-ups that succeed to generate growth faster despite losses face significant struggle to make it’s business model work later. Opportunity to tweek your profit model when you are small is crucial to make a venture true success. More users listening to more songs means more expense to spotify which will make this experimentation difficult.
So, the question is how can Spotify quickly grow it’s two main revenue streams: paid subscriptions and advertising. Verdict on paid subscription will be out in 6 months. Currently, new users are offered unlimited listening for six months. Post that, free usage would allow only 10 hours of free listening. Hence though 2011 won’t see any change in subscription revenue, some predict that once the six-month period comes to an end, a chuch of ‘power listener’ US user may sign up. Converting users from free service to $10/month for a service which is often available for free appears to me a daunting task and spotify cannot rely only on subscriptions for revenue.
The more importance (and even more problematic) factor is advertising. Spotify is stymied once again here since the biggest opportunity for it to reach more people is through mobile devices. However, problem is that advertising on mobile is practically nonexistent. Pandora despite being the most-downloadable app in the Apple & Andriod market is not able to make profits! Spotify isn’t Pandora. Pandora is 24th most popular app on App store and Spotify is 106th. Even if they can become more popular with the recent trends, they will have to crack the code on mobile ads without listeners tuning out.
No matter how great a platform & serivce spotify provides, making it profitable looks like a really challening task to me. Today’s crouded internet music space requires not only ‘somthing little different’ but a change in business model to alter the game. Rdio’s recent move probably will change the game. (http://www.pcmag.com/article2/0,2817,2394292,00.asp#fbid=EhB8ZcgPfVQ)
So, do you think Spotify is rising to rise further? I doubt!