Two Views On The Future Of Streaming Music Services
By Alan Cross, Canadian Broadcaster, Radio Consultant.
Guys like Thom Yorke and David Byrne can rage against the dying of the light as much as they want, but that won’t prevent streaming from eventually becoming the dominant way music is distributed and consumed. Is what we have right now perfect? No. The whole thing is still a money pit for everyone involved except the consumer.
"It’s not that streaming can’t work. It can. It’s that Spotify is a bad business model that has unsustainable economics and exploits artists because it is a wall street financial instrument and not a music company."
We’ve previously published a couple posts on streaming music where we explore how access models and windowing are working for the film industry and could serve as a guide to the record business. We’ve also shown how transactional music purchases have made legal music consumption the best value in the history of recorded music.
The key to building streaming business models that make sense and are sustainable is to increase the subscription fees, utilize well thought-out windowing models and experiment with new pricing tiers for access based services.
Historically the music business has employed the use of special markets such record clubs (remember 11 CD’s for one penny). It’s not that record clubs were bad, in fact numerous studies found them to be great source of additional revenue if managed in a way that did not cannibalize front line sales. (Remember 12 month record club holdbacks?) Now we need to strike the same balance with streaming services.
So let’s get real, the Spotify business model and streaming math just does not work and can not work in it’s current form.
Here are five suggestions to get music streaming back on track as a viable business model.
By the end of 2014 streaming revenues will account for $3.3 billion, up 37% from 2013. However headline market value numbers only ever tell part of the story. Just as important are the numbers on the ground that give us some sense of where the money is flowing and of the sustainability of the business models. During the last two weeks we have been fortunate to have four different sets of data that go a long way to filling in those gaps:
- Soundcloud: made a loss of €23.1 million in 2013 (an 86% increased loss ) and that’s before signing any deals with record labels
- YouTube: paid out $1 billion to rights holders via Content ID
- Spotify: turned a £2.6 million profit in 2013 with 42% y-o-y revenue growth with a 73.2% rights bill
- US music sales: track sales down 12.9%, digital albums down 11.5% in first 9 months of 2014 compared to 2013 (Nielsen SoundScan)
Each is interesting enough in isolation but it is the way that they interact and interdepent that gets really interesting.