You’ve probably heard that Apple and the major labels are being “investigated” over Apple Music by the Department of Justice, the European Commission as well as State attorneys general for New York and Connecticut.
Original Post Written By Chris Castle on Music, Tech, Policy Blog
Understand that the way most of these investigations get started is that someone complained, most likely subscription service monopolist Spotify and Internet monopolist Google in this case. That would be the same Google that has a Spotify board seat. (Remember, Kara Swisher reported in Re/code that Omid Kordestani, chief business officer of Google, joined the Spotify board, and a former YouTube product head Shishir Mehrotra left Google to become a special adviser to CEO Daniel Ek and the company’s management.)
So why might Spotify and Google complain to antitrust authorities? For one reason, Google knows every single one of them and Google’s General Counsel Kent Walker has them all on speed dial (that would be the Kent Walker who views a good day as one where he’s not indicted.) This is corporate “lawfare”, the use of the law to make war upon your competitors who you don’t want to just meet in the channel like a normal person.
So unless these investigations are a hunting party gunning for Google competitors, I think that’s a very encouraging sign for a number of reasons, none of which being the ones that Google and Spotify have in mind.
1. Investigate Everyone: Since governments are supposed to do justice, then let’s investigate everyone. Spotify recently announced that it has 50% of the global music subscription business. So by their own admission, Spotify is at least dominant in that market, so what have they been up to in doing things like using their market dominance to bully Taylor Swift? Even the biggest music star on Planet Earth cannot escape the wrath of Daniel Ek. The guy is like a stalker.
Of course we all know how Google treats artists based on any one of a number of unnecessary debacles for YouTube, such as the bullying of Zoë Keating. Google clearly uses its market power against independent artists and record labels alike. If there’s going to be an investigation of the streaming business, then let’s investigate everybody.
2. The Freemium Buggywhip: What’s really got Google and Spotify scared is what happens if the market tells them that the “freemium” model hasn’t worked? What if the market says we don’t want advertising? Because make no mistake, this is just as much about YouTube as it is about Spotify. What if the market says we’re tired of our music being used for one long commercial and however much money you pay us it’s just not worth it? Rut roh.
3. What Taylor Swift Proved: What is driving this is a bona fide use case: Taylor Swift. Taylor proved once and for all that Spotify needs hits and hits don’t need Spotify. Often over looked in the reporting on Taylor’s withdrawal from Spotify is she also pretty much withdrew from YouTube except for current singles that were predominantly available on Vevo which pays more than YouTube. And none of the fans complained–they even applauded her. So how were consumers “harmed” again?
Google and Spotify would like all of us to believe that we are dependent on them for hits. If you measure hits by streams that produce negligible income and actually cannibalize sales, then you have a different view of a “hit” than anyone does who has P/L responsibility. If you say to a marketing person that they can promote their artist, drive fans, and their success is measured in some obscure “views” method that has to get significantly readjusted downward for fraud every year–they’re all in! If you say the same thing to a sales person whose job is based on actually selling records–not so much.
When the world wakes up to this, I would bet that more hit records will look like Taylor Swift–that is, not so involved with YouTube.
3. Ignoring Taylor Swift: I don’t think it’s a coincidence that Universal started a major restructuring of their company after the Taylor Swift use case and that restructuring was away from free. Since they were in the middle of a renegotiation of their deal with Spotify–remember, the genius of Daniel Ek said insulting Universal’s biggest artist in the middle of renegotiation was a good idea–it should come as no surprise that the wisdom of staying in the free model came under additional scrutiny since it was failing so badly.
And this is the takeaway: You would have to be an idiot to just ignore the Taylor experience and blindly cling to the “freemium” buggy whip. Free didn’t work, ad supported didn’t work. Well, actually, ad supported works well when Google is serving advertising to pirate sites that don’t pay for music or movies and free ride on the marketing efforts of artists and their record companies. So why not investigate that, too, while they’re at it.
4. How Much to Bribe the Richest Company in the World? Set aside how utterly stupid it is to think that Apple was so afraid of a broken model at Google and Spotify that they’d have to get protection in order to even launch a music service they paid $3 billion to acquire and clearly were going to launch unless hell freezes over. Also set aside how insulting it is that a company with Apple’s integrity with artists would need to be bribed in order to compete against Google and Spotify, neither have a single artist relationship they haven’t bought as far as I can tell and are generally in the neutral to loathed quadrant somewhere to the immediate left of Pandora and SiriusXM.
How much would it take to bribe Apple? Think about that for a minute or two and the absurdity of the idea will come to you.
5. When Were the Beats Deals Concluded? Remember, Beats was a going concern well before any of this went down. It’s highly likely that all the deals for Beats were done before Spotify hit its self-inflicted downward spiral in the press over Taylor Swift. So it’s not clear what these law enforcement agencies will be investigating.
6. Unlike Google, Apple Won’t Sue State AGs to Stop Investigation: Remember that Google’s General Counsel was quick to sue Mississippi Attorney General Jim Hood to stop the populist attorney general from investigating–just investigating– Google’s sleazy business practices that got them a $500,000,000 fine after a four year grand jury investigation. I doubt that will happen with Apple. Of course Apple hasn’t violated the Controlled Substances Act on a massive scale selling drugs to kids and addicts in a kind of Silicon Valley version of Silk Road.
So the key takeaways: There are good market place reasons to question whether to continue with free at all, demonstrated by Taylor Swift. On a more profound level, those reasons may support questioning the validity of Web 2.0 advertising driven business models altogether. Anything that doesn’t sell advertising is anathema to Google the Spotify board member, because that might get people to question the very business model that contributes over 90% of Google’s revenue. And as the academics that Google pays will tell you, you don’t want to be a buggy whip maker who can’t innovate, right?
But if there is to be an investigation, let’s investigate everyone.