Last week I had a conversation with former Slacker exec Jonathan Sasse to discuss the much anticipated Beats Music launch. While you’re at it, check out many more podcasts from Kyle and Cortney in their Upward Spiral series.
Sadly, non-subscribers can only read the excerpt of Ken Auletta’s amazing piece on Netflix and the television industry in last week’s New Yorker. I’d suggest you get a copy to read all kinds of amazing tales from the company, including a juicy little story about sitting down with the rental giant Blockbuster in the year 2000. You can check out Auletta explaining why television is not totally screwed on Charlie Rose.
I’m not sure if I completely agree with Auletta’s assessment that television (cable in particular) may not suffer the fate of music or newspapers. There are several icebergs of problems just waiting to crash against its hull. Like the fact that folks who don’t watch one lick of sports end up paying a fair amount of their bill every month for the programming. And then there’s the bundle problem where most customers are forced to pay despite the fact that they never watch most stations.
Cable and networks have seen their opportunity to attract huge audiences and sell expensive advertising spots whittle down to just live sports programming. Sports leagues are now extracting huge fees for the rights, and networks and carriers pass on the costs to all their customers.
Now even teams are getting in on the action. Time Warner Cable recently signed a deal with the Dodgers that is expected to add $5 to the cable bills of their Los Angeles customers, regardless if they ever watch the NL West champs or not.
While the NFL has delivered the numbers for television (Sunday’s Super Bowl reached an astounding 111.5 million viewers, the most watched show ever televised), other sports may have more of a problem, leading to the belief that there’s a sports TV bubble that will someday soon to pop.
Many baseball teams have followed the Dodgers’ lead and are attempting to build regional sports networks that will bilk cable and satellite operators for massive fees. Both the Seattle Mariners and Texas Rangers signed huge deals with their regional networks, giving those franchises massive spending ability.
But now the carriers are getting smarter. Wendy Thurm in FanGraphs wrote last summer that three Houston carriers are now refusing to pay the fees to show both the Comcast Sports Network Houston, which carries both the Astros and Rockets. DirecTV and AT&T are using advanced metrics to judge the value of the watching, and they’re finding these metrics wanting. Neither of the services offer CSN Houston, leading to 60 percent of the city without either teams on TV. CSN Houston is partially owned by the Astros and Rockets. When the Astros first signed the deal in 2010, it called for the team to be paid $80 million a year. Thurm reports that the team only received $25 million because of revenue shortfalls.
Jeff Weber, president of content and advertising for AT&T told the Wall Street Journal “You start to think about not just viewership, but a broader phrase—viewership intensity.” So how long a TV set is tuned in and how many times in a seasons a household watches a sports team goes a long ways towards determining if it’s worth the price. Call it the Moneyball of Sports Television, where the data geeks drive business decisions.
There has been much hand-wringing in the past couple years about cord cutters–folks who just had enough and use Netflix, Hulu, iTunes and about 100 other services for all of their entertainment. Moffett Research reported that pay television industry lost 360,000 from June 2012 and June 2013. It’s the first time there’s been a loss in pay television subscribers. Expect it to increase as costs continue to rise.
These two disruptive changes: the adoption of devices and video services and the rise of big data analysis is now finally starting to rationalize what the consumers have been telling us for years. Television is too expensive and consumers only want to pay for what they use. This seems like a fairly intuitive, simple lesson that technologists continue to address. The side benefit is that the bundle is starting to fray.
The Atlantic: Sports Could Save the TV Business-or Destroy It
Wall Street Journal (subscription required): Cable Providers Revolt Over Sports Costs
Broken Bells, the project of super producer Danger Mouse and Shins frontman James Mercer, released its second record today. You can go buy After The Disco on Amazon or iTunes. But if you’re one of the many people subscribing to a streaming music service like Spotify, Rdio, Rhapsody or the new entrant into the space, Beats Music, you are out of luck.
You see the band (or their management) decided to ‘window’ the release, that is allow a time when only people in retail outlets have exclusive access to the record. Why do they do this? The reasons vary. But the prevailing one is that there’s a belief that subscription services are affecting retail sales of the releases. So they believe if fans can’t listen to it on Spotify and the likes, then the fans will be motivated to buy it and then everyone will be happy, right? Not so much.
You see, this infuriates customers of services. They’re paying real money for access to all the music. And when they can’t get a new release by an artist they love, those people at the services hear about it. And while some understand the intricacies of the windowing strategy, most don’t care and rightly so. ‘I subscribe to Rdio. I can’t play it on Rdio. F’ Rdio.’ Need proof of this: look at the Rdio ‘reviews’ on one of the most infamously windowed records, Taylor Swift’s Red.
It’s my contention that windowing eats away at the value proposition of streaming music services. Customers sign up expecting that they can play anything released. When that doesn’t materialize the customer asked what the hell they’re exactly buying. Reactions to this problem range from mild irritation to quitting the service.
Let me also point out that the timing of Broken Bells windowing could not be worse. On Sunday Beats Music bought a Super Bowl ad featuring Ellen DeGeneres for their brand new subscription offering. The company is throwing down serious marketing dollars towards the launch. A bundle for a $15 family plan service with AT&T just started. If anyone deserves a pass on this inane business strategy, it is Beats Music.
Artists and management have a bunch of popular misconceptions about streaming services and releases. Let me try to debunk a few of them.
Streaming services are free and I don’t want to give my art away for free.
While it’s true that Spotify and Rdio have sizable free audiences, Beats Music and Rhapsody are 100% paid customers. So why not hold the release back from the free services and only have it for paid customers of all services?
While I’m no fan of freemium services, the theory goes that every free customer is someone who may one day be so blown away by the experience and value that they’ll end up plunking down their credit card. Removing new releases eats into the value proposition for the service and makes a prospective customer question whether they should subscribe.
What’s the difference between a $10 subscription and a $10 CD?
Customers of streaming are worth a whole hell of alot more than $10. Some services report that their best customers have been with them over two years. That’s $240 in revenue over those two years. Sure some of these people used to be heavy purchasers and they’re getting great deal. But the idea is to build this product with such great value that you’ll grow a huge base of streaming customers who will be around forever. Since Broken Bells self titled released in March 2010 and now, I’ve spent $470 in subscription fees to have access to all the music. If I loved Broken Bells and bought both records, that would have been $20.
Hey, I’m just selling the record on iTunes. They can go buy it if they want to.
Yeah, that’s true. But let’s be clear about the music consumer in the digital world. It’s a crappy experience. You could be a heavy iTunes downloader and it’s great. But from my years doing product research at Rhapsody, it’s clear that the customer is cobbling together an experience from several different services. Outside of iTunes or Amazon downloads, fans also use a bit of Pandora, maybe use a streaming service, some have a catalog of music. The reasons for this are all over the place, including that the experiences vary widely in ease of use and cost.
But when an artist or management decides to hold it back from streaming the message is clear: I don’t approve of the way you’ve chosen to listen to music. Please change your behavior.
And it might work. A few hardcore fans might go buy the record. Most won’t. Who gets most hurt by this?
At the conclusion of Sunday’s dismantling of the Denver Broncos, Seahawks linebacker Malcom Smith stepped onto the weird post-Super Bowl stage and accepted the MVP award for the game. Smith had an awesome game, returning a pick 69 yards for touchdown, recovering a fumble and racking up nine tackles. But they might as well have given the MVP to the entire defense, as it’s been an amazing group all year long.
Sunday’s bloodbath made Peyton Manning’s remarkable offensive year seem besides the point and it really makes it seem like we’re finally seeing the tide turn in the NFL. After 10 years of getting the West Coast offense shoved down our throats thanks to aggressively shackling of defenses, we’re finally back to an era where defenses define the sport.
The NFC and in particular, the NFC West, is where the trend is really on display. Three of the top seven teams live in the West and have been busy beating the crap out of each other. The only team to beat the Seahawks at home in two years is the massively improving Arizona Cardinals, who boasted a great defense. The Niners also featured a dynamic defense, they ranked third in football after the Carolina Panthers and Seahawks and when they got a few of their key defenders back on the field at the end of the season, they amped it up. The Niners were playing best in the league down the stretch and who knows how that amazing NFC Championship game would have turned out if the Niners had home field. A rematch between the teams would have been much more intriguing instead of watching Denver fall apart.
Any of the top four defensive teams (Seahawks, Niners, Carolina and Saints) in the NFC would have cleaned the Broncos’ clocks on Sunday. Many had criticized Russell Wilson’s quarterback play down the stretch. But he faced some of the toughest defensives in the league late in the season and in the playoffs. Having to face the Niners’ Justin Smith, Ahmad Brooks, NaVarro Bowman and the likes will make any good young quarterback look average, if not worse.
The Seahawks defense was beyond super all season. On Sunday they took it to another level by getting pressure on Broncos offense from the first snap. The heart of the defense is its secondary and they took away anything deep and left only short passes that ended up getting defended immediately. And then the defensive line just bullrushed Peyton, leading to a couple of the famous ‘ducks’ that Richard Sherman pointed out this past week.
Coach Pete Carroll is a deep thinker about defense, and there are a couple remarkable deep dives into how he thinks about implementing the plan and his approach to the game. “There is no offensive play calling or defensive scheme that is going to win national championships for you,” Carroll stated at a Nike coaching clinic from a few years back. “It is how you can adapt and adjust to making the schemes work. The only way you can do that is to have a strong belief system. If you can’t say what your philosophy is or tell others what you believe in then you don’t have a philosophy.”
Looks like his philosophy reigns in the NFL.
Yesterday was the coming out for Beats Music service. A glitzy ad for the service featuring, Ellen DeGeneres fit in nicely amongst the cheesy car and beer commercials during the Super Bowl, though it wasn’t one of the more popular ads according to the reigning expert on these things, Hulu’s Ad Zone. Seeing that it was a game for only about a quarter and a half, it would make sense that anything airing in the second half would be forgotten. But beyond Beats were many other ads for digital music products. Sonos’ strange Color spot. Shazam had its vehicle fleet wrap branding all over a car commercial. U2 giving away a song on iTunes thanks to Bank of America. It’s reaching the point when digital music is embedded in nearly every initiative. There’s a saying that there’s no such thing as e-commerce anymore. It’s just commerce. Much could be said for digital and the music industry. It’s a necessary part of everything we do.
Of course there was much gnashing of teeth and wailing over Bob Dylan’s ‘sell-out’ Chrysler ad on social channels. There was something slightly unseemly about the spot that included archival footage of Bob’s early era mashed up with pool hall shots and Bob affirming “We will build your car.” It was a bit strange, but whatever. I would suggest the time to complain about the latest icon selling out by placement in (mostly car) commercials is well over. I didn’t hear much complaining about Dylan’s 1966 song “I Want You” in a yogurt ad that features a mighty mean bear almost right before the Chrysler ad.
More Time Wasters
The chart above shows a great deal of optimism for Pandora, the internet radio giant. The company has once again defied the skeptics that prognosticate its demise with nearly every move in the digital music. Let’s face it, there’ve been several “Pandora Killers” that have come and gone, and none has slowed the company’s momentum. And now even Goldman Sacks is a believer. Analyst Heath Terry said the company’s shares can top $60 if it achieve some of its bigger business goals.
Which makes the troubles the company encountered with rights holders even more strange. As it has been reported to death, Pandora has run into a buzzsaw of awful PR as it has tried to keep its royalty rates low. First the company sponsored legislation to lower its costs paid for sound recordings. The Internet Radio Fairness Act was designed to lower the cost of those royalties to the level that broadcasters and satellite radio operators pay. When legislation stalled the company attempted to purchase a small radio station in South Dakota so that they would qualify for the lower broadcaster rate. Neither of these efforts created anything but ill will. Pandora *does* pay much more in royalty costs than broadcast or satellite, and that doesn’t seem quite fair. But there is a process available for recourse during their next negotiation.
The problem is that Pandora does pays significantly less in publishing costs than many other services (more than half the 10% of revenue streaming services pay). And while the company is correct in stating that they do pay a significant portion of their revenue overall to all rightholders, their offensive on songwriters and composers just seems bizarre.
Pandora has a much more to do to grow the business. It must sell many more local ads. The service still isn’t readily available in a majority of cars like Sirius/XM. It still needs to convert a huge portion of broadcast radio listeners to using the service. With all these goals, why would the company go directly against songwriters, especially since Pandora founder Tim Westergren talks about how he’s an artist himself? It has led to hard feelings, despite signing direct deals with the major publishing companies after all legal hopes were extinguished.
Pandora, like all companies in digital music, have two stakeholders they must keep happy: customers who use the product and rightsholders who supply the content. Walmart can squeeze the suppliers for every dime and face little blowback. But the company must convince those people who create music that Pandora streams are good for their careers, which becomes challenging when you involve lawyers and lobbyists.
Pandora Hits Record High as Goldman Says Shares May Double
Pandora faces FCC setback in bid for South Dakota FM radio station
Pandora’s Tom Conrad talks CES, car radios, and the road ahead
Pandora Stops Internet Radio Fairness Act Legislation Efforts, To Focus on CRB