Streaming music has been a huge topic in the music industry for good reason. It’s been the subject of many articles, occasionally one will accurately understand the issues surrounding these hot companies, but most that have no idea of how the music business works. A couple of stories I’ve seen recently made me want to wretch. Interestingly enough, they are on the opposite sides of the debate.
First, there’s this terribly reported and, in some points, just plain wrong article in Take Part by Kathleen Sharp and Scott Timberg with the click-bait title, “Is Spotify Killing Music?” The authors comingle the loss of publishing rights by the heirs of John Steinbeck and Woody Guthrie (who are in a band together – naturally) with the way that artists are getting hosed by big bad streaming companies. Not only do these two topics not belong together, they also weaken the main points of the article (which likely stemmed from a PR pitch promoting the aforementioned band).
The streaming portion of the article is a retread of the greatest hits from anti-streaming voices like David Lowery, Thom Yorke and David Byrne. The evidence it cites is flimsy, even including Lowery’s disputed $16 payment for 1.5 million plays of the Cracker song “Low” on Pandora. The authors even recruit streaming supporters for its purposes, posting a big photo of Billy Bragg with the caption:
British singer-songwriter Billy Bragg has spoken out against royalty rates and structures established by music-streaming companies.
This may indeed be true. But what Billy Bragg said was actually very supportive of streaming.
“I’ve long felt that artists railing against Spotify is about as helpful to their cause as campaigning against the Sony Walkman would have been in the early 80s. Music fans are increasingly streaming their music and, as artists, we have to adapt ourselves to their behavior, rather than try to hold the line on a particular mode of listening to music.”
Bragg went on to cite the problem is really with record labels that are paying streaming rates based legacy deals with artist that only paid a fraction of royalties on sales because of physical production and distribution costs.
“If the (streaming) rates were really so bad, the rights holders – the major record companies – would be complaining. The fact that they’re continuing to sign up means they must be making good money.”
Interestingly enough these comments from Billy don’t even up in the article. Instead we get that streaming is eating into CD sales, without even a slight mention of illegal MP3 downloads, which last time I checked, was the main reason why CD purchases are getting killed.
The next sensationally wretch-worthy item is a guest post in Billboard and his site, Tom McAlevey, CEO of Radical.FM, says this whole discussion is silly because streaming music is already profitable! His evidence? Well, Pandora could be profitable tomorrow if they pumped up the ad load to broadcast radio levels and Spotify was profitable in Sweden before they expanded around the world.
Those seem like factors why streaming music is not profitable rather than proving it is profitable today. Based on everything we know, streaming companies are struggling with profitability and the path to get there is uncertain. Pandora desperately needs growth of users to sell more ads and they must do so while keeping their listeners and investors happy with its progress. Without ad sales growth, the company will not survive. But the answer isn’t increasing the number of ads per hour, which Tom suggests. With too many ads, they’ll bleed customers.
Meanwhile, it is true that Spotify had a great deal of success in Scandinavia, but there are factors that have made the company successful–starting with the fact that digital music sales never took off there because of P2P’s popularity in that part of the world. Spotify became the hometown replacement that was so much easier to use that P2P services.
Tom also mentions that his experience negotiating with major labels back in the nineties allowed him to see the secret numbers that reporters do not have access, as a way of proving his bona fides.
I too have seen these numbers, and my assessment is that major label deals make it extremely challenging to find a way to profitability. There are many veterans in digital music who believe that no company can be profitable, ever. I disagree. There is a path forward, but it’s no easy task.
Both Spotify and Pandora are focused on growth, as Tom mentions. But there’s a reason for it. Their current size and offering aren’t profitable. Period. Both need significant growth and are pursuing it all-out. Spotify needs a worldwide audience to build an advertising channel to attract worldwide brands, as well as take advantage of its worldwide infrastructure for streaming. Pandora desperately needs to be bigger in the US and scale around the world.
Scale is another factor. For all the headlines written about Pandora and Spotify, streaming music is still a fraction of all music consumption and revenue. Spotify’s estimated 25 million free users is a rounding error of YouTube’s massive audience. Pandora is only estimated to be 11 percent of all radio listening in the US. Because all the buzz the companies generate, most people believe that both companies, especially inside the music industry, are much bigger than they are. Both are early stage and must prove themselves as mass-market products to be viable.
Granted, you could say such aggressive growth strategies are required to tap the public markets to create a massive payday for investors, and that’s fair criticism. But this doesn’t mean these companies don’t need to grow. They must grow. Or die.
Look, I understand Tom’s motivations for writing the piece and I agree with it. Digital music has great promise and streaming has attracted throngs of people who love the convenience. Many have chosen streaming as the way they’d like to listen to music. The industry needs to find a way to make the economics for all those who’d rather access music than purchase, rip and organize digital files.
But we need to focus on what’s actually happening, and not create spin and counter-spin. There are real serious issues that must be solved, like ensuring every single artist gets compensated fairly as well as creating experiences that customers find valuable enough to pull out their credit cards. Let’s focus on these instead of trying to demonize startups and misrepresent the facts.
The Good, The Bad, and The Ugly Digital Music Coverage
Take Part: Is Spotify Killing Music?
RadicalFM: Streaming Music Already Profitable
The Trichordist: My Song Got Played On Pandora and All I Got Was $16.98
The Understatement: Pandora Paid $1300 for A Million Plays, Not $16.89
MichaelRobertson.com: Why Spotify Will Never Be Profitable
Consequence of Sound: The Elephant In The Music Room