Free Expansion: Rhapsody Joins Spotify in Giving Away Music

Wiz on Rhapsody on Twitter
Can Wiz Khalifa help deliver his Twitter followers to Rhapsody.

Today Rhapsody announced that it is launching free playback through an integration with Twitter’s audio cards. It works this way: if you are a subscriber and share a song, album or playlist on Twitter, anyone following you can play it for free in the Twitter mobile app.

It’s a pretty smart integration that solves a few problems for the service:

  • It encourages Rhapsody’s users to share music with all their friends. This is something that Spotify has done very successfully with its social tools baked into the app.
  • It gives artists an opportunity to drive potential customers to Rhapsody from their social channels, which could create an additional revenue stream for artists.
  • It is focused on mobile plays, which is where a majority of listening has migrated to and where Rhapsody’s potential customers hang out.
  • It limits the amount of free music by pegging the free playback to someone with an account and followers on Twitter. You can only listen on Twitter, which is very different than the all-free, all-the-time Spotify offerings.
  • It gets Rhapsody in the news, as you can see by all the press the company has generated by announcing the integration at SXSW today.

Social Mores

Chief Financial Officer Ethan Rudin says that the project is an experiment in the US. He had a couple press quotes that seemed a bit off target.

“It’s going to be a huge experiment in how we make music social again,” Rudin told Geekwire’s Todd Bishop.

“Music has been a bit of red-headed stepchild” on social, Rudin told CNET’s Joan Solsman.

I think he forgot to add the phrase ‘on Rhapsody’ to both of those points.

One could argue that Spotify’s ability fuel enormous grow is because of its very slick social functions coupled with the a mass number of users. Meanwhile, Rhapsody’s loyal and active customers listen to tons of music in the service, but without sharing of that playback it’s locked in a vacuum. It’s been a weakness that the service has yet to address in its decade plus existence.

The integration looks nice. But it still requires Rhapsody user to do the work to help the company mine Twitter for customers. What has made Spotify so damn sticky is that its social features are automatic and on by default. On its service, you have to opt out to not share. Meanwhile Rhapsody requires that you tweet your heart out about your favorite songs to let everyone know what you’re listening to.

About Face

I must point out that Rhapsody has been extremely critical of free music over the years. As Spotify has grown enormously over the past couple of years Rhapsody has ratcheted up the attacks on free music.

When the Taylor Swift vs Spotify controversy was at its peak, Rhapsody Board of Directors Co-Chairmen Rob Glaser and Jason Epstein authored an opinion piece in Billboard that called free music “throwing out the baby with the bath water.” Ethan Rudin last summer told Buzzfeed that free streaming services send the wrong message to potential customers. “If you continually offer somebody the perpetually free model, they’re always going to opt not to pay for it,” is the way Rudin put it.

It should also be noted that today you cannot play on-demand tracks for free on Spotify’s mobile app, but you can play anything on the Rhapsody catalog for free on Twitter. So what happened to aligning around 100 percent paid music?

Look, I get it. A company can change its mind. Business conditions always change and if you don’t adapt, you have a good chance at being swept away. But what is equally important is that we believe in what you say. Consistency is extremely important in the music business, as it has a checkered past.

Scoring points on your competitors for giving away music while planning your own free music offering does smack a bit of talking out of both sides of ones mouth. To say the least.

Disclosure: I worked at Rhapsody for nine years before leaving in September of 2013.

More Free Advice

Billboard: Why Streaming (Done Right) Will Save the Music Business

Buzzfeed: Rhapsody CFO: Taylor Swift Is Right — Free Streaming Is Bad For Music

CNET: Twitter rocks! Rhapsody kicks off free songs through tweets

Geekwire: Rhapsody launches music sharing on Twitter: Full-track playback without subscription

Evolution Trumps Revolution: Why the Macbook Air Unveiling Is the Real Star for Apple

Forget the watch.

This week Apple announced the ship date and details around its first foray onto the wrist, the long-awaited Apple Watch. Of course the press fawned over the details and the design of the device, as the richest company in the world takes on luxury brands like Rolex.

But the watch wasn’t even the most important announcement today. Not when you take into consideration how Apple is approaching the diversity of screen sizes.

We might look back at the announcement of the 12-inch MacBook (note Apple is no longer using the Air name) as the beginning of the end of iPad Era for the company. Over the past few years, the iPad sales have slumped for a variety of reasons, mostly because the pincer maneuver of phones are getting bigger and more useful and computers getting lighter and more efficient with better screen resolutions. The need for a tablet has waned as each of these technology trends eroded the popularity of tablets.

The new Macbook combines a size of an iPad (though slightly larger) with the functionality that once was only available in the MacBook Air or Pro lines. With a Retina display, Apple hopes the 12-inch MacBook will lead lots of iPad consumers to consider it instead. Earlier this year, CEO Tim Cook stated he believes Macs are cannibalizing iPad sales.

Mac Daddy
Apple sold 5.5 million Macs in their record-breaking quarter that ended in December. Granted, that is a drop in the bucket compared to the company selling 74.4 million iPhones or even the 21 million iPads in the same period, but it still shows the strength Apple has in computers. Although Apple doesn’t break out specific sales per model, the company trumpeted the new iMac with a 5K Retina display as the main driver of the sales.

For several years now Apple has been busy slimming down the laptop by removing features that we thought consumers couldn’t live without. With each version, Apple continued to nip a drive here, tuck an under-utilized port there. The end result: a lightweight, killer machine with terrific battery life that leads the industry. The current MacBook Air 13-inch weighs less than three pounds and boasts a performance very close to the MacBook Pro version.

Simplest Mac Ever
For the new MacBook, Apple is even stripping away more, leaving only a headphone jack and one multi-functioning port. The machine takes advantage of the new Intel mobile device microchip, allowing for more battery life and lighter weight. The machine comes in at two pounds that can last all day.

What Apple kept, though, and even greatly improved, was the keyboard. Fact is that despite all the tablet hoopla, consumers like a keyboard. Even Microsoft understood this and added the colorful detachable keyboard to the Surface line.

Some have commented that the machine doesn’t really seem like a real computer. But what a real computer is has changed. Sure the new Macbook isn’t going to perform when crunching massive Excel files or editing video. And yeah, the company is selling a $79 dongle that many hardcore business users will need to project a presentation on a screen.

But devices have been trending toward wireless transmission for years now. I don’t suppose that we’re going back to a wired world anytime soon. The need for a bunch of ports is fading fast.

Apple has clearly seen the future of computing and is creating a device that will just go ahead and compete directly with iPad. It is something that other companies would avoid at all costs. But Apple has seen the writing on the wall and is adopting its strategy to take advantage of the trend.

The Watchman
Yes, the Apple Watch does suggest a shift for the company. It is reminiscent of its big audacious bets with the iPod and iPhone. By creating a huge market that didn’t exist previously, the company believes it can dominate like no other. The iPad was meant to be another example of making a market.

Only time will tell if Apple is able to make a mass market out of wearables. But by re-envisioning what computing looks like in the future and aggressively changing its product, it could be that the new MacBook ends up being the biggest winner from this week’s announcements.

Major Labels Are Truly Home of the Free (Music)

Lucian Grainge, the CEO of Universal Music, has recently been talking about getting tough with companies that offer free music. First, a couple of lieutenants who shepherded digital deals, Rob Wells and David Ring, departed. Some in the industry considered it a sign that Lucian had cooled on ad-supported companies like Spotify.

And recently a video of Lucian’s comments at Re-code’s Media conference surfaced. In the video, Lucian consistently questions the long-term viability of ad-supported offerings. Lucian, apparently, just recognized that these services are giving away free music.

I find this hard to believe. After all Lucian approved of, and personally benefitted from, deals for Spotify, Deezer and Rdio, all who have free offerings. It’s almost like he’s like he’s channelling Captain Louis Renault from the classic film Casablanca, who is shocked, just shocked to find gambling taking place at Rick’s Café Americain. Meanwhile he happens to be winning at the tables!

Back in 2011 there was significant label resistance to granting Spotify a freemium license. Daniel Ek has mentioned that it took years to get over objections to granting the license in the richest music market in the world. Sure, Spotify had proven streaming worked in Scandinavia. But in America? No way!

At least until Spotify wrote a big check to labels guaranteeing revenue as well as a stake in the Swedish based startup. Rumors had the number marked at $200 million, although all figures and deal terms are confidential. Once Spotify wrote the check, then all was hunky dory.

And then it wasn’t.

Excuse me if I don’t completely believe Lucian. You see, it is my contention that major labels are addicted to free services and they are not going anywhere anytime soon. Labels just have too much at stake to pull back now. UMG, Sony and Warner all have sizable stakes in Spotify, as well as other companies. Jean-Rene Fourtou, CEO of UMG’s parent company, Vivendi, stated that it held a five percent stake in Spotify. That will be a sizable payday for UMG if Spotify goes public, which it surely will attempt in the near future.

And remember those label deals for the freemium service that Spotify signed when first launching in the United States in 2011? Those deals are up for renewal and are being negotiated right now. So is it any surprise that the CEO of the biggest recorded music company in the world is suddenly getting cold feet about freemium. Can someone say gamesmanship?

Apparently Lucian’s strategy is working. The NY Post is reporting that Spotify is offering to sweeten the pot by guaranteeing UMG $1bn over the next two years based on its growth projections. The Post also claims that Spotify projects the $1bn to be 39% of UMG’s pretax earnings, an enormous piece of their revenue pie.

The loss of recorded music revenue is real. And it is just common sense that streaming services are partially to blame. Why buy music when you can stream as much as you like? Vivendi recently released earnings that showed UMG’s revenues slumping 3.8 percent last year after excluding costs for selling the Parlophone Label Group, which it acquired in the EMI deal. Digital sales were flat, but transitioned from track sales to streaming revenues. Meanwhile, physical sales continue to slump, as they have for the past 10 years.

Let’s face it: subscription streaming has yet to prove itself the savior of the music business that many have trumpeted. Just replacing digital track sales is not good enough. This industry has shrunk for too long and needs to grow revenue and, more importantly, consumers. But so far, streaming hasn’t been the answer. There are many reasons for this and we need to spread the blame around. Here’s a few reasons:

  • While they will license anyone who can write a check, major labels advantage those players who can raise the most cash, which of course they’ll get a lion’s share of through license agreements.
  • Startups have yet to convince majors of new models that work for the customer. And when a new idea gets licensed, it is extremely hamstrung economics, or the feature set is so limited that it fails to catch on with consumers.
  • Label promotion staffs want to utilize the channels that can deliver the biggest promotional pop, regardless of the revenue model or impact on the market. Seriously, would any major artist drop a record without a YouTube promotion strategy?
  • Major labels see a pot of gold at the end of the rainbow from an IPO or an acquisition. UMG made $433 million on its Beats Electronics stake, for example.
  • The freaking price for on-demand streaming is still too high to drive mass adoption, and companies have yet to convince the industry that $9.99 a month just doesn’t work. Even Apple apparently failed.
  • Consumers don’t want to pay for music, period. Access to products like YouTube, P2P, Pandora and the likes have conditioned a new generation of potential customers to think the cost of music is zero.

So what is the way forward? The answer isn’t to roll back free music as some have suggested. Can we limit access to free? Absolutely, but it comes with risk, especially in subscription services. Spotify has said that 80 percent of subs come from the free tier, and drying up that pipeline will have an impact on its growth potential. So that will need to be closely monitored and managed. Apple, with its 100 percent paid product, won’t be able to pick up the slack. The industry needs Spotify, Google, Apple, YouTube, Deezer and Rhapsody all to contribute premium subscribers.

The industry also desperately needs to embrace new models. Mark Mulligan recently suggested that day passes could be a way that subscription companies could grow incrementally grow revenue and not be wedded to the ‘all-or-nothing’ approach of premium subs. And companies launching these new models need to have flexibility to try offerings without going belly-up immediately. In the startup world, pivoting model and offerings is often a legitimate way to find value. We should be following that model.

And finally, the industry needs to embrace a multi-variate pricing structure for premium subscription. Not everyone needs access to 30 million tracks all the time. Could a $5 mobile price point that smartly gives customers access to a certain number of tracks work? Are there markets that might do better at $7.99, $3.99 or $2.99? The industry really should be attempting to grow as many paying listeners as possible and not obsessing over average revenue per user until the market matures.

More Shocking News

Re/codeLucian Grainge Wants You to Pay Up

Music Ally: What Happened When Ministry of Sound CEO Shared A Stage With Deezer and Rdio

BuzzFeedUniversal Has A Big Stake In Beats That’s Worth Nearly $500 Million

Vivendi: 2014 Annual Results

Jonmaples.com: Fake Fight: As Apple Preps Streaming, Labels Sing The Same Song

Fake Fight: As Apple Preps Streaming, Labels Sing The Same Song

BillboardFight Between Apple and Spotify Could Change Digital Music

This is amazing! First, we hear there’s a lack of comfort with free music and how Spotify should have so many more than 15 million paid subscribers. Then Apple marches in, provides market research evidence to the labels how many more customers (and therefore, revenue) the industry could garner with a lower price point and labels say ‘no way.’

Why? Well, then labels would have to offer lower pricing to the entire industry so to not advantage Apple. Glen Peoples‘ source at the end of the piece is absolute right: labels are deathly afraid of Apple becoming the entire music industry. A strong Spotify is required to counter Apple. Freemium isn’t going anywhere, though a listening cap could come back for a brief time, as it did a couple years ago.

No matter what others in the media absurdly suggest, the reason Apple isn’t interested in freemium is because it doesn’t need it. The main goal of freemium is to attract listeners and then slowly convert them over time into a paid tier. Listeners won’t be a problem for Apple as the streaming app will be pre-loaded on every iOS device and most likely baked into iTunes.

Free Music Lives

Trust me, Apple will feature free music in the streaming product. But instead of paying for freemium, the company will offer labels promotional opportunities. Nobody can bundle the power of the iTunes store with free streaming for a week or month. That’s a killer combination for labels, even with paid downloads falling.

And converting those listeners into subscribers? Apple already has an enormous amount of valid credit cards, so it’s just a matter of signing in to subscribing. So why would Apple pay hundreds of millions of dollars to major labels for freemium when it already has distribution and payment covered?

Price Fixating

Eddy Cue, Jimmy Iovine and the Apple team have been harping on labels to consider lower the price of streaming. There’s been more and more data analysis showing a lower price of streaming will lead to many more customers signing up, more than making up for the loss of revenue. And I’m sure that Apple presented significant market research and bulletproof data that proved the point.

Despite overwhelming evidence, the labels stuck to their guns, and said if you want to charge less, you can pay for it. Meanwhile the largest streaming service in the world, YouTube, continues to give away free music at a scale the dwarfs Spotify and Pandora combined.

And you wonder why the music industry can’t grow. Not that we needed more evidence.

Growing Concerns: Does Music Subscriber Growth Cripple Profitability?

I recently wrote about how Rhapsody is facing issues as it expands to a worldwide audience and partners with cellphone carriers in Europe, Latin America and the United States. Part of my analysis centered on shrinking margins from signing up new customers on services and how difficult it becomes to manage the business when you don’t control the customer base. I also pointed out how relying on other companies to do your marketing erodes your brand, leading to a limited retail funnel.

Disclosure: I worked for Rhapsody for nine years before leaving in September 2013.

Rhapsody’s 2014 results were recently released in a RealNetworks’ regulatory filing and there are two conclusions that are easy to draw from the report. (Note: RealNetworks owns 43 percent of Rhapsody and includes the company’s financials in its own 10K SEC filing.)

  1. The growth strategy is working. Outside of the reported two million worldwide customers Rhapsody recently trumpeted, the company also increased revenues by 23 percent in 2014 over the previous year. Rhapsody’s revenues are at $173 million a year, which are rumored to be much larger than those of Deezer, the France-based music service.
  2. The growth is coming at a cost to Rhapsody. The company lost $21.3 million in 2014, up from 14.6 million in 2013. And it’s just not overall losses that are mounting. Rhapsody losses are continuing even when factoring in subscriber growth. Based on its 2014 losses and its reported subscribers, Rhapsody lost $8.53 per subscriber last year, although the company has cut its loss per customer in the past two years.

Growth and Losses

Rhapsody’s losses are a drop in the bucket when compared to Spotify. In 2013 the company reported operating losses of $128 million. While the company didn’t report subscribers, it has been suggested the company had around nine million paying subscribers at the end of 2013, leading to a $14 loss per sub in that year.

Screen Shot 2015-03-03 at 12.38.58 PMIt should be pointed out that Spotify’s paying subs are supporting all the free users who generate very small amounts of money for the company through adverting sales. Spotify says that its average active user (a combination of paid and free) generates $41 per year in 2013, while Rhapsody generated $93 per sub for the same year.

To grow, Rhapsody not only saw losses per sub drift slightly upwards, it also had to eat into its margin. In 2014 revenue per sub sunk to $69. And Rhapsody’s growth isn’t coming anywhere near Spotify. In fact, the Stockholm based streaming giant’s growth is outpacing every company in the industry by a wide margin. It now has over 15 million paying subs and 60 million worldwide users. Spotify picked up six million paying subs to Rhapsody’s one million in 2014.

So what does all this mean? A few conclusions.

  1. Brand Matters: In the excellent MusicREDEF newsletter, my friend Matty Karas recently mused, why when people talk about streaming music, they only refer to Spotify. There are scores of companies with offerings, many of them in business for a long time. But Spotify has broken through and is on-demand streaming’s only household name. Its brand has fueled incredible subscriber and free user growth for the company.
  2. The Model Matters: What makes this so intriguing is the three distinct approaches these companies have taken for on-demand streaming.Rhapsody traditionally focused on all paid customers, utilizing their own retail channel, before pivoting to distribution partners for growth. It has achieved modest growth, but at a significant operational cost.Deezer only operated in territories with carrier partners. The results? Deezer had significant subscriber growth, but the revenues are below Rhapsody. So to the outside world, Deezer looks like a much bigger deal than within the industry. Deezer also is facing competition for carrier deals. In a shift of its model, Deezer launched a high-bitrate service in the US for $20 a month, although the company has not been strongly marketing the product. Despite the massive amount of money raised and worldwide operations, could Deezer be the first huge causality in on-demand streaming?Spotify built its own customer funnel by giving away expensive free music and has found a way to significantly grow free users, paying customers and revenues. The costs have been astronomical, but Spotify is dominating streaming music, dwarfing all its direct competitors and–maybe even more importantly–reaching mass consumer appeal.
  3. Distribution Eats Margin: My last piece on Rhapsody suggested the company’s margins face significant downward pressure because of its cellphone distribution scheme. And now we see the numbers showing that erosion. Rhapsody will have to hope that a) it can sustain or even amplify its growth rate through partners and b) retain its own higher margin customer funnel. If not, Rhapsody’s revenue per sub will continue downward.
  4. The Economics Are The Economics: Regardless of approach or business model, on-demand streaming music is an expensive business to launch and operate. There’s no way around losing millions of dollars just to be one of few who survive. All left standing will require a huge war chest, access to raise even more money and the intestinal fortitude spend a fortune in content, distribution and marketing costs.
  5. More Pain Coming: Apple and YouTube are expected to roll out on-demand music services in 2015. The pressure to grow–and raise more money to pay for the growth–will increase on every company in the market. As the old adage goes: let the beatings continue until the morale improves.

More Growing Problems

Geekwire Filing Reveals $21M Loss for Rhapsody, Despite Jump in Revenue and Subscribers

NY Times As Music Streaming Grows, Spotify Reports Rising Revenue and a Loss

Bloomberg Spotify Hits 10 Million Paid Users. Now Can It Make Money?

Jonmaples.com The Roaring Mouse: Rhapsody Faces Its Future

Please Release Me: The Industry, Music Release Day and Listeners

There’s been a brewing controversy in the industry recently about the music release day. What, you might ask in this age of you YouTube, Spotify, Pandora, iTunes, radio, leaks, and Soundcloud, is a release day?

I’m glad you asked. One day every week, new music is released to retail outlets and streaming services. But here’s where it gets tricky. It’s a different day in many countries. In the US new music day is Tuesday. But in the UK it’s Monday. Japan, Wednesday. Germany and France, Friday.

Why is it different? The release day has been driven by music charts. In the US, the Billboard and Soundscan charts run from Tuesday to Monday to match up with the release day. Though the origins of why we ended up with Tuesday in US is not clear, some state it also had to do with physical distribution of LPs, cassettes and CDs.

But with the a global market building and physical retail fading, there’s been clamor for standardizing the day, so that consumers in the UK don’t get a huge global release from an important band a day before consumers in the US or Japan.

After polling the industry and doing market research, this week the IFPI, the global recorded music trade organization, recently suggested Friday is the top contender to become the global music release date.

Once word got out all hell broke loose.

US retail industry, who pushed for either the world changing to Tuesday or even perhaps Monday, strongly objected to Friday. Target actually suggested it would stop selling CDs if the date changed to Friday.

Martin Mills, chairman of the powerful Beggars Group of indie labels had this to say at a conference in the UK:

“Whilst I acknowledge the needs of a digital world for co-ordination, it seems to me to be crazy to throw away one of the trading week’s two peaks, and the ability to restock and rectify errors before the week’s second peak. It astounds me that the major labels are not listening to their customers, their interface with their artists’ fans. I fear their consultation has been a charade, and the market leaders were always going to push this through. I fear this move will also lead to a market in which the mainstream dominates, and the niche, which can be tomorrow’s mainstream, is further marginalised. I fear it will further cement the dominance of the few – and that that is exactly what it is intended to do.”

Music release day matters quite a bit for the industry and Martin is right: the bigger the act, the more important a single release date will become. You can see with global tools like Twitter, Facebook and worldwide(ish) services like Spotify, it’s hard to have a consistent marketing message. After all “Hey, my new record dropped. Check it out Monday in London, Tuesday in New York, Wednesday in Tokyo and Friday in Berlin” won’t really fit in a Tweet.

There’s also other elements to consider: distribution of products, promotional plans, radio appearances and a myriad of other now worldwide tasks that the industry must do to get music–and the word—out to the public.

But that’s really not a music fan problem. It’s an industry problem. So why are we making it a fan problem?

Look, I get it. A single global release day makes sense. And we should be doing everything possible to assist in supporting–if not expanding–retail channels. It’s still, for now anyways, the best way for the industry to make big revenues. A single release day would help.

But it also seems like we’re just rearranging the deck chairs on the Titanic. Why are we focused on these old models? Meanwhile the new way fans listen, streaming music, is held captive by the old models. Based on the amount of customer feedback and market research I did while at a streaming service, it’s clear that a massive number of listeners don’t even know which day is ‘new release day.’ Sure those superfans who raced to Tower Records to pick up Viva Hate at 10 am on Tuesday, March 22, 1988, yeah, they know.

It’s my belief that the average music consumer doesn’t know–or care–which day new music is in the stores or goes live on streaming. And the fact is that streaming services have new material go live every day of the week. So do streaming services need to a ‘new release day?’

Well, if your plan is to prime the publicity pump so you can get a number one record on the charts, sure. But what if your job is to make the music fan happy seven days a week? Not particularly.

In terms of music services, we’re in this awkward stage of development. Sure, services have proven popular with music fans. Yet we haven’t fully transitioned into a different world.

A perfect example of this is the industry’s attempt to determine how many streams equal a track or album sale. Billboard now says a thousand streams equal a track sale. How did Billboard settle on 1,000 plays? It’s not because of revenue generated by the services, because that info is unavailable and disputed. It’s not how many times a listener plays it before purchasing a track. A 1,000 plays seems like a random number that sounds like a lot. Why not 500 plays? Or 5,000? Or 50,000?

While equating plays for a sale does serve those people who are supporting the old model, it’s utterly empty of any value to streaming companies. I wrote in depth about some of these issues in Junk Food Data.

Streaming services are facing significant issues with customer acquisition and retention. Each company needs to be laser focused on what it takes to make customers happier to retain the paltry number who have signed up. Streaming must influence the industry and make it understand its success factors if we have a prayer at replacing the lost retail revenue with paid subscriptions.

And if we continue to pay attention to the past? Then, I’ll take a deck chair with a nice view of that iceberg.

More On Old Models

Billboard Why Are Albums Released on Tuesday (For Now) in the U.S.?

Musicweek IFPI Confirms Friday Global Release Day

Wall Street Journal Record Labels, Retailers Can’t Agree on Which Day of the Week to Release New Music

Jonmaples.com The Value of Nothing: Don’t Except Junk Food Streaming Data

Sweet and Lowedown

Will Apple’s Tastemaker Test Win The Streaming Music Challenge?

Apple made big news last week by hiring one of the music’s best tastemakers, Zane Lowe, the preeminent DJ on BBC Radio 1 who has introduced the world to artists like Arctic Monkeys, Gnarls Barkley, Adele and Sam Smith.

With Zane’s hiring and the reported tapping of other music journalism talents, Apple is betting big on the ‘human curation’ chestnut that Jimmy Iovine used to sell the service to music fans, and more importantly, to Apple last spring.

Curation is believed to be a solution for streaming music’s problem of what to play next. All-you-can-eat music services like Spotify and Beats provide access to tens of millions of songs, but listeners consistently run into the issue of figuring out what they want to hear next. So by creating recommendations, radio stations and playlists that the music fan might like, curation helps alleviate the problem.

Except it isn’t that easy.

Why? First, is there’s a lot of music. Millions and millions of songs are available on these services and figuring out everything about the music is rather difficult. And then there’s the user expectation. A broadcast radio tastemaker like Zane is pretty adept at talking to a lot of people at once, but streaming the music customer expects—if not demands—a unique music experience based on their taste and listening habits.

The Beats Formula

Curation solutions have come in two flavors. Companies either use automated technology solutions, like Pandora’s ‘music genome’ and the Echo Nest’s taste profile. Or you hire a staff of music experts to pick music.

Beats’ Co-CEO Jimmy Iovine and Chief Creative Officer Trent Reznor rightfully pointed out that most services have the soul of a hard drive and that music fans craved more in a music experience.

Beats preferred playlists selected by humans, experts on music who understood what the listener needed music for, like cooking dinner, exercising or studying. The startup went on a spending spree, hiring a team of music programmers to build playlists and pick the perfect song. While others, like Rhapsody and Emusic, had staffs of curation experts long before Beats, Jimmy was the first to make human curation the main selling point.

When it launched, Beats had subscribers  select their favorite style of music. Afterwards, the service would feature playlists built by their staff of music experts who hailed from the radio industry and music blogs. Beats playlists were indeed compelling but the depth of the lists appeared to be light and the curation stale. After all, how many times can you listen to the same 15 tracks on the Indie Breakup or 2006 Hip Hop Gems playlist? Fact is hand curation requires a lot of hands to consistently churn out new lists, something the service didn’t quite get right.

Emotional Math

Beats management objected to algorithms that automatically choose the next song based on a set of rules. “The promise of algorithms that we’ve all bought into over the past few years, that you enter a band and you are going to hear a ton of music that’s all based on that seed,” Trent Reznor told USA Today last year. “I think we’ve all realized the reality of that is that it’s a shallow puddle, it immediately kind of sounds good and then you realize the limitations and you start to hear the machine in there.”

“(With an algorithm) you are using math to solve an emotional problem,” is the way Jimmy Iovine put it. He is partially correct. When the catalog is tens of millions of songs and you have millions of customers, picking what song comes next can only be tackled by math.

It’s impossible for a service to function without any algorithms. There’s just too much data and you need to rely on something with automated rules to do some of the heavy lifting. Even Beats, despite its marketing message of ‘the music service with music experts’ had several different algorithms that were used in the service or under development.

So marketing pitch or not, everyone (in one way or another) must use math to solve these problems. The success or failure of algorithms and curation depends on how companies employ the products and who’s in charge.

It’s far from me to tell Apple what to do, but hey, that’s never stopped me from dispensing advice of questionable value. Here are my guiding principles for building curation and algorithms in streaming services.

  1. The Right Tool for the Right Job

As much as I have a problem with Pandora and their marketing of the ‘music genome,’ the company sure went about solving the right problem with their algorithm. Simply put, Pandora is designed to serve up around 40 solid minutes of songs for the person who likes to listen to music. It doesn’t do more than that and that’s a good thing.

Technology products get unwieldy because they are designed like a Swiss Army Knife. My general rule is that technology solutions need to be designed to nail one solid use case at a time. Expansion beyond that gets to be tricky.

A good example: I recently spoke to David Porter, CEO of 8tracks, a radio service that features playlists curated primarily by the service’s pro DJ community. David mentioned that 8tracks had recently hired a data scientist to match his listeners to playlists that they might enjoy.

An algorithm must be very good to nail this use case, but it doesn’t rise to the level of a playlisting algorithm, where a user will think you don’t know music nor them if a Coldplay song ends up in a Jose Gonzalez playlist.

Defining what your algorithms are meant to do and sticking closely to those use cases is vital for success.

  1. Man Guides The Machine

An algorithm must be built as a tool for curators and not simply a technology product. Therefore it must be tunable and adaptable. There is no such thing as ‘code lock’ on an algorithm.

In my experience, this is not the way many algorithms have been built. Machine learning–the ability for algorithms to improve based on usage–is a big topic right now for many technology companies, but I have yet to see one example of a music algorithm that gets smarter with time. Ensuring curators have input and a modicum of control of algorithms is extremely important.

  1. Playing Your Position

What makes managing a music algorithm so absurdly challenging is that no single person is qualified to manage it. You must posses a full understanding of music composition as well as its place in culture. You should have the knowledge of how a data scientist goes about their work. And you have to have a keen observation about how consumers behave in the system.

Without any leg of this stool, the product will end up hamstrung. It cannot be managed by one human, unless you have a consumer driven, musicologist, data scientist on staff (not bloody likely), therefore it requires a team of experts to tackle the problem.

Each will bring an expertise and needs to trust other members of the team. Success should be judged on results and data; not taste or perfect code.

  1. Match Curation to the Taste of Your Listeners

This one is easy to say and hard to pull off. Curation should closely mimic the usage in your system. While a marketing approach will influence who your listeners are, good old data and analytics should be fastidiously monitored and results fully understood by the team.

A curatorial staff must adapt their approach to what the listener is doing, and what brings more value to their experience. And above all, it’s about your listeners’ tastes. Not your own.

Tim Quirk, my former boss at Rhapsody and formerly Google’s global content programming head, authored the objective approach to editorial that we practiced heartily at the service. He recently posted a series of tweets that questioned the practice of tastemakers being the lead programmers at services and believes that curators should function more like ‘park rangers than gatekeepers.’ “Yay curation. But boo anyone who thinks he or she knows better than you what you should listen to,” Tim summed up.

  1. There Is No Finish Line

The algorithm will constantly need to adapt to the music, the customer usage and the technology. Likewise music trends change over time. After all, few could have predicted the amazing rise (and the fall) of EDM? As long as you have music, you must have a team who lives and dies to have the perfect music catalog, the algorithm and the curation to fully create a great music experience.

The promise

The first generation of streaming services focused closely on catalog and access. We’re nearing the end of this era, as pretty much everyone has the same catalog and the apps are very similar. The next phase will focus on the music experience of the services. Curation, whether lovingly hand-crafted by humans, or processing massive amounts of data crunched down by an algorithm, will be the battlefield all the services will vie on over the next couple years.

We can already see this battle taking form as ‘the humans’ vs. ‘the geeks.’ That’s a mistake. A company needs to seamlessly blend these talents together to build curation that listeners will enjoy and create true value.

More Curation on Curation

Billboard What Apple’s Hiring of Zane Lowe Signals for the Company’s Music Strategy

Hypebot Zane Lowe Could Do More For Discovery At Apple Than Echonest’s $25.6 Million Does For Spotify

Music Ally Apple Hiring for iTunes Role with ‘Specific Expertise in Music Journalism’

Business Insider What We’re Hearing About The New Music Streaming Service Apple is Developing in Secret