The Value of Nothing: Don’t Accept Junk Food Streaming Music Numbers

It really should be a great day for streaming music. After all Nielsen released a report that showed unbelievable growth for the listening format. In the first half of this year streams have increased by 50 percent over the past year. But these numbers also are leading to discomfort for the streaming industry. Because along with the streaming increases are massive declines in all retail formats. CDs, digital tracks and digital albums are all down around 15 percent in the same period.

Mmmm, junk data.
Mmmm, easily consumable streaming music junk data.

Today’s numbers clearly demonstrate that consumers greatly favor access to their music over purchasing tracks. What isn’t clear is what this means for the music industry. While the revenue model for a purchase is well understood, we have no clarity on streaming’s value.  This is partly because a stream really can’t be equated to a purchase. After all a listen can’t really be compared to a retail event. But the real problem is that streaming services that make up the Nielsen numbers are vastly diverse.

Look, nobody in their right mind is going to compare YouTube and Spotify. But today’s numbers jams several different services with a variety of business models into a single number. It leads us to a question: should we really accept these numbers that don’t tell us anything about the business value?

Discerning A Difference

There are several different streaming products and each one has a different method of providing revenue for the rights holder. Unfortunately, the streaming number Nielsen posted was a single all-in number designed to show huge gains, but not to create clarity. These numbers would actually be revelatory if Nielsen would start tracking and reporting on each of these metrics separately.

As they say at the old ball yard, you can’t keep score without a scorecard. Same with streaming music. And since nobody else is doing it, I thought I’d describe the main streaming sectors and how revenues are generated by each. I’ve also included a few metrics that would help the industry understand the real value of each of these services.

Ad-Supported Streaming

The biggest contributor to Nielsen’s streaming number is ad-supported streams, which is dominated by YouTube’s massive reach and nearly unlimited catalog of music. While it doesn’t have the hype of Spotify or Beats Music, when we in the industry talk about streaming, we’re mostly talking about YouTube. YouTube is free and only generates revenue from advertising that is sold against the plays. Unfortunately, very little of the content on YouTube is monetized and the amount of money it generates per play is unbelievably tiny. Because of YouTube’s scale, a tiny increase in ad sales could vastly increase overall streaming revenues. But it requires significant growth in sales staffing and performance from Google.

Metrics We’d Like to See

-Active users
-Plays per active
-Revenue per play rate

Internet Radio

Comprised of non-interactive services and direct licensed radio, Internet radio includes services like Pandora, IHeartRadio and Slacker. A majority of these pay a stream rate or a percentage of revenue depending if the listener is free or is paying a subscription fee. In the US, Internet radio has performed very nicely. While YouTube can be described as a sampling platform, Internet radio is sticky, with listeners in droves using the services month after month for free, and some even paying to remove ads. The rates are wildly different depending on the deals for both recording and publishing rights. There has been major kerfuffle with this, primarily as Pandora has sought to keep publishing costs at their (nearly unjustifiably) low rate. But it remains a fact that every Internet radio play produces revenue for both rights holders, something that broadcast radio doesn’t do.

Metrics We’d Like to See

-Plays per user
-Number of plays per user
-Number of subscribers
-Lifetime duration of subscribers
-Revenue per play rate for free streams

On-Demand Streaming

When people refer to streaming, many times they’re talking about this bucket, which is dominated around the globe by Spotify, but includes Deezer and Rhapsody amongst others. However there are two different types of on-demand streams. Spotify has found that by having a free tier of the service, the company can build a pipeline of potential customers that it can monetize with advertising and convert into the paid tier. A vast majority of users in Spotify don’t pay a dime for the service. Spotify does pay for every free play, but it’s significantly less than the amount of revenue generated by the premium subscribers. That rate is confidential and differs based on the deal with rights holders. However many artists have seen it on their statements as low as one third of a premium play. It is worth noting that others have followed Spotify into the free racket, like Rdio, but services like Beats Music have stayed away from free.  It’s also worth noting that the number of people who use an on-demand service pales in comparison to Internet radio or ad supported streaming.

Metrics We’d Like to See

-Free users
-Free plays
-Revenue per free play
-Subscribers
-Subscriber plays
-Revenue per subscriber play
-Lifetime duration of subscribers

It’s A Trap

It’s easy to fall into the trap of pointing the finger at streaming services for the loss of retail sales in music. And there’s probably a whole lot of truth that many consumers who previously purchased music now just access it either for free or paying. But since customers are voting strongly for streaming and we’re committed to building new revenue models as opposed to suing upstarts out of existence, we should be asking much better questions about the streaming business.  That’s not only the suit who have their hands on the controls of the business, but also reporters, analysts and industry insiders. We should demand that Nielsen and other market research firms create better metrics that illuminate business value, when instead we get sensationalist reports that deliver big headlines. Good data is good for everybody—especially Nielsen, when we all start obsessing over these metrics like we used to with SoundScan every Wednesday.

Ellen DeGeneres

The Beats Formula For Streaming Music’s Happy Ending

Close your eyes. Good. Now let me ask you to imagine something. A product that has every song ever recorded, available for you on the devices you use everyday wherever you are, regardless if it’s at home, work, the gym or even places where you don’t have a connection, like the subway or on an airplane. Sounds pretty sweet, right? Any song you can think of, available at your fingertips.

At its crux, that is the promise and marketing pitch for every all-you-can-eat music service that has come out in the past decade. It’s a pretty cool product. And lots of consumers gave it a shot. Only problem is nobody wanted it.

Okay, okay, I’m being a little provocative. When I say ‘nobody’ what I mean is only the most hardcore music nerds—those people who obsess over their playlists and the perfect collection—were willing to pony up the $10 a month. Certainly not the number of people who’ve signed up for other access products, like Netflix or Hulu, or even other music products, like the satellite radio giant Sirius/XM.

Which made it kinda strange when Jimmy Iovine and Dr. Dre’s Beats By Dre headphone juggernaut bought the failing MOG subscription service and planned to relaunch it. Great, just what the industry needed. Another subscription service. But they had another idea.

Jimmy and Dre, along with Chief Creative Officer Trent Reznor, decided that the streaming services had it all wrong. Nobody wants 20 million songs. Music fans want 20 awesome songs for what they were doing in a particular moment. They want them picked and sequenced by someone who knows lots about music. And the company thought that most of all, they want the stamp of approval from a music legend. Like someone who produced one of the greatest rock records. Or an artist/producer who redefined music. Or the lead singer of one of the most innovative bands of all time.

In a nutshell, that’s the Beats Music product. Music designed for the way you listen brought to you by music people you trust. And while the product launched two weeks ago falls well short of delivering those lofty goals, the positioning is so different than the zillion or so other companies now crowding into the space that it might work. Maybe. If Jimmy and Dre can market it like they did headphones.

You see Jimmy and Dre turned headphones—which used to be either a cheap commodity, or a high-end specialty item—into a must-have cultural icon that people would drop $300 without blinking an eye. Why? Not because of quality. Not only because of quality. There have always been high quality players and Beats By Dre headphones don’t always win the best headphone bakeoffs. It’s because everyone you look up to is wearing them. Like Super Bowl champions. And celebrities. And the hottest rappers. When they first launched, it had the stamp of approval of Dre. When he’s recording the next superstar, Beats were the headphones he used. And you could trust him.

So it’s that combination: a differentiated product with an imprimateur that consumers trust, and the marketing muscle to sell it to people who have never heard of Spotify, Rdio or Rhapsody. Beats Music says they’re going to get behind it in a big way. How big? Well, they started with a Super Bowl commercial featuring Ellen DeGeneres. But the company is promising to do much more. And they’ll have to if they want to have a lasting impression, because compared to headphones, marketing streaming services is a tough sell.

So will it work? Can Beats Music extend the Dre-pire and sell the value of streaming music where all the music nerds failed? Yes. If Beats can continue to improve the product so it delivers on the promise of ‘music so right it’s like magic.’ If they can make it effortless to subscribe by adding it to your cellphone bill for cheap. And if they can market it with the sheen and style of Beats By Dre, we will have the hit that the music industry so desperately craves.

More for the obsessively curious

Podcast: Can Beats Music Crack The Mainstream

Spin: Is Beats Music All Its Cracked Up To Be

NY Times: Algorithm For Your Personal Rhythm

Hollywood Reporter: Ellen DeGeneres Reveals Her Super Bowl Ad

NY Post: AT&T Delays Big Push as glitch hits Beats Music

Broken Bells To Streaming Fans: We’re Breaking Up

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.

Ten bucks a month won't get you the new release by Broken Bells.
$10 a month won’t get you the new Broken Bells on Rdio.

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?

The fan.