Subscription Streaming: A Measly Billion Dollar Industry

Congratulations subscription music! You are finally a billion-dollar industry. The IFPI, the trade organization for the worldwide recorded music industry, last week reported that subscription streaming music revenues finally broke the billion dollar mark in 2013. Let’s mark this moment. It’s a huge number for the industry and at long last a confirmation of what many of us who have worked on the streaming side have believed in ever since Rhapsody launched as the first legal service in 2003.

While Spotify might be music for everyone, a select few subscribed to a streaming music service in the US.
While Spotify might sell itself music for everyone, only a select few subscribed to a streaming music service in the US in 2013.

Yet with all the congratulatory backslapping and shaking of hands, dark clouds still threaten to limit what subscription music could become. Why? The secrets are revealed in the data, my friends. You see, subscription streaming might be the same product around the world, but the business results have varied. While perhaps not by design, markets are delivering vastly different revenues and subscribers.

The US market is creating a great deal of revenue, but it hasn’t caught on as a mainstream product. Outside of the US the goal seems much less about revenue—it’s about bundling the service with other providers. Additionally rightsholders seem to be much more willing to experiment with other models in the rest of the world rather than the good ol’ US of A.

Negotiation Before Innovation

A product manager for a streaming service spends a lot of time obsessing about what people value. We research of what customers do daily and what causes them open their pocketbooks. Then we craft product concepts that potentially could satisfy those needs. In a past life I had one of those jobs where I would take these ideas and package them up for presentation in front of the labels in order to gain licenses.  You might think ‘oh, you already have a license to a catalog of music, so why do you need anything else.’ Well, every functionality and technical detail must go through a vetting and approval process with labels. And that’s where this gets interesting.

Just for fun, let’s say I’ve just created a service that allows a user play anything from a 20 million song catalog for free on demand while you listen on a laptop. But if you pay $3 a month, we’ll automatically save the top 100 songs you’ve played to your phone. It’s simple: download the app onto your phone and based on what you play on your laptop, we’ll automagically save ’em on your phone. Just for fun, let’s name it something cute like The Roo, as in Kangeroo, because it saves favorite songs in its mobile pouch. My logo is a cuddly ‘Roo wearing headphones and holding a mobile phone.

For the record, I’ve never pitched The Roo to anyone. I just made it up.  But I can imagine the feedback I’d get from places like TheMarketingHeaven.com and the label representatives. The first thing I’d hear is that I’m really pitching a freemium product, which has a different cost to a service than a premium product. After all, there is a cost to giving away a bunch of music as a marketing ploy to attract users. I might also hear that The Roo gives away too much value compared to other products that are already in the marketplace at that price point, like premium radio. And finally I’d probably hear how I’m “giving away” the equivalent of 10 albums a month for $3.

In my tenure I’ve pitched dozens and dozens of these ideas and very few even get past the first round of negotiation. Major labels in particular keep a tight rein on what is in the market by not granting licenses for new ideas. And I don’t think my experience was unique. While trading war stories with colleagues in the industry it’s pretty clear we’ve all had similar meetings.

Trust me, they’re not all good ideas—most of the are probably just as lame-brained as The Roo and deserve not to see the light of day. Yet the approach of startups and rightsholders does shine a light on how each party approaches new products. Most of the startups focus on creating products that will attract the attention of the customer. The best ones work hard on getting those users to pay something, anything, for music. Labels seem to be more focused on protecting current revenues and current products, and seem terrified of upsetting the price floor.

So where does that leave the US market? Only 6.1 million subscribed to a service last year–21 percent of the estimated worldwide 28 million. Meanwhile a whopping 57 percent of all worldwide revenues come from those 6.1 million customers. That works out to $102 per customer, while the rest of the world–$22 a person.

So at least in the US, we are creating a very small subclass of customers who are contributing lots of revenue, but we’re not creating enough consumers of subscription services. We’ve built two tiers of products: free and very expensive. And that’s just not the way people think about music. There are probably hundreds of ideas for paid on-demand products that might find an audience. Instead of licensing tons of them and let the market sort itself out, we only license a couple models and call it a day.

Labels seem to be willing to try other models outside of the US, though. For a £1 a week O2 Tracks lets you listen to any song in the Top 40 on your phone. With Bloom.fm you can download 20, 200 or unlimited number of songs to your phone at varying price points. The United States is the crown jewel of the music business, and the industry treats it as such, at the expense of innovative digital music products.

Music With Plenty of Limits

There are of course many other factors. In the rest of the world, cell phone companies compete much more aggressively with services. Nearly every carrier in Europe has a bundled music service offering from Spotify, Deezer or Napster. The only true bundled offering in the US is MuveMusic, while MetroPCS and AT&T have offerings that are billed on top of the price of the phone service.

The cell carrier duopoly of AT&T and Verizon, who lock up customers in long term contracts, have been less than willing to share the costs of music with startups and labels. That won’t last forever. T-Mobile has declared war against the contract. Perhaps if the company makes a strong move into the market it could spur growth and motivate the entire industry.

Growing Customers

If our goal as an industry is to protect the revenues we have today instead of growing a class of customers who will pay anywhere from $1 up to $20 for different valued package of services, we’ll probably hear the same story for the next several years.

NPD estimates 44 million US customers bought digital music in 2012. If streaming subscription could build up to 20 million paying customers, we might not greatly increase the subscription revenues of today, but we will build a new generation of customers who start to value paid music services, and maybe even become delighted with features that solve their problems. With time, the revenues will follow.

And if anyone wants to invest the $25 million needed to start up The Roo, drop me an email. I’ll start writing the business plan now.

More Growing Concerns

IFPI: Worldwide 2013 Digital Music Report

RIAA: US 2013 Revenue Report

Music Industry Blog: First Take on 2013 Numbers

Growing Pains: Can YouTube’s Plans Power Music Revenues?

This was originally included in Billboard’s print edition dated March 4, 2014. The entire article is not available online without a subscription, but I’m reposting it to my network.

And no, I didn’t write the headline or the deck.

Opinion Column: Screwed By YouTube?

40 percent of its plays are music – even as its rights payments remain disproportionate

Do billions of YouTube views of Gangnam Style translate to millions for Psy?
Did billions of YouTube views of Gangnam Style translate to millions for Psy?

First it was broadcast radio, then MTV. Now YouTube? Could it be that the music industry is a three-time loser in getting its fair share for distribution of content? Did it give away the golden goose by not suing the bejeezus out of YouTube when it was a startup, or at least cut better deals when Google acquired it in 2006?

Of course it’s not a simple question. At first glance it’s clear that today YouTube isn’t delivering the goods. During a MIDEM panel this year, YouTube vp content Tom Pickett said the company had paid more than $1 billion to music rights holders during the past several years. Well, that’s sweet. Hey, you know who else has done that? Spotify. The difference: Spotify did it with a fraction of YouTube’s audience.

Let’s face it: When the worldwide market is $16 billion annually a billion isn’t that much, not when you consider the size and scope of YouTube’s mighty reach and insatiable thirst for more and more fresh content. While there have been some holdouts on paid streaming services, no working artist would dare skip YouTube — one of the world’s largest promotional channels — and limit his or her reach. According to comScore, YouTube’s 159 million active monthly U.S. users watched 13 billion videos in December 2013. And YouTube says nearly 40 percent of all videos were music-related.

But YouTube doesn’t just represent a promotional channel. It delivers a burgeoning stream of advertising revenue, and could soon find more ways to monetize its massive audience. YouTube does pay a split of ad revenue with rights holders, although the rates for ads are paltry when compared with such established players as broadcast radio. The company is trying to boost its revenue-per-impression rate with premium content, but this will take time.

By comparison, Spotify looks more attractive to rights holders, since it already delivers multiple revenue streams. Like YouTube, Spotify pays a low per-stream ad-supported fee for a play by a free consumer, but its average payout is much higher because it offers premium subscription fees as well. That’s why YouTube has long planned a paid subscription service that is finally expected to launch this year. If the company can convert even 1 percent of its active users to pay for on-demand music, it would be the largest service in the United States. At least that’s the theory.

In practice, converting these free users to paying customers could be much harder to execute. Why? Every all-you-can-eat music service has similar pricing. Want to stream your music on the desktop or on your phone? It’s free. Want to save your music to your Android phone? That’ll be 10 bucks. Asking for $10 from a customer base that has become accustomed to accessing all the music they want for the low, low price of free is a steep hill to climb.

The industry and Google will need to partner to create a new value proposition at a variety of price points. What could it offer the music fan for a buck a month? How about a top 40 app for $3? What about a catalog slice, say indie/alternative, for $6? How about a $2 Vevo subscription?

The truth is, all consumers are not alike. Defining those price points and offers will require innovative thinking and risk-taking by both sides. Remember, yearlong Spotify Premium subscribers pay more than three times what the average customer spends in a year for music.

The industry needs to think of ways to serve a mass audience. But if instead consumers see the same old offer of 20 million songs for $10 a month, we could end up with another Google Play All Access Music, which hasn’t blown the doors off with subscriber growth. That would be disappointing for the entire industry.

Perhaps the industry is learning. Certainly holding out content from YouTube would have made it much more challenging to build new revenue streams, so it was the right decision to bring the service into the fold.

Now it’s time to supercharge it.

Note: I have corrected an error. YouTube was acquired by Google in 2006, not in 2005 as it appeared in print. I regret the error. 

Restrained by Arcane Copyright Law, De La Soul Frees the Music

Screen Shot 2014-02-19 at 6.01.16 PMDe La Soul faced a problem. None of the band’s revolutionary records were available in digital form. Sure you could still buy the CDs, if you cared to, but you couldn’t buy them on iTunes store or stream them anywhere. In this day and age if you’re not on Spotify or Beats, you might as well be invisible. The group has a new record this year, so having their music available everywhere is important for exposure.

So they decided to give it all away. Yep, last Friday the band gave out the music from its own website. That’s great for fans. But it might be a pathetic comment on our current state of copyright.

What made De La Soul so great was that the group used tons of samples in its music. Great for art, but each of those samples have to be licensed. It’s a pretty time-consuming process and Warner Music Group, which owns the rights to the old Tommy Boy Records, wasn’t particularly motivated to clear all the samples, so the band took matters into their own hands.

Tommy Boy founder Tommy Silverman suggested on Twitter that we should create a statutory rate for samples in the copyright law reform that is being considered by the Patent and Copyright Office. That way any artist could sample any work and the original artist would get a compensated for the work. Pretty great, right?

“It’s never gonna happen,” an executive with extensive knowledge of the copyright told me when I asked about the issue. “Is it a lot of work and kind of a pain to get a sample licensed? Absolutely. But it can get done? Yes.” As long as there’s a precedent of samples getting cleared, the copyright office isn’t going to be motivated to create blanket business terms for samples. Also, there are a growing number of voices who are against compulsory licenses for samples, such as Aerosmith lead singer Steven Tyler, who wants to retain control to who gets to remix their music.

The bigger problem for De La Soul and many acts from the ’80s and ’90s was that the bands just went ahead and sampled whatever they wanted and released the record. Once a record is in the marketplace, the sampler artist has no power of negotiation and has to take whatever deal is offered. The most famous example was The Verve’s Bittersweet Symphony which sampled an orchestral version of the Rolling Stone’s song “Last Time.” While the Verve did have a license with the creator of the orchestral version, they didn’t have a deal with the holder of the original recording, which was a big hit at the time. “We were told it was going to be a 50/50 split, and then they saw how well the record was doing,” Verve Bassist Simon Jones told the Toronto Star. “They rung up and said we want 100 percent or take it out of the shops, you don’t have much choice.”

De La Soul’s current troubles stem from whatever settlements the band made with the rights holders for the samples during the CD era didn’t include digital products (since they didn’t exist back then.) So now someone will have to go back and clear all the samples again. Since hip hop has been around 30 years or so, a cottage industry of clearing samples has risen up. But obviously that will cost money, and potentially a lot of it. I’m sure Warner did the math and the costs of clearing all the samples outweighed the potential of digital sales.  ‘Yeah, no thanks. Why don’t you guys do it?’ De La Soul probably did the same math and said, “aww, let’s just give it away.” Eliot Van Buskirk mentioned in his evolver.fm story that everyone and their mother wrote an article about them giving it away, so it was great publicity for the group.

So the band loses sales, and just as importantly, the customer loses. We clearly need copyright reform, as the laws were written for a different era. What that means has yet to be defined. And it’s eating away at the value proposition to the digital customer. Tracks disappear from all the streaming services for rights problems every day. Some days tens of thousands of tracks disappear from the service for all kinds of reasons. Sometimes it’s legitimate. Other times it’s for arcane reasons. Sample-heavy hip hop bears the brunt of these problems. Many times several tracks on an album will not be available for playback. And anything that loses its rights and is in a customer’s playlists? Well those go away, too.

As you can understand, this problem bedevils customers. Support forums are filled with these types of understandable complaints, from customers who don’t blame outdated copyright laws, nor the labels that decide it’s not worth the effort to clear the rights. They blame the services. Rightfully so. Fixing rights issue remains one of the diciest, costliest and least understood problems streaming services face.

Compulsory Background Reading

Evolver.fm: De La Soul Makes Music Free in Copyright End Run

Rethink Music: A Compulsory Sampling License

Billboard: Steven Tyler Against Compulsory Remix Licenses

US Copyright Office: Copyright Policy, Creativity, and Innovation in the Digital Age

Independent Lens: Copyright Criminals (documentary)

Game of Thrones

HBO GO Bends (But Doesn’t Break) The TV Bundle

Game of Thrones
Keeping up with the Starks, Lannisters and Targaryens is easy with HBOGO. Which is good for you and HBO too.

In Time Warner’s recent earnings it was reported that HBO saw continued growth of subscriber numbers and CEO Jeff Bewkes commented that he didn’t see any reason to change the company’s primary revenue model of bundling the service with pay television providers. Many were disappointed, as they would like HBO to be freed of the tyranny of the bundle, so that they could subscribe directly to the service.

I don’t think people really understand the money at stake here.

Allowing customers to buy the app directly would seriously cripple the bundle model and deprive Time Warner of a revenue source that has been sterling for the company. But the company was smart enough to understand the usage trends and built the HBO GO app for smart televisions, tablets and phones. I’m sure they were hearing strong demand from their subscribers on the subject.

As Jenna Wortham reported last April, there’s a workaround to get the service. Share the account. That’s right, more than one person can watch HBO GO at the same time, as long as they have a legit username and password. So your  friend can slip you the credentials, and voila! All the Game Of Thrones you want. Jenna talked to an HBO exec who mentioned he didn’t think it sharing accounts was a problem (for the record: it’s illegal to share credentials in many states and violates the end user agreement that governs the app).

From my experience at Rhapsody, content owners are extremely worried about shared accounts. The working theory is the dorm floor problem: one person subscribers and everyone on the dorm floor uses it. How much this goes on is questionable. What isn’t questionable is that customers hate one account, one stream. We could only allow for a single stream on all of our products, regardless of what the customer paid.

Stream Finder

Here’s what I think is going on. HBO knows what’s happening with multiple streams on an account. And they don’t care. In fact they are using it as a rear-guard defense for the day when the bundle goes belly up. Because they’ve produced most of the content on the app (it’s easy to forget the company started by offering second run movies and not the producer of must-see series), Because they’ve produced so many of their own series, HBO has much more latitude with what they can do with the catalog. So while other competitors may have to limit access due to licensing agreements, HBO allows some sharing (I hit a roadblock after starting three streams). It leads to fewer customer problems, but might it also be building their next generation of subscribers?

HBO is probably just as worried as any other content creator that one day the Comcasts or DirecTVs of the world won’t be able to send them a bankload of cash for their series and movies, as people cut the cord. It’s also clear that there is unmet demand for people who just want to pay for the service. But probably not enough to make up the innumerable Brinks trucks of money carriers provide. Until that day, HBO is being lenient because they want everyone to get addicted to using the app so that they can’t live without it. And the day they pull the trigger on direct to consumer sales for something like $30 a month, those people will sign up faster than you can say, “Red Wedding.”

Which brings me to an advantage that can’t be understated: the water cooler effect (which could also go by its other the name–Twitter). The more people who watch a show, the more they are going to talk about it. And the more people talk about it, the more buzz the show creates, making it required viewing. So by being looser with streaming rules HBO is building stronger social buzz around the show. I don’t have data to support it, but the Game Of Thrones (don’t tell me, i’m still behind) last couple shows in the previous season seemed to be so much bigger than it had in the past, which led me to think that more than their subscriber base watched it. Could that have been the HBO GO effect?

Maybe we should think of HBO GO as really cool club. As long you know the one person who can get past the bouncer, you’re all good.

More Single Stream Fun

NYT ($$$): No TV? No Subscription? No Problem

GigaOm: Time Warner Next to Embrace Cheap HBO Bundle

WSJ ($$$): HBO More Profitable Than Netflix But Slower Growing

Engadget: Time Warner Making Bank On HBO

Forbes: Is It Time For HBO to Sell Direct To Consumers

SocialBakers: How Game Of Thrones Conquered Social

Smart People to Follow On The Topic

Jenna Wortham

Robert Tercek

Jason Hirschorn

David Carr

Om Malik

DirecTV

How To Lose A Customer Forever

DirecTV
It’s a good deal for the new customer. But not so much for the current subscriber.

I’ve been a strong advocate of satellite television and have been a subscriber for over a decade. And to that end I’ve been extremely loyal to my provider, DirecTV. I’ve had the service in three different residences. I paid for the highest tier of service just to get everything–no need to mess around with the budget tier only to find out I don’t have NBC Sports Network when the Tour de France comes around. I subscribed to MLB Extra Innings package just so I could have it on my TV to watch the Cubs every day I can stomach it (which, I know, questions my sanity).  I have put up with an excruciatingly slow guide experience as compared to cable. But how did I know last November when I finally converted to HD after holding out for years that it was sowing the seeds to destroy our relationship.

When I moved this time in December, I was bummed to find out we don’t have access to the southern sky, which means no satellite. I called up DirecTV and told the customer service rep regrettably I had to quit for now, but I would come back when I could. So I was kind of surprised when the rep said there might be an early termination fee (ETF). Does an 11-year subscriber sound like someone who’s terminating early?

Fortunately I was relieved when the rep said that the ETF was waived since the HD receiver I added last year was replacing a box. All I had to do was to return the receiver to DirecTV in a shipping container the company would send me and we’d be set. Since I left my receiver at my old place, I asked the rep to send it to my friend who now lives there. The rep said sure, no problem and we we were set.

Until I got my final invoice.

Instead of a check for a partial month of service, I got a bill. It seems that I did have to pay the early termination fee, and unlike a cellphone company ETF’s that get smaller every month of the contract, I had to pay the whole $200. By the way, when I ordered the new receiver, the rep didn’t say I was signing up for a long-term commitment with DirecTV. Oh yeah, and I had to pay $199 for the privilege to lease, not buy, the receiver. And since the rep didn’t address the return boxes to the new occupant, they were forwarded to my new place in Seattle, meaning I got it nearly two weeks after the company mailed it. So DirecTV also tacked on another $150 for not returning the box within their seven day rule.

In all, DirecTV believes I should pay $549 for upgrading my receiver. Oh yeah, and since I’ve upgraded that receiver, I’ve paid $2300 in fees for the DirecTV service, which I still think is great.

So this is DirecTV customer service. Call up and ask for a new HD receiver, don’t get informed of a contract. Call up to cancel the service, not informed of ETF fees. DirecTV screws up sending shipping materials, pay $150. And DirecTV consistently scores high in JD Power and Associates Best TV Service Provider ratings. If DirecTV is a good service, what must be going on at a crappy service like Time Warner? Do they send thugs out to beat up their customers?

Okay, I know this is just my personal customer service rant, but there is a business and technology issue here. Subscription services love that customer have skin in the game. In music we were happy that customers would download tracks, make playlists and share with friends. It meant a majority of customer weren’t going anywhere anytime soon. And we’re invested in many of the same ways with television. I was recently trying to sell the value of DirecTV (pre ETF-GATE) to a friend who was moving to a new place. He couldn’t even consider it. His partner had all her shows from her service on her DVR and she wasn’t about to change. “It’s the third rail of our relationship.” I get it.

But in some industries, like cable and cellphones, the value of the new outweighs the old. Just for kicks, I went to the DirecTV site and as a new customer, I’d get a state of the art HD DVR for free and I’d receive half off programming for the first year in a two year commitment. For the $549 they want me to pay for the ETF boondoggle, I could get a nine months of service. DirecTV is in a war with cable and Dish to win subscribers. So acquiring a new customer is prioritized over making current ones happy. The company obviously figures that they have their hooks into their current customers really deeply, either from the product, equipment or just good ole inertia. After all, who wants to deal with customer care unless extremely motivated.

This is a massive mistake. Acquiring a customer is really hard and costly. Keeping a current customer happy is much more economical and leads to much higher satisfaction of the entire base. You can abuse your customers as much as you care to when a company holds quasi-utility status, where the options are limited. But the explosion of choices in media has meant that people can cobble together their own experience outside of traditional options for entertainment. A combination of YouTube, Netflix, Hulu and a host of other services is starting to fray the bundle pay televisions have had for a long time. The war for the customer is getting much more challenging every day. Here’s a few of guidelines for retaining customers.

Create a lifestyle turnstile: A couple years ago a product manager at Netflix told me they weren’t acquiring any new US customers, but instead they were just signing up former customers. He found that customers came and left the service for a variety of reasons, mainly due to seasonality. Companies need to consider what is going on with the customers life. Perhaps they just can’t afford your service that month, or maybe they’re going on long vacation. Companies should think of their services as a turnstile that allows the customer to join and quit at will.  I would suggest making it as easy to quit as it is to sign up for the service.

Carrots Work Better Than Sticks: I don’t have the data to know if Early Termination Fees actually work in keeping customers around. But I know what they’re very good at: terminating any good will you have with a customer. I sorta get the reasoning for cellphone companies to charge you a fee for leaving early, as they are deeply discounting the cost of the phone. But it’s so unclear why you are paying what you are paying. I’m sure it’s clear how I feel about the DirecTV ETF. It seems like that one was strictly designed to stick it to someone leaving. I would suggest customer pleasing offers (free month of service or upgrades on equipment) make more sense than using a lock and chain on your customer.

Set them free: Look, everyone wants to save the leaving customer. Keeping a customer by giving them a better offer is always a great way to tease out what the customer complaint really is about. Maybe it’s the cost. Maybe it’s the value proposition. Maybe they just need a break. What really gets me is when you get multiple save attempts at saving the customer. It’s is really aggravating and can leave a bad taste in a leaving customer’s mouth.

More Topical Linkage

NYT ($$$): More Cracks in the TV Business Model

Businessweek: Netflix, Hulu and the New Definition of Reruns

Bloomberg TV: T-Mobile Moving Whole Industry Off Contracts

HuffPo: The Secret Magic Behind Netflix Customer Service

WSJ ($$$): Amazon Considering Pay TV Service

FT (reg required)US Cable Musters Forces to Meet Upheaval

The EconomistThinking Outside the Set Top Box

How Streaming Music Continues to Fail Artists

Streaming services could get fans as close to their favorite artists as they get at SXSW.
Streaming services could get fans as close to their favorite artists as they get at SXSW. That’s Alabama Shakes in 2012.

Perhaps it’s the news cycle, the launch of the next-big-thing or just simply boredom with the topic, but it sure seems like we’ve forgotten the meme of artists getting ripped off by music startups.

Nearly all last year this was a huge topic with artist like Thom Yorke and David Lowery menacing pitchforks at Spotify and Pandora. One of the major problems with the streaming services is they can’t have a frank and honest conversation about how much they pay for their content.  Because of their confidentiality agreements, they are bound to not discuss the financials of their deals with major labels. I’m sure it’s frustrating for Daniel Ek to pay out a billion dollars for the rights to music only to hear David Byrne call Spotify evil.

In December Spotify posted an extensive site that breaks down everything from the formula used to determine payments to specifically how artists are compensated. While the site lays it all out nicely, it kinda buries the real message to artists. The unsaid message goes something like, ‘We paid out a crapload of money for the music. But we don’t pay you directly. We pay the label, so go talk to them.’ Also it shows how future growth will make those moderate sized payments grow to gargantuan numbers, which you need to squint really hard to see.

Fair enough. At least when you consider music playback. But I don’t consider that enough and neither should artists. You see, streaming services really should be vibrant active communities of fans who love their favorite artists. But today, they most definitely are not. They are primarily flat, with stale boilerplate content and the charm of a filing cabinet. Even the recently launched Beats Music had nearly the same execution of artist pages as all the other services, (although I have seen some screenshots of a nice implementation of Topspin’s artist commerce in the app, so I’m assuming that the features will roll out soon).

What streaming services must do is find a way to authentically connect fans to the artists they love. And they should provide ways for the artist to directly speak to fans on their platforms. It’s one of the trickier problems for artists today. Fans are listening everywhere from Pandora to Spotify to Soundcloud to iTunes. But unless the fan reaches out directly through social channels or the artist’s website, they won’t know what the artist is up to. And if they’re not paying attention, a fan can miss it on those channels too.

Let’s take a “use case” as we say in product development. Let’s say I happen to be walking through Billy Reid on Bond Street and I ask the well-coiffed dude behind the counter what was that beguiling song emanating from the speakers. “Oh, that’s Lord Huron. Great band.” I pull out my smart phone, download it using my favorite streaming service and dig into it for the next week. But when I finally get around to checking out the band’s Facebook page for concert dates, sure enough they played in Seattle two nights before. Fail!

My service knows I like the band, since I’ve played it incessantly for the past few days. And since I have the app downloaded it also knows where the hell I am. So why can’t it suck in all the concert dates and let me know that I’m about to miss the band in a super small venue (The Crocodile in this case)? And maybe I couldn’t get to the Crocodile, but I should be able to buy a poster or a tee shirt, right? Maybe I want to connect directly to their @lordhuron and read all their updates while I listen. And why can’t it look at all the other verified @artist tags that Lord Huron is following to give me a list of bands that I might like?

Let’s keep in mind, my use case is of an, um, older demographic. There’s a whole generation of fans who crave direct connections with artists and their needs have yet to be defined. There is so much discovery work that needs to be done to figure out what those products and offerings should be. We’re just getting started on what the best product will look like and what people will need.

Services need to shift the way they are thinking about artist engagement. It’s not just a place where fans listen to music. It should be a place that unites the information and offers from artists to create a unified solution for the fan and also be a platform for artists to market directly to the fans that care most about them.

The bad PR streaming receives right now is because they haven’t scaled enough to make up the revenue difference in flagging physical and digital sales, and these services are hot so they become the punching bag. But the services do have the superfan, the ones that live and die for the artist. They might still buy all the band’s CDs. They make it a priority to see the band when they roll through town. They might even buy a $1500 ticket to take a cruise or travel long distances to see a festival.

Solving this problem should be one of the top priorities for every service out there. Until the day that happens, we’ll be talking about the micropayments for plays and waiting for scale. I’m sure this is discussed at every service, as we used to talk about it all the time. There have been a few early initiatives, like Spotify’s integration of Topspin commerce into their desktop applications or Rhapsody linking Bandpage’s Experiences within their apps, it hasn’t been focused on mobile and personal, which are the two key ingredients for the fan to take action. Addressing those valuable modes will power increased engagement and, hopefully, revenue.

Trust me, I know all too well the jammed up product roadmaps that services must juggle. There multiple competing projects all the most urgent priority. But completing this work will go a long ways toward changing the conversation and building new value for both artists and streaming services.

Links for the Obsessive

The GuardianWhy David Byrne Is Wrong About Spotify

MediumWhat Streaming Music Can Be

WSJ (Requires $$$): An Ode To Joyous Streaming

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Post-cociousDavid Byrne Tells Streaming Services To Get Off His Lawn

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.