Executive Turntable: Can Classic Label Talent Transition to Digital Formats?

Warner Music Group Grammy Celebration Hosted By InStyle
Lyor Cohen knows all about how to rub elbows with artists like Elvis Costello and Diana Krall, but how will that rub off on YouTube?

Old-school record executives seem to be joining new-school digital music companies in increased intensity.  In the past few years WMG’s Stephen Bryan (Soundcloud), Interscope’s Jimmy Iovine (Apple), UMG’s Amanda Marks (Apple), super-manager Troy Carter (Spotify) have all been wooed to some of the most prestigious companies.  Last week, the big kahuna Lyor Cohen, former CEO of WMG and founder of Def Jam, joined YouTube as head of music for the company. And  it isn’t some honorary title, where he deals with artist and industry relations. He’s running the whole thing!

What’s going on here? Obviously these companies all know they need to beef up their ranks with people who know the ins and outs of the music business. After all, a good relationship with your content supplier is extremely important. But it’s only one factor in building a successful music company. There are other essential skills that being a good label executive doesn’t necessarily provide the appropriate experience.

First let’s get something straight. All these label execs are eminently talented. You don’t get to the top of  label orgs without a herculean work ethic, serious business chops, and massive brain power. But getting to that level doesn’t  necessarily mean you can run other complex companies. After all, CBS Records’ Svengali Walter Yetnikoff might have built the company into a powerhouse, but it doesn’t mean he was qualified to do Russ Solomon’s job at Tower Records.

Record companies do many things; but at its core is scouting, locating, and developing talented artists. It’s a tough job we discount too often. You have to have a great understanding of art and a finely tuned ear to what people will respond to. But digital music companies have different needs: product development, technical acumen, and a keen understanding of what users will find compelling enough to open their pocketbooks. You also must know how to lead tech teams and understand how people use and adopt new products.

While there obviously is some overlap between these two diverse core skills, there’s a lot that doesn’t fit. We’ve seen this manifest when companies try to move into the other’s turf. Labels time and time again have failed at direct to consumer offerings. The efforts have gotten considerably more ham fisted as technology has played a larger role in the  industry. From its inability to secure files on CD and all the way up to the ridiculous Now! subscription service that rolled out just last week, nearly every label’s tech initiative  or direct-to-consumer offering has underperformed or been an outright disaster (Pressplay, anyone?). Likewise, digital music services struggle with artist relations, leading  to wary feelings between artists and digital services, or straight-up hostility.

DNA Mismatch

Both labels and digital services struggle to meld because they’re so different. At their essence, labels are about artists. Everything is built around finding and developing great artists. Talent is also the core talent of most senior execs at labels. Sure, there are probably great dealmakers, technologists, and marketing whizzes working at UMG, but ultimately, it all serves the artist. Meanwhile the digital services are all about the customer. And yes, artists are vital for services, but if push comes to shove, product development, not artist development, wins.

So when labels end up going directly to consumers, they’re on unfamiliar turf. Likewise, when Tim Westergren says something that sounds awfully stilted to the artist community, it’s because he’s not capable of fully serving both sides. Ultimately, he must side with his listener. You can bring in label talent to the music services to help co-mingle the two sides. But it won’t change the DNA of the company.

Free Advice

Look, I’m not telling you that digital music services are the model of how to build the modern company. Spotify isn’t Jack Welch’s GE or even Reed Hastings elite-level Netflix.  There’s a tendency to rely too much on technical solutions and not enough focus on customer problems, which leads to a functional–but not a very warm–product.

So if I were to give advice to say, a new executive at, say, the world’s largest free music listening service, I’d suggest following a few axioms about how to build his or her new team.

  1. Empower Product Leaders
    Too often we end up hiring product development professionals but don’t empower them to make decisions. Product is the core of what these companies do and to fully take advantage of this, you need great product talent in leadership positions. When you don’t own the content, you have to win on product, full stop. And yeah, I’m a product guy, so I’m biased. But I’ve seen what happens when you don’t prioritize the right talent in the right roles, and it’s not pretty.
  2. Practice Design Thinking
    Although tech products are much better today than even five years ago, we have a long way to go in building out thoughtfully designed products. You can tell a massive difference in Spotify versus a company where design is front and center like Airbnb. If you start with design solutions, rather than technology ones, it will resonate a lot more with your users. Cool tech is just that. Cool. Solve problems first and foremost, my friends.
  3. Different Analytics For Different Goals
    Labels have invested in analytics teams in varying levels. Most of these  efforts– including UMG’s exceptional data analytics team and Lyor’s start-up The 300– used data to identify artists that will perform best, which is just an evolution of what labels always have done. Spotify and YouTube have both invested heavily in solutions to solve ‘what to play next.’ While YouTube’s recommendation products are good, they don’t have the sheen of Spotify’s Release Radar, Daily Mix, and Discover Weekly, perhaps the best of all the technology centric recommendations. The lesson here: using data science and machine learning to create superior user experiences is the foundation of any successful digital music product.
  4. Market Like A Retailer
    If there’s been one element missing from most services, it’s figuring out how to sell them to mass audiences. At its core, the pitch seems to be “Hey, you like music. Well we’ve got lots of music. Come get some!” Okay then! The services need to get better. While it’s clear that music services are different than retail, the attention to detail and stronger relevance to the customer’s life would help the services define a) what they are and b) who they are for. Without that kind of definition, mass consumers will continue to pass.

None of this stuff is surprising. Let’s just file it under ‘doing the basics really well.’ But the labels, and the people who built their careers with them, still seem like they are steeped in another era. Digital is different, and building an elite team that can navigate this competitive market requires a different skill set. A phenomenal product team is today’s A&R. Invest wisely.

Billboard: Lyor Cohen’s Move to YouTube: Good Or Bad For The Music Industry

Hypebot: Music Industry Uncharacteristically Silent about Lyor Cohen to YouTube

Bobby Owsinski: YouTube Misses The Point With Lyor Cohen Hire

Consumerless Recovery: Music Revenues Are Up But Is More Pain Coming?

News this week, for once, was positive for the music business. The RIAA released its report for the first half of this year and there was an eight percent growth in revenues over the same time 2015, thanks to subscription streaming. At long last, after years and years of losses, we’re finally on the other side of the decline and now we’re going to see a huge run up of revenues as the industry continues to grow like gangbusters. At least that’s what you’d think from the headlines. I agree: it’s a good result. But there are also troubling signs in the numbers.

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Source: Recording Industry Association of America

You see, while revenues are up, the number of people who buy music has steadily fallen for the past decade. According to MusicWatch, a music industry research firm, the number of people buying rebounded a bit in 2015 to 85 million, it’s still significantly down from the buying population 10 years previous.

Not all consumers are created equally. Over the years the average consumer spent around $50 a year on music. Sounds pretty good, right? Well, the average consumer only about about 1.5 CDs a year. So how is that possible. Well, there was small number of consumers who bought 10 or 20 times what most consumers did. I used to see this all the time in line at my local record store. I’d be wondering if I should be buying the 10 CDs in my hand on my meager first job salary (the answer was no). Meanwhile, the woman in front of me was buying the Debbie Gibson CD for her daughter. It most likely was the only CD she’d buy all year.

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Sources: MusicWatch and U.S. Census Bureau                     Music Buyers in Millions

This has all changed in the subscription era.  We’ve flattened that curve between the casual buyer, who only bought Adele’s 25 last year, and that obsessive-compulsive music nut who happily subscribes to Spotify. Sure, the nut is still spending much more than casual fan. But at $10 a month, it’s capped at $120. And yes, the music nut might also purchase vinyl, buy up posters at Flatstock, and attend music festivals, but they don’t have to pay more for all that music. Many super fans I interviewed to while working at a streaming service thought they were getting away with something by only paying $10 a month.

The theory of the streaming era is that we’ll produce so many more subscribers, that we’ll make up the difference in revenue. But thinking that casual fan will pay twice as much as the average consumer spends is fairly flawed logic.

Especially when one considers how people are listening today.

 

Based on MusicWatch’s recent audiocensus report, more than 70% of all listening today is on services that are free, like Pandora, YouTube, Spotify’s free service and iHeartRadio. Because when faced with the choice of $10 a month for something they use rarely or free, casual fans choose free. Duh. Hence the massive decrease in the percentage of buyers.

Much like how the U.S. economy recovered in the years after the housing market collapse, but only with many fewer jobs, the music industry is recovering. But with many fewer customers. And the pain is just coming. Compact discs may only be a shadow of its former self, but there were still 38 million CDs shipped in the first half of this year. Question: when was the last year you bought a device that can even play a CD? While vinyl and even downloads have a purpose and will maintain some attractiveness, my contention is that CDs will go to zero. This, my friends, is a problem.

So what can be done?

Perhaps address the product itself. Streaming services main use case is access to all the music. While it’s great for the fan that knows what she or he wants to play, it causes more problem than it solves for the casual fan. After all, how many times do you sit at your computer and not know what to play next. Even with 30 million songs only a seconds from a search.

Considering after all these years peddling subscriptions to consumers, we now have a total of  18 million subscribers in the U.S., I’m sure it’s safe to say that the $10 all you can eat music subscription isn’t the product for anything but the super fan. Will there be more growth? Yeah, sure, no doubt. Can it grow to 50 million? Doubtful.

So what about lowering the price, which has been bandied about as a cure all? Beyond the fact that rights holders won’t budge on price, it probably is the wrong product for those who like to listen occasionally. “Casual fans have different needs than super fans and may be fine with a more basic experience,” Russ Crupnick, managing partner of MusicWatch, told me via email. “So converting them to paid requires a different set of strategies and tactics. Lowering price alone won’t automatically convert them into super fans.”

Last week Pandora announced improvements to its free service as well as Pandora Plus, a product that merges a few on demand features, like more skips and the ability to save tracks to the phone for offline use, to its core experience. Can the new product as well as Amazon’s planned subscription service, which apparently will share Pandora Plus’s $5 price, help? Perhaps.

But those are just two ideas. In the world of product development, it takes many attempts to find the perfect product market fit that people are willing to pay for. Licensing two and saying ‘okay, we’re done,’ is not going to cut it. It took 15 years, a handful of flopped companies and at least a couple hundred million in funding before AYCE streaming services finally produced a billion dollars in revenue. My guess is that it will take years to attract the casual fan. Fact is, we’re going to need wave after wave of ideas to grow customers again.

Variety: Music Streaming Wars: Consolidation Looms as Lower Prices Kick In

Music Industry Blog: Have Spotify and Apple Music Just Won The Streaming Wars?

 

 

Don’t Look Back: The Return of Napster Highlights a Company Running Out of Options

Oh Rhapsody! Or should I say, oh Napster! The pioneering Seattle-based streaming music company yesterday finally announced a long-planned rebranding of its service to Napster. While it certainly got some attention, it wasn’t exactly the kind of attention one craves.

Basic RGB

[Disclosure: I argued about which brand to support while serving as VP of Product for Rhapsody International until 2013]

Rhapsody acquired the Napster brand when it bought the assets of the company from Best Buy in 2011. Instead of rebranding the service Rhapsody in Germany and the UK, the company has operated two brands since—Rhapsody in the States and Napster internationally.

So it would make sense that the company would need to unite under a single name. We can all agree that Rhapsody hasn’t been a powerful brand. It’s better known as your Dad’s first streaming service, back from the days when you had to listen to on the computer or on a weirdo MP3 player (Philips Go Gear or SanDisk Sansa, anyone?) but definitely, absolutely NOT the iPod. When we did surveys on the brand back in the day, the overwhelming consensus from music fans was, ‘meh.’

While the company Rhapsody International has had some success growing recently, it’s all about Napster. All of the company’s expansion in past few years in Europe and Latin America has been under the Napster brand. Meanwhile, Rhapsody has failed to find traction.

As I have written about before, Rhapsody’s strategy is to focus on cell carriers to market and sign up users, as it does with e-Plus in Germany, Telefonica in Latin America, and Metro PCS in the United States.

Rhapsody has a loyal core of high margin subscribers who have been with the service for years. But those numbers dwindle each year as new products come into the marketplace that are aimed directly at the music fan. I’m sure the execs in Seattle had a number in mind when the company could roll out a new brand without risking a mass loss of revenue. So, now they have nothing to lose.

Napster is a powerful brand, bringing back a strong sense of nostalgia for many music fans. So I can understand the temptation to want to utilize that asset. However in the United States, Napster’s negatives are huge. Most consumers still associate Napster with stealing music. And it’s just not potential consumers. Sources tell me that at least one major label is not very happy with the return of the brand.

Look, the world has changed. Does it make sense to continue to look back to an era when people (again, your dad, if you’re a young Millennial) stole mass amounts of music, or should the company look ahead and come up with a new name that is associated with something else than the early days of digital music? I mean, if the problem is that Rhapsody is an old tired brand, why do you go back further in the past and pick a name that has more baggage than Samsonite? And no, ‘just because we had this brand laying around’ is not a good answer.

My personal favorite would have been the original proposed name for Rhapsody, Aladdin. Equally difficult to spell, but somehow apt. You just rub the magic lamp and watch money disappear.

 

 

Accordion Games: Why Spotify’s Free Service Should Constantly Grow And Contract

Here we go again.

Spotify is running into trouble with someone else in music. This time it’s the behemoth Universal Music Group. UMG’s CEO Lucian Grande woke up one day and figured out that Spotify was giving away too much music and it was impacting digital sales, which have slumped considerably. The company controls a considerable amount of popular music throughout the world. In some markets it’s as much as 40 percent of all music sales, so when it doesn’t like something, you can be assured that something’s gonna change. Outside of the absurdity of all this, there is a point here. And it comes down to the funnel.

You see Spotify uses free music as a customer acquisition funnel. By getting the largest number of people possible playing music, Spotify believes that it can convert a significant number of them into the paid products. Spotify has pushed to create the biggest funnel possible by giving unlimited free music on the desktop, and allowing shuffle play listening for free on mobile phones.

All information has shown that Spotify has had a great year. Its growth numbers in free and paid listeners has grown tremendously. Early data signals are showing that Spotify ate into other free services, like YouTube. And while the company wheels out data points that claims it hasn’t eaten into iTunes sales, it bends credulity to believe that Spotify hasn’t eaten into track sales.

Think Accordion, Not Funnel

The main point of Spotify’s troubles  comes down to how it considers free playback. The company would have much more success in identifying those who would pay by considering free as an accordion that expands and contracts from time to time. Instead of 100 percent free plays all the time, the company could limit free playback occasionally, or better yet, carve up its user base into intelligent cohorts based on their playback behavior and value to the company.

So if listener creates awesome playlists that gets tons of followers, that person gets as much free music they want. If someone shares more playlists than most, free music. If one has more active friends, give ’em free. The company could even create scores based on user’s future possibility that they might subscribe and keep them around. Others should see a wall when they get to a certain number of plays. And when Spotify’s funnel starts to collapse, open it up again. Free music for everyone.

It has been my contention that sooner or later, Spotify will have to have a system like this in place. Right now, the content costs are crushing to the company, and eventually, playtime will be over. Time to get the books right. But right now in its run-up to an initial public offering the company is 100 percent focused on growth. Therefore, it must keep the funnel as big as possible.

And finally, it’s absurd to think that the major labels are going to do anything to jeopardize Spotify’s IPO. All the labels own a chunk in Spotify and will benefit from the IPO. It could be big money. Just last year UMG made hundreds of millions on Beat Electronics sale to Apple. So free music might be more limited sooner or later. But let’s not pretend free music is going anywhere before Spotify makes labels millions.

Jonmaples.com: Major Label Are Truly Home of the Free (Music)

FT: Universal Takes On Spotify’s Free Model

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

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