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?
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.
There are two numbers that you need to pay attention to in order to make sense of Apple’s breathtaking acquisition of Beats Electronics. Neither of them is the rumored $3.2 billion price. They are 13.3 and 800 million.
The first number is the percentage that music downloads have decreased in Q1 of this year compared with 2013. This is on the heels of a 5% decrease last year, so it’s looking like the decline is picking up speed. It’s pretty clear that the download era is waning and Apple knows this better than anyone. I’m sure the company has a phalanx of data analysts poring over projections and understand that the rate that customers buy downloads might not be in a freefall, but it could be coming quicker than anyone expects.
It’s pretty clear when it comes to the choice between buying downloads or using a streaming service, customers are beginning to choose streaming. But so far, Apple has sat out of the subscription music trend. After all, the Book of Jobs says that customers wanted to own rather than rent music.
Those days have passed. Apple needed to hedge their bets and get into streaming. But instead of building another bolt-on to iTunes as the company did with their underperforming radio service, Apple decided to speed their way to market by purchasing a hot new service that had a lot of buzz, but hadn’t scaled so much that it was prohibitively expensive. Beats is the most viable of all acquisition targets.
While music purchases may be falling, it’s still a big business for Apple. So instead of creating another option in iTunes that would potentially cannibalize download sales, why not just buy a service and keep it separate? Streaming blows up: Apple wins. Streaming doesn’t pan out, well, it will still have the iTunes store chugging along.
In The Cards
The second number refers to the 800 million iTunes accounts, most with credit cards on file. Those credit cards are the keys to the kingdom for anyone who wants to sell something in the store. Apple charges a 30 percent premium for companies to use their in-app purchasing system, where a customer can subscribe directly from the native app.
After Beats Music’s troubled launch period didn’t produce many subscribers from the 7-day trial, company executives were calling around to see how other firms dealt with the 30 percent Apple tax (answer—you eat the $3 per customer a month). In late April, Beats launched in-app purchase and the results were stunning. Their iOS app became the number one overall free app.
Just as important as in-app purchase is getting featured in the iTunes store. Placement in the iTunes store can make a hit out of an app and can mean hundreds of thousands of downloads. Combined with in-app purchase, the store is a kingmaker that can make or break a company. So once Apple integrates the Beats app, it wouldn’t be surprising that the app will get a permanent featured position in the store. Cha-ching.
Oh, and that $3.2 billion price tag? With Beats Electronics’ hardware business already creating significant profits, Apple’s purchase price could be covered within a couple years. So in essence the company is getting into streaming music for a song.
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.
Last week I had a conversation with former Slacker exec Jonathan Sasse to discuss the much anticipated Beats Music launch. While you’re at it, check out many more podcasts from Kyle and Cortney in their Upward Spiral series.
Yesterday was the coming out for Beats Music service. A glitzy ad for the service featuring, Ellen DeGeneres fit in nicely amongst the cheesy car and beer commercials during the Super Bowl, though it wasn’t one of the more popular ads according to the reigning expert on these things, Hulu’s Ad Zone. Seeing that it was a game for only about a quarter and a half, it would make sense that anything airing in the second half would be forgotten. But beyond Beats were many other ads for digital music products. Sonos’ strange Color spot. Shazam had its vehicle fleet wrap branding all over a car commercial. U2 giving away a song on iTunes thanks to Bank of America. It’s reaching the point when digital music is embedded in nearly every initiative. There’s a saying that there’s no such thing as e-commerce anymore. It’s just commerce. Much could be said for digital and the music industry. It’s a necessary part of everything we do.
Of course there was much gnashing of teeth and wailing over Bob Dylan’s ‘sell-out’ Chrysler ad on social channels. There was something slightly unseemly about the spot that included archival footage of Bob’s early era mashed up with pool hall shots and Bob affirming “We will build your car.” It was a bit strange, but whatever. I would suggest the time to complain about the latest icon selling out by placement in (mostly car) commercials is well over. I didn’t hear much complaining about Dylan’s 1966 song “I Want You” in a yogurt ad that features a mighty mean bear almost right before the Chrysler ad.