2015 Digital Music Predictions

The past year was a doozy for digital music. We saw Beats Music come and go with a rush, Spotify grow significantly and digital track sales hit the skids as streaming continued to grow in popularity.

And for everything that happened, 2014 probably will be remembered as a transitional year. Big players like Apple and YouTube have yet to really show their cards. The impact of Spotify as a worldwide music platform has yet to really take hold. Many existing services still continue to solider on, despite significant changes that have impacted the marketplace.

The next 12 months will see a significant reshuffling of the deck of existing companies and new entries. We might also start to see the outlines of the future as the next generation of music companies start to debut. Because one thing that remains constant: there’s always someone who will invest in digital music, regardless of the financial results or past performance.

My picks for the top stories for 2015:

Say Goodbye: At Least Two Services Will Consolidate

We are moving quickly from a startup world into one where the big boys are playing. Apple and YouTube will join Amazon and Google Music Play All Access as the giants. While I have grave misgivings if their product offerings will be very good, it might not matter. With access to their digital stores, consumers might just activate the AppleStream or Music Key apps just because it’s simple.

Other companies will find themselves at risk, especially those who are forced to market their services directly to consumers. Rdio, Deezer, Wimp (Tidal in the US), Rhapsody, Slacker and a host of others will come under pressure to find alternative ways to market to customers, band together or go the way of other failed services.

YouTube Music Key Will Deliver A Flat Note

YouTube has the biggest opportunity to grow paid streaming products. YouTube has a massive audience, which is great. But their audience has been conditioned to consider the service free. There are signs that Spotify has already cannibalized YouTube’s consumers who want to pay for music, which might make it even more difficult for the company to get people to pay.

Because of this, YouTube’s paid subscribers will disappoint the industry during 2014. It might take a year or two for the company to perfect the product and find those who really want to pay for the service.

Apple’s streaming service will be a mess, and it won’t matter

The Cupertino geniuses do many things well. Streaming music has not been one of them. While it has the team from Beats Music to rely on, the company is known to ignore new talent acquired and turn it over to their internal team.

It wouldn’t be surprising to see their streaming service follow the iTunes Radio, which was supposed to be a Pandora killer, but just attracted those who use it because it’s already installed on their device. The company will get it right eventually, but streaming services are a completely different beast than anything it has tried. So expect some serious growing pains.

But because the service will be pre-installed on so many phones, it will sign up loads of customers through in-app purchase. Apple is also pressuring labels to lower the monthly cost of streaming, which could lead to solid growth.

Spotify Will IPO and More Artists Will Window

It is really difficult to judge how the public market operates and many things could happen that could affect Daniel Ek’s IPO prospects. We could see a downturn in the economy. Tech stocks could hit the skids again. The market might not like the prospects of the company’s future when it starts releasing business performance and data. But if Spotify overcomes all these hurdles, it will get its IPO out.

And regardless the stock price, a successful IPO will make many of its employees and early investors a lot of money. Expect to see a backlash from artists after this event, with more and more holding back new music on the service to give retail channels first shot at making money.

Pandora Will Become Musicians’ Most Hated Digital Service

Of all the companies in digital music today, none shows the most contempt for musicians and songwriters as Pandora. While the company has had some outreach, it also has tried to bend itself into a broadcast service to get a lower rate, decided to not pay a single dime for any song released before 1972 (as did XM Sirius), and then had the balls to countersue the ‘60s era group Turtles for violating its first amendment rights.

Pandora is already facing a firestorm for its exceptionally low payments to songwriters, but continues to aggressively lower royalty costs, regardless of how it affects its relationship with artists. While much of the money Pandora is trying to save goes to big corporate conglomerates, it’s the independent artists that always come to the forefront in these stories. Expect the hate to expand in 2015.

Amazon Will Continue To Play Its Game

Seattle’s commerce behemoth will focus on what it always does: keeping its customers buying more stuff. Many expected Amazon to offer a premium service in 2014, but instead the company created a back-catalog offering that kept customers in its Prime service longer.

The company had a rough 2014 with its failed Fire phone launch. While its nose is bloody from that setback, don’t expect that Jeff Bezos’ company will change its game plan. Focus on the customer buying: regardless if it’s a digital download, diapers or dishrags.

2014 In Review: Some of the best stories from the past year.

The Elephant In The Room: Another Cultural Landslide’s very complex and very loooong analysis of streaming music, discovery and the listener.

Streaming Report Card: Music industry analyst Mark Mulligan gives us a rundown on how streaming did in 2014.

Stop Blaming The Internet: Gang of Four’s Dave Allen gives a deep dive into the issues surrounding streaming and artists.

The Streaming Price Bible: David Lowrey’s in depth look at who’s paying what. While I might quibble with Lowrey about why those numbers are so low, the streaming rates on this post is illuminating and depressing.

The Album Cycle: Consequence Of Sound News Editor Chris Coplan looks at the nature of music promotion as the industry is changing.

Five Reasons The Music Industry Hates Pandora The Most: Music lawyer and blogger Jake London lays it out.

Spotify Has Six Years Of My Music Data, But Does It Understand My Tastes: Stuart Dredge digs into the taste profile.

Taylor Swift Announces A World Tour And Pulls Her Music From Spotify: Ben Sisario on everyone’s favorite spatting couple.

Jon Tiger

Into The Wild: A Year of Working Independently Teaches Lessons In Humility, Ego and Direction

I’ll remember 2014 as the year I started to get my stripes back.

The past year was one of enormous growth, as I started the journey of figuring out what was next, who I am and what I want to do. This comes on the heels of a 2013 that saw me leave the company I had determinedly worked at for almost a decade. I say determinedly because I stayed too long and gave up too much in the process. Don’t get me wrong. I got a lot out of it. But after a period of reflection, I began to awaken to what was lost in the bargain.

You see, when things go bad, I have a tendency to bury my head, grit my teeth and just get through it. I grew up in challenging situations and had to deal with whatever got thrown my way, so that’s just my general mode of being. When the end came I had invested so much of my time and effort in the company—and tied myself so closely to it—that I couldn’t discern where the company ended and I began.

The details of what happened were mildly shocking and yet exceedingly mundane. It’s your typical new-guy-cuts-you-out-while-presenting-your-work-as-his-and-positions-himself-as-the-future-while-a-new-investor-demands-big-changes type of thing. My company had a layoff and I was out, along with a whole management layer.

I knew it was coming months in advance. I was ready for it. Steeled even. But afterwards my emotions caught me by surprise. For about three months after the layoff I was confused. And then sad. And then exceptionally angry. And then even more exceptionally angry.

It started three years before the end. In typical fashion, I had thrown myself into a new job and was determined to make it work, regardless of the writing on the wall: the company where I was working at was not the company that I had joined.

You see, my company had to change its strategy because of the massive growth of mobile. It led to many more people using our products, which was awesome. It also became important that the company shored up its knowledge and connections in the cellular carrier business, as those partnerships would turn on an endless spigot of new customers.

Meanwhile since the day I started, the company had lost a long line of what I called the ‘true believers.’ Those who were inspired to change the music industry by creating an addictive experience for music fans and new revenue for musicians. A major turning point occurred when the company lost one of the longest-tenured and most influential of the true believers; perhaps the person who served as our musical soul.

Later, over lunch, he mentioned that he wished he left earlier. Like when it was obvious that things had changed. I made a mental note. I was absolutely sure my time would come, as it had for many of my former colleagues, and I wanted to act before that day. Instead, I took up the flag for the company. I doubled down in loyalty and effort, even as people left and were replaced by new employees with cellular carrier experience instead.

The fact is when the people changed, the place changed. The new direction made sense, but the company had a different feel. Instead of recognizing this, I tried to keep a culture alive that didn’t exist anymore. I even hired a career coach to help me through it. After sitting down the first time and describing my situation, she asked why I wanted to be at my company. Because I have to make it work, I said. But why, she asked.

Her point was that no matter how hard you try a company’s culture is the most important factor in determining your professional success. It might fit you. It might not. If it doesn’t, there is no reason to continue working there.

My coach pointed out that I was trying to fit into a company that seemed different from my values. I listened closely, knew what she said was true, and then quickly ignored the advice. It worked for a while. I got promoted and moved up. But in that exchange, I started to lose something important. My instincts.

I started to question if I really fit. And instead of hearing the words of my coach, I adapted to the new direction. Instead of just being me, it felt like I was playing the part of someone I wasn’t. Granted I learned much from the new regime: you can always learn if you pay attention. But if I’m being honest with myself, I was relying on the trappings of the new direction rather than just being myself and letting that be enough.

So after a couple months of processing and 2014 dawned, I was ready to reclaim me. My release back into the career wild has led me to rediscover my love for writing and analysis, choose who I want to work with and tackle problems that can potentially make a difference in our industry.

And it’s paying off. I’ve attracted a small but influential audience of readers. I worked with a handful of innovative clients. And have found time to consider and communicate new ways to approach the business.

It’s far from easy. There are tough days as assignments and income can be sporadic. Sometimes I lose the thread of what I’m doing. Some days my ego gets the best of me and I wonder if think I’m so good then why am I on the sidelines. Other days, I question my talents and abilities. And I have more work to do. Plus there’s the downside of being highly adaptable: I’ve done many jobs because I can do them instead doing what I really want to do. But instead of losing years trying to fit in, I’m now forced to examine what I stand for and who I am.

I trust myself more. I’m even getting better at introducing myself as Jon instead of somebody who does something at a company. I’ve stricken the ‘we’ when talking or thinking about my former employer and its challenges.

Steve Jobs famously said that getting fired from Apple freed him to have “the lightness of being a beginner.” Today let’s toast that lightness of seeing things from the beginning.

Happy New Year.

Taylor Swift

Taylor Swift Vs Spotify: Fact or Fiction

Well, that was fun. The spin was hot and heavy last week after Taylor Swift said goodbye to Spotify. You had Taylor describing why she left, her label president, Scott Borchetta, offering some facts and figures, Daniel Ek giving his side of the controversy, and a myriad of opinions on what the deal really was about (including mine). So what’s really going on? Let’s take a look at a few of the issues and see if there’s truth or not to the claims.

Number 1: Taylor Swift made a rash decision to leave Spotify

Fiction

Taylor Swift and Big Machine made a rationale decision based on the numbers and what they considered real value and what Spotify is actually paying out. Or at least what they saw in their pocketbooks. Nobody is in a better position in the industry to make that decision than Team Taylor and I’m sure it wasn’t without some deep consideration.

However, the timing of the decision appeared to be made to milk the maximum value out of Spotify in terms of promotion. When an artist is releasing an album, he or she is looking for the largest number of people to know it and hear it. YouTube, Late Night With Jimmy Kimmel, covers of magazines, tv ads, and yes, even Spotify plays its part. Shake It Off was one of the most popular tracks on the service until it disappeared. It also should be noted that Taylor’s catalog didn’t get yanked until a full week after release of 1989, allowing her fans to listen to her old releases before removal Monday, providing lots more headlines and curiosity of her albums.

Number 2: Spotify is not paying Taylor Swift for her music

Fiction

Spotify does have a free-to-the-listener tier. However every spin of her music generates some revenue. But how much? It’s actually a fact that most of the revenue Spotify pays comes from its paid service. But the company doesn’t pay per stream from subscribers. The formula divides up all of its revenue by the popularity of artists/catalog and then cuts a check.

It is unknown how the free plays are paid, but artists have noticed a difference between free plays and paid plays, which could mean that there is indeed a micropayment for every play. Or there could be a much lower active rate per listener.

Spotify says it needs the free service to drive more listeners into the paid tier. Daniel Ek claims that 80 percent of paid subscribers were once free listeners. And Spotify has had great success scaling its business with the free tier. At 12.5 million worldwide subscribers, Spotify paid subs has made all the other services currently in the market an afterthought.

Taylor’s camp also made a pretty strong point about how she doesn’t believe in free music, and had asked to be removed from Spotify’s free tier. Citing how vital free is to its acquisition strategy, the company refused to do so. It might also be pointed out that besides P2P and semi-pirate services like Grooveshark, several of Taylor’s new songs, including Shake It Off remains free on the world’s largest streaming service, YouTube.

Number 3: Spotify Pays Much Less Than Other Services

Fiction

Earlier this week The Trichordist posted a chart of all the per-play “rates” from services and asked if Nokia Music was paying a much higher rate, then why can’t Spotify. Unfortunately, that formula didn’t include the most important number: revenue.

Nokia doesn’t pay more than Spotify. In fact, it pays less. Much less. Yes, the per-play rate might seem bigger. But Nokia’s service is so unpopular and content costs are so high that it appears they are paying much more per play. In terms of real dollars, Spotify is the labels’ number two or three account in every territory worldwide behind Walmart and iTunes. They will probably pay out a billion in revenue in 2014. And remember: this is a company that didn’t exist six years ago.

Number 4: Spotify pays artists

Fiction

For the most part, Spotify has an agreement with and pays the rights holder, generally a major label or aggregator, like Tunecore. The rights holder distributes the money to the artist based on their deal with that entity.

Number 5: Artists have no idea what Spotify pays

Fact

This is where Spotify really gets into really deep doodoo. It is far from clear what Spotify contributes to artists. There’s a ton of reasons for this. Bear with me as we go through it:

  • Spotify has an agreement with a rights holder for the license to the catalog. It can include a bunch of fees due to the label, like a minimum revenue guarantee, an advance, or an equity stake. It’s unclear where these buckets of revenue would show up in a royalty calculation for an artist (most likely, these fees would go to the rights holder’s bottom line and not into a revenue shared bucket).
  • The artist has an agreement with a label. There’s generally a split of revenue, which has traditionally meant CD, LPs and digital track sales. There are also some deductions from the artist’s revenue pool before money is dispersed. Most of these expenses are from a time when the labels made tons of money by egregiously marking up physical distribution and marketing costs. For some reason, some of these deductions at some labels remain in the digital world. There have been some tragically hilarious lawsuits where legacy acts, like the Temptations, have sued their major label for continuing to charge deductions on iTunes downloads when the company clearly didn’t incur any costs. There are also deductions from negotiations with streaming services. As a rule the deductions cover bandwidth, credit card processing costs, and any type of deal the streaming service gets for, say, a discount on the royalty as the label is sharing on the costs to get billing from a cellular carrier.
  • The artist gets an incomplete, indecipherable royalty report from their major labels that shows plays divided by revenue, but nothing else.

A transparent royalty statement doesn’t need to be complicated. It could be pretty simple, but it should detail where all the money went.

At a minimum a streaming royalty report should include this:

  • How many plays I had on Spotify: XXXXXXX
  • How much revenue that generated: XXXXXXXX
  • Itemized deductions from my revenue: XXXXXXX

Spotify’s position on transparency has been tone deaf. I’ve heard representatives say ‘go ask your label’ when lack of transparency is brought up. Without any clarity to what the artist is generating from Spotify and what deductions came out of the revenue bucket, it’s impossible for anyone to make a decision about 1) what’s the value of Spotify and 2) how badly an artist is getting ripped off.

I’m sure there are cases, maybe an overwhelming number of them, where Spotify isn’t actually creating revenue for the artist. But arcane royalty reporting is making it hard for an artist to make an informed decision about streaming’s value. It may be unfair, but Spotify needs to help solve this problem. It’s also clear that the company has zero leverage in changing the way business is done. It makes the company’s mission to change the way fans listen to music seem easy in comparison. At the end of the day, though, Spotify will need to make it much simpler for artists to understand their value and revenue in the service.

Number 6: Spotify Believes That Scaling The Business Will Create Enough Money For Everyone

Fact(ish)

Nobody has grown like Spotify in the streaming. Its revenue growth is phenomenal and they’ve done something that company after company has failed at: getting a mass number of people to pay for music subscription. Daniel Ek claimed 12.5 million subs and 50 million users worldwide. The company did a roadshow recently for artists and showed what kind of monies it’ll contribute when it reaches 40 million subs.

I’ve written about how Spotify’s goal is to be the biggest media channel dedicated to music, but that requires rolling out services around the world. Spotify is still not in some massive markets, like, Russia, India, and China. But it must be pointed out that piracy is so rampant in those countries that there isn’t even a thought about paying for content. The company claims that it has wiped out P2P services in some territories it has launched in. It’s a huge gamble to believe if Ek will be able to convince residence in Shanghai to change their behaviors and start paying for music.

If Ek can accomplish this feat, it could well see a couple hundred million active listeners and 80-100 million paying fans. But it’s not a given that the company will do so.

Number 7: Spotify Is Killing Digital Music Sales

Fiction

First Napster andP2P maimed CDs and then iTunes tore its heart out as it lay dying. Now here comes Spotify that will turn $1 downloads into micropennies for artists. This is the theme you hear from people in the industry. It’s undeniable what P2P did to CD sales.

But it’s questionable that the death of iTunes sales is solely Spotify’s fault. It probably has more to do with consumers having always connected devices with a variety of apps in their pockets. iPod sales have fallen through the floor as the iPhone has taken over. And instead of buying tracks, consumers use Pandora, YouTube, Soundhound, Spotify, Rhapsody, iHeartRadio, Stitcher, Deezer and a flood of other services to fulfill their streaming music needs. Customers have changed their behavior as the technology changed. It’s hard to blame it on one service.

Number 8: Spotify Is Killing The Album Buyer

Fact (with a caveat)

It is true that music fans (like me and probably most people in the music industry) that used to end up with a stack of CDs at the Tower Records checkout line are now getting awesome value. For the monthly price of one CD, that fan now gets hundreds of thousands of releases, available whenever they want. And say you want to keep it for your subway ride to Williamsburg? No problem, just download it as part of your subscription.

But here’s the deal: if someone subscribes continuously to Spotify, they are paying more than double what the average music customer bought during the heyday of CD buying ($65 a year). Spotify’s bet is that it’ll signup enough subscribers to the service and stay with the service long-term that it’ll far outstrip the CD sales. Others believe that even if Spotify scales the business, it will completely obliterate CD and digital sales, further shrinking the global music business.

You can’t blame skeptics for seeing the world as half empty rather than half full, but even in a Spotify-free world, those big customers aren’t coming back any time soon.

Number 9: Spotify is only exists because they’re full of greedy technologists and venture capitalists who want to get rich off musician’s lifework.

Fiction(ish)

Spotify is preparing an initial public offering so that they can fund the expansion of their business. It is true that many employees who work at Spotify will get rich off the IPO and start buying houses, boats, horses and other trappings of the nouveau rich. Investors in the company will also see a payday, including the major labels. But that’s what happens in venture funding.

And it’s also not a given that Spotify will have a successful IPO. Many investors and analysts are extremely skeptical. There is much we do not know about the company. The good thing about the march to an IPO is that Spotify will be compelled to disclose a treasure trove of facts about the business and the risk factors in investing in its stock. It will make it easier to ascertain the company’s long-term prospects. An IPO, an acquisition or even bankruptcy and liquidation all seem possible at this point.

It’s necessary to point out that the big payday is amazingly rare in digital music. You can count successful companies on one hand. More common is the experience of (the legal) Napster, which lost tens of millions for a couple companies before selling to Rhapsody for pretty much nothing. The digital music graveyard is filled with corpses of great ideas, and every day there are new companies popping up that will undoubtedly join the lost souls.

Digital music seems like a good way to turn billions of venture financing into nothing. I hold the overwhelming majority of people (but not all) who start digital music businesses aren’t motivated by the payday. They do so because they love it.

Number 10: Spotify is a good bet for investing

Fiction

Good god, no. This isn’t Joe Montana with the ball and 2 minutes left in Super Bowl XXIII against the Cincinnati Bengals. This is Joe Montana against a coliseum filled with unfed, angry Bengal Tigers (who have a much stouter defense). Okay, maybe that’s a bit much. But Spotify faces huge challenges even if Taylor Swift and Daniel Ek make up.

Outside of the previously mentioned leap of trying to get a majority of the world’s population to pay for content for the first time ever, Spotify’s free service is extremely expensive to run. Some believe too expensive to allow profitability. Additionally, subscription businesses are extremely tricky to get right, in particular if you aren’t a quasi-utility that requires a monthly fee, like a cell phone or cable bill.

In the words of my former boss, Mike Lunsford, this calls for the ‘what would it take for you to believe’ test. Meaning what assumptions will have to become true if you believe that a company like Spotify will succeed.

Here’s my list of assumptions:

  • Spotify will succeed in rolling out around the world and make most of their markets successful, but in particular the big ones, like Russia, China and India.
  • Spotify can build a worldwide channel of music listening that international brands will pay top dollar to be part of, and therefore defer free listening costs.
  • Spotify can convert enough free listeners to paying customers and (maybe even more importantly) keep them paying for a long time.
  • Spotify can keep the cost of acquiring customers (mainly in free music costs) to a minimum.
  • Spotify can pay artists enough money that they won’t follow Taylor Swift and leave in droves, eating into its value proposition and watch customers quit because there’s no music in the service.
  • Spotify can continue its hockey stick growth chart as YouTube’s Music Key and Apple’s iStream launch.
  • Spotify can fix search, which sucks.

Okay, I threw that last one in there. But a misstep in any one of the above could deeply harm the company. Missing on two could potentially add Spotify to the Digital Music Graveyard. Use extreme caution when considering its future.

More Spins Than A Record

JonMaples.com: Following Their Own Beat: Spotify’s Ambitions Outsize Anyone In Digital Music

Time.com: Taylor Swift on 1989, Spotify, Her Next Tour and Female Role Models

The Guardian: Spotify Paid Out $300k To Stream Shake It Off

NY Times: Billboard Changes Charts, Will Count Streaming

Digital Spy: Dave Grohl on Taylor Swift and Spotify “I don’t f**king care”

Spotify Blog: Two billion and Counting

Separation Disagreement: Why Taylor Swift and Spotify Is Not (Just) About The Music

News yesterday shined a light on the new queen of popular music, Taylor Swift. After selling 1.3 million copies of her shiny new pop release, 1989, she made the decision to remove her whole catalog of music from Spotify. It’s hard to overstate the effect this decision has on Spotify. “Shake It Off” was the most popular song in the service. The company said that Taylor’s music was included in 19 million playlists. Obviously losing the most popular artists on the service is a huge loss for Daniel Ek’s company.

Taylor has been a critic of streaming services and strongly believes that album sales are still the way most artists should make a living. In a Wall Street Journal article this July she mentioned that some major artists have given their albums away as promotion and believes this is a mistake. As she put it:

“Music is art, and art is important and rare. Important, rare things are valuable. Valuable things should be paid for. It’s my opinion that music should not be free, and my prediction is that individual artists and their labels will someday decide what an album’s price point is. I hope they don’t underestimate themselves or undervalue their art.”

But is this really about free? After all, streaming services pay for the right to play the music, as do Internet radio services like Pandora. And if we’re going to really discuss about free, shouldn’t we discuss YouTube, which provides so little money back for playing music that it might as well be free? No artist in the world, even Taylor, would release music without a YouTube strategy. It’s reach and power is enormous. And as of today, YouTube is the only place users can stream the three biggest songs from 1989. For free.

With 1989 Taylor decided to hold the release back from streaming services to help increase retail sales, just like she did for the previous release, Red. Windowing to streaming services is an emerging tactic for artists, as it limits access to fans only to retail to experience the entire record. After the retail window closes, the record becomes available on streaming outlets.

While 1989 is windowed on all services, Spotify was singled out for elimination of Taylor’s music. Her catalog remains available for play on streaming services like Beats Music, Rhapsody and Rdio, and on the world’s biggest streaming service, YouTube.

So what’s going on here? Why would Taylor stiff one of the largest music listening platforms in the world, one that is providing the third most revenue in the music industry, while leaving her music up on other services that are smaller, but pay nearly the same on a per-play basis as Spotify, and on YouTube–which pays diddly squat compared to streaming services?

It’s all about participation.

That is, participation in financial events, like initial public offerings and acquisitions. In this day and age of frothy music startups, there are those who get a stake and those that are left looking in from the outside. Can you take a guess which respective side of the line artists and major labels fall?

In August, Vivendi reported that Universal Music Group closed the sale of Beats Electronics to Apple and gained a nice tidy sum of $404 million. Granted UMG was an early investor in Beats. Nevertheless, UMG cleaning up on these kinds of investment strikes artists as unfair. Without music, would there be any company to sell to Apple?

It’s also been widely reported that all the major labels have sizable investments in Spotify. As the company prepares its IPO, the major labels have a huge stake at stake at making it successful, as they’ll get a big chunk of change that won’t be shared with artists.

When you are most popular artist in the world, you probably believe that you should participate in an event where the label gets paid. After all, labels are compensated for providing a catalog. And the catalog is woefully incomplete without Taylor Swift. In fact, Taylor’s decision to withhold her music from Spotify will have a fairly sizable impact on UMG’s topline revenue.

UMG is the distribution partner for Taylor’s label, the independent Big Machine. All their music rolls up into UMG revenue for streaming services. Sure, UMG still must pay Big Machine for the plays, but artists and even labels have long been unhappy with unfavorable streaming deals and sloppy (or worse) accounting practices of major labels.

Even without knowledge about Big Machine’s deal with UMG, it’s easy to speculate that the label is unhappy–or at least unimpressed–with their revenue from Spotify. And as an added extra, news broke yesterday that the label–along with Taylor as its flagship artist—is for sale. And one of the leading suitors for the Nashville-based firm? UMG.

With all this information, it leads to these questions:

-Did Taylor’s catalog suddenly come out of Spotify to pump the price of Big Machine’s acquisition by UMG? Nothing would show the power of Big Machine like pulling one of the most popular artists at the top of her game. It will also have a material impact on UMG’s revenues. How much? Just my meatball math based on Spotify’s reported revenue and Taylor’s probable popularity, removing the catalog could decrease UMG’s share by a full percentage, meaning at least $13 million less.

-Was Big Machine negotiating a relationship directly with Spotify and hit an impasse? Spotify has come to agreements with holdout artists like Led Zeppelin, The Red Hot Chili Peppers and Metallica. But all those are legacy acts  that have all made tons of cash on their deep catalogs. These acts got a big check were ready to  move on.

Spotify has never done a deal with a premier active artist, and I’m sure it is very reticent to start, as Rihanna, Beyonce, Jay-Z and other big acts will line up for their own deals. Big Machine also would be looking for participation points above and beyond any compensation for plays, such as equity and potentially advances.

Also, Spotify will correctly claim that it already is paying top dollar for the catalog. Why should the company have to pay twice for the same content?

Answer: because that’s the way business is done.

More Breakup News

NY Times: Taylor Swift Announces World Tour and Pulls Her Music From Spotify

Wall Street Journal ($$): For Taylor Swift, the Future of Music Is a Love Story

Bill Werde: An Open Letter To Spotify About Taylor Swift And Why I’m Unsubscribing

NY Post: Taylor Swift’s Label On The Block For $200 million

Vivendi/Universal Music Group: Closing Of The Interest Sale In Beats

The Battle for Relevance: Apple and U2 Fight To Regain Their Mojo

The legendary band U2 came on stage at the end of the Apple Extravaganza that introduced the world to a pair of iPhone 6 models (big and freaking huge I think are the product names), Apple Pay and the Apple Watch. The band’s had a rough go of it recently. Their last release, No Line On The Horizon, disappointed both fans and critics and it seemed like they might have lost their relevance.

This is a band that has defied age and found ways to make themselves new again and again. Had time finally caught up with the band? Potentially, and it frightened them. Bono was quoted saying U2 didn’t want to be a heritage act. Being contemporary was much more important, he said. But it wasn’t easy. “To be relevant is a lot harder than to be successful,” he told the Hollywood Reporter. So making money isn’t the way the band judges itself. After all, U2’s latest tour broke records in terms of attendance and revenue, yet they still craved relevancy.

So the band made changes. They holed up with super producer Danger Mouse and poured themselves into the making of the new record. That was almost two years ago.

Why the delay?

The band took time to get the recording right, bringing in One Republic’s Mr. Everything Ryan Tedder and Adele’s producer Paul Epworth to assist in the making of the record.

Just like U2, Apple also has had a great run of success, but it appears they’ve been losing their relevancy. Tim Cook’s company is the richest in the world, and has shown the ability to deliver amazing profits. But that’s not the way he is judged. Tim still stands in the shadow of Steve Jobs as most of the company’s products since he took over the company are just iterations (are they truly improvements?)of the same product line. Meanwhile the world is catching up, and some may argue, passing the company (Samsung anyone?).

Tim’s plan to recapture the Apple magic has centered on the wrist. The company has invested heavily and spent a great deal of time incubating its watch. It has waited until Tim deemed the product was right and a mass number of people would want to wear it before they revealed it to the world. So in the wake of finally seeing the watch on Tim’s arm, how did the company do?

Hip To Be Square

Square is the new round for Apple.
Square is the new round for Apple.

The first visceral reaction to seeing the square-ish watch was one of disappointment. The form factor wasn’t all that different than artist mockups that have been circulating. Jony Ive had reportedly been bragging about how Swiss watchmakers were “fucked” because of the Apple Watch design, but it seems a bit bulky and much more masculine than expected. I have written that one of the musts for the company was to appeal to the female consumer, and the Apple Watch looks like it may overwhelm a woman’s wrist and underwhelm their demand for the timepiece.

What went wrong? Apple certainly made extremely complex technology back in the day. But when it came to showing that to the world, Jobs with without equal. He could find a way to find the few things a product did really well that connected with people. He innately understood desire and insisted the products showcased those. Complexity was hidden underneath the hood in favor of those few items that Steve told us were ‘awesome.’

In stark contrast we were shown the apps screen on the Apple Watch, which looked like a jumble of tiny icons and reeked of “technology” rather than useful features. Later in the demo, VP of Software Kevin Lynch geeked out on a watch face that placed exactly where we were in the solar system. Excuse me for saying this, but that’s fucking stupid. I know there are people who really care about such things, but do you really need that strapped to your wrist? To highlight that in a demo really tells me the company is having a hard time understanding why people need—or even want– the product.

Later, Tim came back on stage and kept referring to the Apple Watch as the most intimate product the company has ever produced. At first I had a hard time understanding Tim’s emphasis on intimacy. After all it’s not really a user benefit. Unless you are talking about massage creams or sex toys, does referring to intimacy really matter?

An Intimate Affair
Most likely the intimacy of the Apple Watch has been the rallying cry within the company. It’s a code word to remind everyone that the watch has to rise to a different level of value and importance if Apple expects people to wear this device on their wrist. It’s very important to product managers—not customers.

And that’s been the fundamental difference with Apple. Before there was simplicity and elegance and now it has been replaced with overwhelming features and options. Yesterday Kevin talked about the options a user had in customizing the watch screen. He showed off different watch faces with different features and colors. That’s very cool, but certainly not something that needed to be presented. Tell me why I need the watch. Not how I can bling the watch.

With all this said, I don’t believe the Apple Watch will be a bomb. Obviously, it will have its fans. And it’s not like the presentation of the iPhone really made the product a hit. The first generation iPhone came out and people went nuts for it when they saw it in action. It became a must-have device. We’ll see when the first customers start to use it and perhaps find they can’t live without it. But a breakout hit that makes the company the envy of the industry? Not from what we saw yesterday.

A better bet might be Apple Pay, which looks like it could potentially simplify the purchase experience and disrupt mediocre services like PayPal and Square. It does require an iPhone and a battery life, though. So yes, you might need to charge before you can charge.

And what of U2? Can Bono and his mates recapture their glory? Perhaps. But giving away your album (even if you are getting paid big bucks for the privilege) to every iTunes user in the world seems like you are cheating your way to relevancy.

 

Some Of My Favorite Tweets From Yesterday’s Apple Watch Presentation

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Liars Poker: Why can’t anyone write a fair assessment of streaming music

I think we know the answer.
I think we know the answer to this one already.

Streaming music has been a huge topic in the music industry for good reason. It’s been the subject of many articles, occasionally one will accurately understand the issues surrounding these hot companies, but most that have no idea of how the music business works. A couple of stories I’ve seen recently made me want to wretch. Interestingly enough, they are on the opposite sides of the debate.

First, there’s this terribly reported and, in some points, just plain wrong article in Take Part by Kathleen Sharp and Scott Timberg with the click-bait title, “Is Spotify Killing Music?” The authors comingle the loss of publishing rights by the heirs of John Steinbeck and Woody Guthrie (who are in a band together – naturally) with the way that artists are getting hosed by big bad streaming companies. Not only do these two topics not belong together, they also weaken the main points of the article (which likely stemmed from a PR pitch promoting the aforementioned band).

The streaming portion of the article is a retread of the greatest hits from anti-streaming voices like David Lowery, Thom Yorke and David Byrne. The evidence it cites is flimsy, even including Lowery’s disputed $16 payment for 1.5 million plays of the Cracker song “Low” on Pandora. The authors even recruit streaming supporters for its purposes, posting a big photo of Billy Bragg with the caption:

British singer-songwriter Billy Bragg has spoken out against royalty rates and structures established by music-streaming companies.

This may indeed be true. But what Billy Bragg said was actually very supportive of streaming.

“I’ve long felt that artists railing against Spotify is about as helpful to their cause as campaigning against the Sony Walkman would have been in the early 80s. Music fans are increasingly streaming their music and, as artists, we have to adapt ourselves to their behavior, rather than try to hold the line on a particular mode of listening to music.”

Bragg went on to cite the problem is really with record labels that are paying streaming rates based legacy deals with artist that only paid a fraction of royalties on sales because of physical production and distribution costs.

“If the (streaming) rates were really so bad, the rights holders – the major record companies – would be complaining. The fact that they’re continuing to sign up means they must be making good money.”

Interestingly enough these comments from Billy don’t even up in the article. Instead we get that streaming is eating into CD sales, without even a slight mention of illegal MP3 downloads, which last time I checked, was the main reason why CD purchases are getting killed.

The next sensationally wretch-worthy item is a guest post in Billboard and his site, Tom McAlevey, CEO of Radical.FM, says this whole discussion is silly because streaming music is already profitable! His evidence? Well, Pandora could be profitable tomorrow if they pumped up the ad load to broadcast radio levels and Spotify was profitable in Sweden before they expanded around the world.

Those seem like factors why streaming music is not profitable rather than proving it is profitable today. Based on everything we know, streaming companies are struggling with profitability and the path to get there is uncertain. Pandora desperately needs growth of users to sell more ads and they must do so while keeping their listeners and investors happy with its progress. Without ad sales growth, the company will not survive. But the answer isn’t increasing the number of ads per hour, which Tom suggests. With too many ads, they’ll bleed customers.

Meanwhile, it is true that Spotify had a great deal of success in Scandinavia, but there are factors that have made the company successful–starting with the fact that digital music sales never took off there because of P2P’s popularity in that part of the world. Spotify became the hometown replacement that was so much easier to use that P2P services.

Tom also mentions that his experience negotiating with major labels back in the nineties allowed him to see the secret numbers that reporters do not have access, as a way of proving his bona fides.

I too have seen these numbers, and my assessment is that major label deals make it extremely challenging to find a way to profitability. There are many veterans in digital music who believe that no company can be profitable, ever. I disagree. There is a path forward, but it’s no easy task.

Both Spotify and Pandora are focused on growth, as Tom mentions. But there’s a reason for it. Their current size and offering aren’t profitable. Period. Both need significant growth and are pursuing it all-out. Spotify needs a worldwide audience to build an advertising channel to attract worldwide brands, as well as take advantage of its worldwide infrastructure for streaming. Pandora desperately needs to be bigger in the US and scale around the world.

Scale is another factor. For all the headlines written about Pandora and Spotify, streaming music is still a fraction of all music consumption and revenue. Spotify’s estimated 25 million free users is a rounding error of YouTube’s massive audience. Pandora is only estimated to be 11 percent of all radio listening in the US. Because all the buzz the companies generate, most people believe that both companies, especially inside the music industry, are much bigger than they are. Both are early stage and must prove themselves as mass-market products to be viable.

Granted, you could say such aggressive growth strategies are required to tap the public markets to create a massive payday for investors, and that’s fair criticism. But this doesn’t mean these companies don’t need to grow. They must grow. Or die.

Look, I understand Tom’s motivations for writing the piece and I agree with it. Digital music has great promise and streaming has attracted throngs of people who love the convenience. Many have chosen streaming as the way they’d like to listen to music. The industry needs to find a way to make the economics for all those who’d rather access music than purchase, rip and organize digital files.

But we need to focus on what’s actually happening, and not create spin and counter-spin. There are real serious issues that must be solved, like ensuring every single artist gets compensated fairly as well as creating experiences that customers find valuable enough to pull out their credit cards. Let’s focus on these instead of trying to demonize startups and misrepresent the facts.

The Good, The Bad, and The Ugly Digital Music Coverage

Take Part: Is Spotify Killing Music?

RadicalFM: Streaming Music Already Profitable

The Trichordist: My Song Got Played On Pandora and All I Got Was $16.98

The Understatement: Pandora Paid $1300 for A Million Plays, Not $16.89

MichaelRobertson.com: Why Spotify Will Never Be Profitable

Yahoo News: Roseanne Cash to Congress: Streaming Killing Music

Consequence of Sound: The Elephant In The Music Room

Missed Connections: Why Technologists and Music Execs Must Partner to Win

@jmaples | Friday, February 14

Near the end of Marc Geiger’s amazing sermon at the European music conference MIDEM he made a comment about the differences between technologists and music industry execs face.

“Companies that are leading the music revolution don’t even know about the music industry. I can tell you Sergey Brin didn’t grow up in the music industry. Neither did Steve Jobs…even Daniel Ek. They didn’t come up knowing what we all know. We have to educate them. And when they think ‘theory’ we get mad at them. They think about it from the user perspective.  We think about it from an artist and industry perspective. There’s a big disconnect.”

This remains a big problem in the digital music world. Artists, music industry executives and technologists have been wary of each other’s motives. It’s been uncomfortable, and from time to time it can be downright contentious. I’m sure that music executives can reel off a greatest hits of outlandish and ridiculous asks from techies who just don’t understand how the music business works. And I have participated in some ‘colorful’ conversations about shortsighted label terms that only slowed down critically important progress.

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Can’t we get along: After Spotify signed Metallica to the service, Sean Parker, Lars Ullrich and Daniel Ek were all buddies.

So I couldn’t agree more with Marc’s points, but it’s a two-way street. Both sides need to come together. What both the startups are trying to pull off (create new platforms of music consumption) and what the industry is in the middle of (rebuilding revenue from a product that no longer works) is hard. It will take both sides sitting down and understanding each other’s issues, motives and problems if we are going to deliver Marc’s vision.

It’s very easy to get caught up in what the other side is doing wrong. What the music industry doesn’t always understand is that to find out what are the great products, we need to experiment. You never know what’s going to take off and quickly building products, iterating as quickly as possible to ‘fail fast’ requires more flexibility than what has traditionally been granted. What technologists need to understand is that music is just not a commodity to be packaged in a cool app. The music industry may have its faults and limitations, but it is still the best in the world at discovering and shaping great artists and understanding what is going to connect with the music fan.

Building Great Customer Experiences

One area where both sides have been fairly unsuccessful is delivering what the music fan really wants in an experience. The industry might know the demand for artists and styles, but they sure couldn’t figure out how to deliver it. Let’s face it, none of the music formats have been really great, which is why we keep replacing them every decade or so. And asking your customers to replace their albums with 8-tracks, cassettes and then CDs while consistently upping the price has proven to be a horrible way to engender customer satisfaction. Part of why Napster hit its popularity in the first place was that there was such a bad taste in music fans’ mouths about having to spend so much money to only get the one song they liked on the radio.

The first few generations of products have felt more like technical solutions designed by people who write code instead focusing on solving hard problems for the customer. Technologists have also fallen way short in their relationship with artists and management. I’ve heard stories of artists seeing demos of tools designed for them without the technology firms even talking to a single working artist or manager about what was needed. The techies started by trying to solve their own business problem instead of artists. Big problem.

To start we need to get both parties together in a room. We need more events like Cash Music Summits that bring both technologists and artists together to discuss some of the thorniest problems and greatest opportunities facing the industry today. It’s a good start, but technologists need to do more than just talk. Getting artists involved in tasks like ideation, product definition, value propositions and even the customer lifecycle would go a long ways towards engendering goodwill and building a strong partnership. After all, if they’re great at making music, they might great at making music products. It bears mentioning that Beats Music’s chief creative officer is Trent Reznor.

Teamwork Rules

So what would working together look like? Well, a good example is the deal Twitter’s Head of Music Bob Moczydlowsky put together with Lyor Cohen’s new label, 300 Entertainment. Bob told Billboard Twitter will provide access to data that will help 300 decide who to sign to the label, a skill known as Artist & Repertoire. It used to be the A&R dude would spent 350 nights a year seeing potential acts to sign. But now data has become an important part of the job (along with going to see lots of music). Twitter understands that they don’t do A&R. But they know that they have amazing data that will help companies like 300. So Twitter partners with someone who really knows A&R and works with the company to provide solutions. Sounds like a pretty happy arrangement.

I have spent hours describing in detail to more than a few tech execs why they shouldn’t get into A&R. It’s a amazingly specialized skill set that very few people at any streaming company know anything about. It’s also ridiculously expensive and the ROI doesn’t pencil out until you invest for years, and even then I couldn’t say with any certainty that it would return anything. Most likely they’d waste a ton of time and money and lose the focus on their mission, which was to build a killer music experience. In a thin margin business where you’re getting squeezed by aggressive suppliers and distributors, it becomes very tempting to try to ‘move up the value chain.’ But that’s a mistake.

Playing Your Position

It’s like playing on a really great baseball team. Everyone needs to play their position.  It doesn’t mean we can’t call out the shortstop for a lack of effort or tell the centerfielder they need better skills. That kind of feedback just makes everyone better. But if we understand our roles and respect what massively talented pros can bring to the table, we could build the all-star team that will be necessary to build Marc’s $100 billion behemoth.

Today’s Teamwork Links

Dave Allen: Can Streaming Music Services Create a Bigger Recorded Music Industry?

CNet: EMI Wants CEO’s Assets

BillboardTwitter’s Head of Music On What The 300 Deal Really Means

RhizomeDo Artists and Technologists Create The Same Way

The GuardianThom Yorke Calls Spotify ‘The Last Desperate Fart of a Dying Corpse’

The GuardianDavid Byrne: ‘The internet will suck all creative content out of the world’

Follow On

Marc Geiger

Bob Moz

Dave Allen

Cash Music

Jesse Von Doom

Maggie Vail