Churn Baby Churn: Why TIDAL’s Losses Only Tell Part Of The Story

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TIDAL, the Jay-Z led streaming service may have a problem retaining user it has signed up. 

The Wall Street Journal recently published some pretty terrible numbers on the train wreck that is called TIDAL. Naturally, the entire industry started piling on Jay-Z’s music startup, determined to show what a cluster the company finds itself in. But to us music vets, it’s pretty much the same old, same old. Losing lots of money isn’t the problem—it’s actually required these days if you’re running a digital music company; due to the enormous costs of content, and the fight for paying subscribers. It should be pointed out that Spotify’s losses are much greater than TIDAL’s reported numbers.

The bigger problem that TIDAL faces is revenue growth. According to the filings the WSJ reported on, TIDAL lost $28 million on revenues of $43 million in 2015. And while that’s a lot of money to lose, Spotify lost nearly $194 million, and Rhapsody lost $35 in 2015. But the scale of both of those companies is impressive. Spotify nearly doubled its revenue last year, recording of $2 billion. Even Rhapsody logged around $200 million last year.

So what gives? Why is TIDAL’s revenue just a drop in the bucket compared to its competition? I think it has to do with its reliance of exclusives to sign up subscribers. A caveat here: this is speculation based on one report from Sweden, which might not even show the accurate financial picture of the company. A source told the Journal that the filing didn’t include all U.S. revenue, for example. Additionally, it doesn’t account for 2016, when TIDAL rolled out wave after wave of impressive exclusives, from Rihanna to Kanye to Beyoncé. So it doesn’t really account for its power moves.

However, if you just divide the revenues of each company and into each self-reported subscriber count, TIDAL lags well behind in revenue per subscriber. Rhapsody banks $57 per sub per year and Spotify is an impressive $87. TIDAL didn’t announce year end subs, but in March it said it had 3 million, so let’s just say they had 2.5 million at year’s end, for a total of $17 per subscriber. Don’t like that number? Fine. Let’s just go on the TIDAL subscriber number reported on October 1, 2015 of a million subscribers. Based on that, TIDAL is still generating half the revenue per sub of Spotify and a 25 percent less than Rhapsody, a company with a significant base of lower-revenue bundled subscribers.

I know what you’re thinking. How can this be? TIDAL doesn’t have a free offering. It also claims that a huge number of its subs are on the $20 plan for better audio quality, much higher than all streaming services. Shouldn’t TIDAL be generating tons of cash per user? Well, yes. Except for one nagging little problem: churn.

Churn, the amount of subscribers that quit your service every month, is the canary in the coal mine for a subscription business. Low churn means people are happy. High churn is a disaster, as you need to replace all those subscribers just to tread water–let alone to grow. Churn is the one metric subscription companies obsess over. Netflix has famously spent a great deal of effort lowering its churn and is considered the gold standard for an entertainment company.

In the next stage of subscription services, churn will be one of the most important factors in determining health of businesses. There were reports this summer that Apple Music’s churn was significantly higher than Spotify’s, and the company has recently been recruiting talent to deal with its problem. So it’s just not TIDAL that has to worry about it. However, the company is much more suspect to massive churn that its competitors.

My theory is that TIDAL does indeed harvest a lot of credit cards from people who just have to have access to The Life of Pablo or Lemonade. But the minute the exclusive is over, those subscribers leave. In droves.

I would suggest that TIDAL has done a great job at signing people up. And a terrible job at converting them to the service long term. Mostly because TIDAL isn’t marketing the service outside of the only place where you can get exclusives for a short period of time.

One of the measures of performance for companies I track is App Annie data on downloads for iOS in the U.S. It doesn’t tell the whole story, but it does suggest popularity of an app. More downloads: more new customers. One would expect small changes from time to time, but steady, consistent demand. Kind of like Spotify’s iOS downlaods:

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In comparison to the TIDAL’s downloads over the past year:

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That’s one bumpy ride.

You’ll also note that the scale between Spotify and TIDAL is significantly different. Spotify never dropped out of the top 30 apps, whereas TIDAL has bumped between 1 and 1,250 since churning out the exclusives.

TIDAL in June announced it has 4.2 million subscribers after signing up 1.2 million fans during Lemonade alone. But let’s not pay attention to how many subscribers TIDAL adds. It’s all about how many it retains.

One last caveat: maybe I’m wrong. Maybe TIDAL is signing up tons of people and they’re sticking around. But if that is the case, the company should have lots of cash on hand to pay its bills in the form of operating income. The fact that seems to be short of cash and it isn’t able to turn its exclusives into a consistent funnel of customers leads me to believe that something isn’t working with exclusives.

WSJ: Jay Z’s Music Streaming Service Tidal Posts Huge Loss in 2015

Recode: Spotify is adding more subscribers and is losing its chief revenue officer

Billboard: Rhapsody Nears 3.5 Million Global Subscribers

 

                                                                                                   

 

7 Points I Wish Team Tidal Made

Tidal talked about its new music service, but didn't give many details. I added a few myself.
Tidal talked about its new music service, but didn’t give many details about plans or product. I added a few myself.

For those not living under a rock, Jay-Z presented Tidal, the industry’s first artist-owned music service on Monday at a press conference that has been widely mocked for being heavy on lip service and platitudes and extremely wanting in details. Jay spent a reported $56 million to buy Tidal from its Norwegian corporate parent Aspiro AB and there’s been a lot of speculation about what Tidal could be up to.

It’s premature to call it a failure (though the tech press didn’t have any qualms doing so) as we don’t know what Tidal is going to do. But without details, I was really wishing for more from 16 of the biggest names in the music business Monday. The fact is that an artist-run streaming service should have a different outlook at how a music service should function, from its relationship to listeners to how artists are compensated. Here’s a few suggestions for what Jay and team could have said.

  1. “First and foremost, Tidal is going to complete the fan experience. Too often we’re asking our fans to do too much work and it hasn’t gotten easier in streaming. It’s gotten harder! I believe first and foremost that if we’re asking fans to pay for music, then we better be delivering a lot more value than just access to music. To that end, Tidal is going to focus on shortening that distance from the music fan and us, the artists.”
  2. “Sharing music is a great way for our fans to show their love for our music. We’re going to make it extremely easy for fans to share music and enable playback of tracks in a limited way, regardless if someone is a Rdio, Pandora, iTunes or Spotify listener. Our project is called EasyShare and it requires all the services to cooperate so that it’s easier for our fans to share their love of music. It also supports all the services, since, let’s face it, people are using a little bit of everything these days.”
  3. “Okay, we’re superstars. But it’s not easy for artists these days in all genres and levels of their career. We believe in fairness for all artists. We’re going to make sure that the way artists get paid in our streaming service works for everyone, from the superstar to the struggling artist. Right now it seems like payments for streaming seem like a ‘winner take all’ proposition. So we’ve asked leading economists to look at the pro-rata share of determining compensation to investigate if it really is the best way to pay artists.”
  4. We’ve informed the major labels that we want to renegotiate our contracts with them. Our number one priority is to make sure that more money from our service goes into the pockets of artists. So we’re going to add what we’re calling a ‘Transparency Clause’ into the contract that will require labels to quantify how much money they’ve received from us, and what percentage goes to artists. We believe this number will help artists understand the moneyflow and make sure that the billions streaming services are paying labels don’t turn into fractions of pennies for artists.”
  5. We also won’t sign non-disclosure clauses with any label and we will post the details of all of our deals so that the artist community knows exactly how much money is going into the coffers of labels for their content.”
  6. “We believe in artists. And that’s just not performers, but also songwriters. So we’re going to help solve the problem of getting songwriters paid. Right now, music services like Tidal can only pay 70 percent of royalties because we just can’t identify who should get paid. We’ve earmarked $5 million that we’ll give to SoundExchange to develop a Global Rights Database. The database will endeavor to identify the publishing rights for every song in the world with the end goal of getting every single rightsholder paid for every play. We have calls later today with Daniel Ek, Doug Morris, Jeff Bezos, Tim Cook and Lucian Grainge urging them to contribute to this extremely important endeavor.”
  7. “We’re going to support artists by investing in causes that are important to them. Therefore, we’re going to contribute the money that Tidal paid us for exclusives to MusicCares, which helps artists who are in need of economic support often for medical problems. We’re asking our subscribers to join us in supporting this vital non-profit service.”