Tag Archives: Rdio

STREAMING MAKES MORE MONEY! THE DATA IS IN!

digital-music-report-UBJ*280In the great streaming royalty debate, the focus has been on tiny royalty rates per stream. Artists are up in arms, many are opting out of streaming services, and the noise and debate has been growing louder. Lost in that noise is a voice that is seldom heard: that of the record companies. There’s good reason for that: they’re making more money from streaming and the future looks extremely bright for them.

Buried in the Christmas Eve edition of the Wall Street Journal (which is itself a day to bury news) is a short column by esteemed writer Ethan Smith. And buried in HIS column (not the lead paragraph, but 8th paragraph) is the vital important nugget that shapes the future music business:

Data reviewed by The Wall Street Journal showed that one major record company makes more per year, on average, from paying customers of streaming services like Spotify or Rdio than it does from the average customer who buys downloads, CDs or both.

OK…let’s quickly digest this. On a per-consumer basis, a major record label makes more money from streaming services than any other format. This might be a figure to look at skeptically if these services barely reached a million people, but worldwide streaming services generated $1.25 billion dollars this year and Spotify alone has over 24 million active users (which jumped massively in the last week with app installs up 4x over the previous week). But how much more is being earned?

The average “premium” subscription customer in the U.S. was worth about $16 a year to this company, while the average buyer of digital downloads or physical music was worth about $14.

Let’s take a look at that. Year over year, the premium subscriber was worth nearly 15% more than the person who bought music either digitally or physically. So, if there’s more money to be made in the streaming hills, why are so many artists unhappy? Because the artist has to rethink the business on multiple levels.

IT TAKES LONGER TO MAKE MORE MONEY
As Ethan points out, it took an “indie pop/rock group” 34 months to make more money from streaming than they did from sales. Some artists will do it in less time, and others in more time. Either way, the artist has to take the long view. It’s certainly easier and much better to run a music business with the money coming in quickly with an up-front sale. However, if you believe in your music and have patience, the long run pays off. In this way, the recorded music business will quickly resemble its partners in publishing. In another way, with many artists being financially irresponsible, is it so bad for them to get their money slowly over a prolonged period?

THE MONEY GOES TO MORE ARTISTS THAN EVER BEFORE
A person buying $14 worth of CDs a year has the money going to 3 artists at the most (3 CDs x under $5). A person buying $14 worth of downloads a year has the money going to maybe 18 artists at the most (18 downloads x $.79). However, $16 worth of streaming revenue conceivably goes to as many as 3,200 tracks (3,200 streams x $.005). Even if you take an assumption that a person does 100 listens of one artist in a year, that’s still spread out over 32 artists in a year, or nearly double the max average for download sales. As I’ve reiterated before, the real issue facing artists with streaming is that the very access that allows them to make money means the pie gets sliced thinner. There’s more money, but it just goes to more artists.

THE SONG HAS TO LAST A LONG TIME
Disposability of a song only works if you work it extra hard while it’s hot. If an artist/song takes 34 months to make more money, then the song needs to be relevant for those 34 months. No longer can you stiff a consumer who buys something and only listens to it a couple of times. Now, those listens need to reoccur and do so over a prolonged period. This also means continually marketing content to ensure it stays relevant.

Longtime readers of my book Futurehit.DNA have already been making music that plays into these trends. I’ve been predicting for years that music revenues will be based more on repeatability, and that is now taking firm root. Those who embrace these new realities are more likely than others to rise above the mass volume of music released and are poised to thrive in this new age of the music business.

IS STEALING MUSIC REALLY THE PROBLEM?

Once again, the issue of stealing music and its moral/financial/ethical arguments are dredged up. And once again, most people miss the overall point, causing the collective issue to dig a deeper ditch while those who’ve moved past it (i.e.: major labels) are busy raking in the dough in the new music business.

Yeah, you heard me. It’s 2012, and now the neophytes are actually many indie artists (not all) while the smarter ones tend to be concentrated at major labels, thereby strengthening their power.

What started this was a post on NPR’s website by an intern named Emily White who admitted to buying very little music in her life but owning a lot via various levels of legality. This led to an impassioned response by Camper Van Beethoven/Cracker frontman David Lowery, who eloquently argued for the ethical and moral obligations Emily should have towards these artists and how stealing music has dramatically impacted their financial lives. This post has sprung up impassioned responses by, among others, Bob Lefsetz and a manager who is also, coincidentally, named Emily White. People have dug in their heels and have spilled many hours defending and vilifying both sides.

Yet lost in this discussion is one important element. Facts. Because if you’re going to argue that stealing has impacted your business, you should actually prove that…y’know…a lot of people have actually stolen your music.

Google, as the worldwide leader in search results, is a strong indicator of actual file trade demand. In fact, industry watchdog Moses Avalon argued such this week at New Music Seminar. Yet, when I went to look on Google Insights to see the level of demand for free music by David Lowery’s group Camper Van Beethoven, the message I get is, “Not enough search volume to show graphs.” This basically means, from what I can gather, that less than 50 people per month in the entire world are even showing intent to steal his music. Statisticians basically refer to this as essentially zero. Technically, the same search terms for his band Cracker show some potential thievery intent at work. However, if you actually searched these terms, you’d find most people were actually looking for a program to crack site passwords, and if they were looking for music they were more likely intending to steal the music of Uncle Kracker, who might actually have a legit beef on music stealers.

None of this is to say that I’m naive to think nobody is stealing music. Far from it. I just don’t think they’re stealing the music of the majority of artists bitching about thievery’s impact on their business. The statistics don’t bear it out. At my panel at New Music Seminar, Musicmetric CEO Greg Mead pointed out that file trading is actually decreasing in recent months. This echoes what fellow panelist Russ Crupnick reported in NPD Group’s “Annual Music Study” back in March when they reported that P2P site activity decreased from 19% of the internet population in 2006 to 13% last year.

Respected blogger Cory Doctorow also noted last month that a summary of over 20 different papers on file trading shows very little impact on sales from file trading. Drew Wilson, the author of the summary, got his results from such “fringe” groups as The Wharton School, The Journal of Law And Economics, and The Journal of Business Ethics. The most interesting line in the summary to me is this one:

Judging by the evidence we’ve collected, the evidence does not point in the direction that file-sharing, in and of itself, displace sales, but rather, other factors would also play a role in displacement of sales.

The primary “other factor” is the fact that there are too many artists competing for shrinking dollars, largely due to the shift from albums to singles. Despite the economic number that David Lowery quoted of the number of professional musicians falling by 25%, if you took “album releases” as an indicator, it seems like the number of pros has increased. In a decade, we’ve gone from about 30,000 albums being released to over 77,000 last year. And that’s just albums going thru legit channels. The problem, as noted by Chris Muratore of Nielsen on the previously noted New Music Seminar panel, is that 94% of those releases sold less than 1,000 units. Indicators that I have examined showed those low sales aren’t because of people stealing them. They come from too many releases causing most people to not even realize they are out. For example, 80s rocker Lita Ford has a new album that came out yesterday. As of this writing, it’s the 91st most popular new release on Rdio. How many of you have the patience or time to sift thru the other 90 releases to get to #91? Let alone decide to even put in the effort to steal it? Whether you were going to listen to it or not, I’d be willing to bet that almost everyone reading this found out that Lita Ford had new music from this paragraph. Stealing it is even further down their priority list.

And now that you know Lita Ford has a new record, what are you going to do about it? If you have a remote interest in her music at all, you’re most likely going to listen to it on a perfectly legal source such as YouTube, Spotify, Rdio, Mog, Rhapsody or Slacker. Why? Because I bet you caught yourself subconsciously saying that it would be quicker and easier to stream it and see what it’s about there than finding a site to steal it from, let alone having the downloads clutter your hard drive. Guess what? This is what most people do now. Having a download on a hard drive…single or album, purchased or stolen…this is the 2012 equivalent of “buying a CD with one good song on it”. People are smart and will legally stream something before any sort of ownership decision solely because they don’t want their hard drive cluttered with music they don’t like. And guessing by the demographic of my readership, I would also guess most people just want to check out what Lita is up to and have no intention of any sort of ownership. The music would have to be mind-blowing to shift the decision from “let’s see what she’s up to” to “I need to own this”.

So while all these independent artists argue thievery, do you know who’s winning? Major labels. This week, of the top 100 tracks on Spotify, only 6% are on independent labels. Major labels have figured out that the game is about exposure and awareness, two things that they are actually quite good at. It’s not about royalty rates, thievery, or even quality of music. It’s all about how I get people to know I exist. Major labels aren’t ignoring file traders, but they have moved past how much of their day they concern themselves with it. Instead, they focus on putting energy behind making music that the public wants and marketing the shit out of it so it rises above everyone else. While you’ve spent the last few years claiming the major labels are “dinosaurs” who are going to be “out of business”, they’ve actually become stronger behemoths who are more progressive than you realize.

As for the quality of their music, that’s a subjective opinion. And it’s no more subjective than the independent artists who have figured out how to make a big business out of the new music business. Artists like Tyler Ward, Kina Grannis and Alex Day, amongst others, are making six figures a year in the new paradigm. They struggle to get respect from traditional media because they’re not considered cool, credible musicians. Yet they run rings around the businesses these so-called cool bands deliver. Why? Maybe it’s simply because they deliver the kind of music more people want nowadays. As far as I can tell, they spend not a minute worrying about the money they don’t make and instead spend time making more money from the sources that do pay.

I agree ethically with David Lowery’s assessment. A person who spends extra to protect migrant workers in a third world country but takes money out of musicians’ mouths is a hypocrite. Emily White should stop complaining about wishing for a Spotify-like service and actually…y’know…subscribe to Spotify. But for actually succeeding in 2012, it’s the wrong argument. The biggest problem that David Lowery has to face is exemplified by Zach, the 24 year old New Media indie label guy at the end of Bob Lefsetz’ response post to Lowery’s “screed”. When told by a co-worker that David is the founder of Camper Van Beethoven and Cracker, he replies, “Not sure what either of those are…”

DISTRIBUTE MUSIC EVERYWHERE OR PERISH

Distribution is king in any industry. Musicians seldom pay attention to how their music gets distributed, and that holds back many a career. We can talk about DIY methods and how you can now sell music yourself and how great those profit margins are. The truth, though, is people like to go to the stores they like to go to. If you’re there, they will consume. If you’re not, they will move on. If you’re halfway in, it could be even more damaging.

I’m reminded of how important this is not from a mistake an indie artist made, but actually one made by a major label. This week, Rhino Records tried something new that seems very intriguing. They created Single Notes, which are short, quick e-books on music subjects. As an avid reader on all things music, I was ready to jump in. To get things started, they offered a free book on a musician during CBGB’s heyday who didn’t quite make it. A forthcoming book on Duran Duran written by my former co-worker Lyndsey Parker was also one I would avidly read. So I fired up my Kindle app and was ready to download.
Except for one problem…when I clicked to buy my free book, it told me my Kindle wasn’t registered. Funny, it was registered last week. While the book is technically available on the Kindle, it turns out it’s only available for the Kindle Fire and their Android App. The other books in the series suffer from the same shortcoming. While I have the iBooks app and can just as easily get it there, I don’t use that app. So what do I do? I abandon the idea of getting this book, I retain a negative connotation to the whole series, and I’m telling you about this shortcoming.

But it’s not just me. As of this writing, on the free book’s Amazon page, the book’s reviewers give it 1 1/2 stars in only 24 hours. It was coming from 88% of the reviews giving the book 1 star. The thing was…none of those one star reviews were from people who read the book. They were people frustrated that they couldn’t get the book on their particular Kindle. As one reviewer put it, “This is the rare double bank shot in annoying your customers. Rhino and Amazon deserve all the negative comments.”

Plausible explanations don’t matter. This series now has a deep hole to dig out of, even if they rectify the problem immediately. And the problem is simply that they are not distributing the content in the format that the consumer desires it in.

At least we have to give them credit for having it in the Kindle platform, albeit in a restricted form. Musicians and labels are routinely withholding their music from various platforms. All that means is that you have exponentially decreased the odds your music would be discovered, and you have completely eliminated your chance of collecting royalties from that service. I’ve started a new weekly blog/playlist of the top new singles released that week. I found that people want to hear all the new tracks, but want to listen in the background instead of actively spending time clicking play on each one.

But here’s the problem. I use Rdio as my guide to find the new singles. When I go to recreate the playlist on Spotify or on YouTube, only 75% of the titles are available. That means, 25% of the artists who could’ve had some exposure get none.

So when you consider your distribution service, look to who has the most outlets, not who’s the cheapest. When you’re uploading a track to YouTube, think of all the other services you should also upload it to and take the time to do it. When you’re taking music off of Spotify because you don’t like the royalty, consider that unless you’re Adele, you need the distribution more than you need the money.

Distribution is a pain, but it’s a necessary mountain to conquer if you want to hack your hit. If you can take the time and make sure you’ve got your music in every corner you can put it in, your chances of getting your song to success will increase dramatically.

IT’S NOT SPOTIFY’S FAULT, PT. 2

The debate on Spotify has continued in recent weeks as mainstream press has been covering the fact that big artists like Adele and Coldplay are holding back their releases since they believe it cuts into sales. For their part, a Spotify spokeswoman says there’s “not a shred of evidence that holding back downloads cannibalizes downloads”. There’s probably not enough evidence yet to support either argument convincingly, but it’s not the real issue. To find that, we need to step back for a second to look at the business from 30,000 feet.

I’m a big fan of the book The Curse Of The Mogul. Authors Jonathan A. Knee, Bruce C. Greenwald and Ava Seave discuss the historical facts of disruption on many businesses and how it relates to the modern entertainment business. One important idea is that when the walls of distribution come down, with access comes devaluation. In recent weeks, I’ve come to fully embrace this as the root cause behind artists’ displeasure at perceived royalty rates.

The first clue came in a recent Businessweek article where three anonymous music executives said the average person spends $60 a year on iTunes. Since Spotify and other subscription services charge $10 a month, this means the revenue per consumer should double. Sounds like great news for the music business. While I know that the “average” won’t literally double, let’s just go with it for the sake of this example, and keep in mind that what I’ll outline is therefore a “best case” scenario.

If the average person is spending $60 a year on iTunes, it stands to reason that they are spending it on a minimum of 4 artists (4 albums x $15 price tag for deluxe albums) and a maximum of 87 artists (87 singles x $.69 discount price). Realistically, most people will be smack in the middle having bought a couple of regular $9.99 albums and a few singles at the $1.29 premium. If narrowed down to a month, on average the most someone would spend money on is 7 artists.

But how do we know how many artists get heard on Spotify? Well, we can make an educated guess by looking at the Facebook streams of playlists. This is admittedly unscientific, but will highlight the issue nevertheless. I examined what 10 random Facebook friends of mine listened to on a variety of subscription services. They ran the gamut from one person who listened to only one album to someone who listened to over 400 songs, which included albums, singles and playlists. What I found is that the average person listened to 3 songs per artist.

Data on how much people are listening to subscription services on a monthly basis is not available enough to get an exact reliable statistic. However, looking both anecdotally online and from my own personal knowledge, the average person is likely listening to 10-15 hours a month. Using this statistic, we can deduce that people are listening to somewhere between 40 artists (120 songs (5 minute song average x 10 hours) divided by 3 songs per artist) and 100 artists (300 songs (3 minute song average x 15 hours) divided by 3 songs per artist) per month.

In an iTunes world, the average person consumes music by, at most, 7 artists a month. In a Spotify world, the average person consumes music by, at least 40 artists a month. So in the best case scenario, even though the dollar pool has increased by 2x, the number of artists the payouts are distributed to has increased by nearly 6x. Given that this is the best case scenario, the figure is almost certainly higher than that. In a dollars and cent perspective, while the average artist grossed as little as 69 cents per person in iTunes revenue, the average artist probably grosses no more than 25 cents in subscription revenue.

The reality is that the very thing that gives indie artists access to subscription distribution is what is keeping the royalty rate low for everyone. The pool to increase payouts per artists not only doesn’t exist, it CAN’T exist without raising the price of subscription to a price-prohibitive rate of $50/month or higher. The only other potential solution would be to create a service that excluded access to many artists to allow existing artists to obtain a larger chunk of the royalty pie. This would give services a gatekeeper role not unlike current physical music retailers. Many artists would certainly complain because they were kept out, but the ones that did get in would be happier with a more reasonable rate.

As a new independent label owner, I actually welcome all the artists and labels keeping themselves off Spotify. It actually allows for an opportunity for us that are on these services to command a larger slice of the royalty pie. However, don’t think of Spotify as being cheapskates. The truth is that as an unknown artist, if you want access to the big game, you must understand that until you’re popular that it comes at a (lower) price.