The economics – and politics – of streaming
Jim Carroll
For this month at least, streaming is the new rock’n'roll. While the likes of Spotify and Lala are not currently available in Ireland (well, unless you’re prepared to pay €10 a month for the former’s premium service), it is only a matter of time before one or other or both opens for business on your browser. They may well be the best thing to happen to your online music experience since Rapidshare – and possibly the worst thing to happen to the record business since, uhm, Rapidshare.
I’ve had a chance to use both Spotify and Lala in the past few weeks and was hugely impressed by both. Spotify, in particular, is a beauty. The first time I used it, I was reminded of the first time I started using iTunes. Here’s a system designed by a team who have actually gone to the bother of working out just what someone using the service wants. It’s intuitive, uncluttered and straightforward. Beyond the structural and navigational nuts and bolts, there are eight million tracks to listen to and it’s a number growing all the time because the record labels are full-square behind this initiative.
Hell, the labels love it. And why do the labels love it? Bear with me here as I spin a few paragraphs of back-story to explain this one.
I’ve just finished reading Steve Knopper’s “Appetite for Self-Destruction”, an excellent and hugely recommended read on how the record industry did for their business what Fianna Fail did for Ireland by squandering the fruits of the boom (book review here). In the case of the labels, their boom was the mad money they made from the CD format during the 1990s in the shape of cash from punters going out to buy their existing collections on a new format and label-friendly new deals negotiated with artists. Because the labels were so pre-occupied with this CD windfall, they failed to see the cultural changes which occured when Shaun Fanning and friends appeared in the late 1990s. After decades of taking their customers for granted, the labels got their comeupance
Knopper makes a very good point about the subsequent outbreak of corporate love between the labels and Steve Jobs. When Jobs and Apple came along with the iPod and the iTunes Music Store, it was just what the labels were after – they were seeking a legal alternative to file-sharing and knew their own half-hearted initiatives like PressPlay and MusicNet were just not going to work. Jobs with his iTunes was their white knight in a black polo-neck.
But iTunes was just a hook for Apple to flog hardware – Jobs wanted the labels onboard to help him sell iPods and the labels would never see a red cent of that revenue. It took the smart boys from Warner Music and Universal Music some time to realise what had happened but by then, there was nothing they could do. Jobs 1, record labels 0.
It’s fair to say that many of the labels have been pining for an iTunes killer ever since. They don’t particularly dig a situation where Apple control the gates of the compound. Naturally, the labels have, as is their wont, invested time and association in a couple of donkeys (and Frogs) and there are plenty of alternatives to Apple, but iTunes, with its one-price-fits-all policy, continues to be the market leader, the Kilkenny hurling team of download stores.
Then, there’s the whole illegal filesharing area which continues to be a pain in the industry’s butt. While you could argue that a lot of illegal file-sharers were never going to pay for their music anyway, there’s still a proportion of legal sales leaking away every day as people steal the album for free rather than pay for it.
Of course, there were streaming services before Spotify but, just as there were alternatives pre-iTunes, they just weren’t very good. By getting behind the new service, the labels are hoping to persuade illegal downloaders to stop their evil ways and go over to Spotify. Why download the tracks from Mediafire or Piriate Bay, goes the thinking, when you can have EIGHT MILLION TUNES FOR FREE over on Spotify? You can use Spotify from any computer and they’re currently prepping an app for mobile devices. Yep, EIGHT MILLION TUNES FOR FREE IN THE PALM OF YOUR HAND!
Now, I’m not great at maths, but this just doesn’t add up. The labels’ Spotify revenue comes from a share of the ads which users listen to while using the service – these ads occur every 30 minutes or so at present, though I’m sure the frequency will increase when the ads increase. However, just as the revenue from digital sales was not enough to offset the lost revenue from falling physical sales, surely this ad revenue will not be enough to offset the money lost to reduced digital sales? This especially applies at a time when there just isn’t a lot of ad revenue around in general.
If you have EIGHT MILLION TUNES FOR FREE IN THE PALM OF YOUR HAND!, are you really going to be running to your favourite digital retailer to purchase that MP3? Yes, there are hoarders, like this writer and many of this blog’s readers, who still have a hankering to own the damn thing, but many people will just be happy to be able to tap into the songs when and where they want. While this means users will be weaned off pirating the music – research released last week by US researchers NPD Group show that teens’ use of online radio services was up 38 per cent and use of streaming music via social networks was up 20 per cent in recent times – it also means that a huge number of music users won’t be making those 99 cent purchases.
While the record industry may be content to cock a snook to Steve Jobs and Apple, does it really believe saying “ya boo sucks” is worth losing a large chunk of change from those two billion iTunes sales every year? Does it really think that ad-supported services like Spotify are going to both keep them in clover for the future and make up for ever-falling revenue from physical sales? After all, the labels are still spending large sums of money – albeit somewhat reduced from years gone by – in getting the music to market in the first place.
8:52 am
Once they develop, perfect and sell an application for Spotify for the mobile phone world, things are going to get crazy, methinks.
Comment by adamI think Spotify is actually so good and so revolutionary, not enough people have realised what that statement you have capitalised in your piece actually means.
It’s too good to be true AND it’s also, well, true.
As Martin Lawrence said to Will Smith in Bad Boys: Shit’s about to get real.