More about the great music debate of ‘14

Taylor Swift, who started it all. Source:

Taylor Swift, who started it all.

There have been more articles posted about the State of Music Industry in the past week than during the entire year. The impetuous is obvious: Taylor Swift pulled her latest album, and all her music, from Spotify’s library in the same week that her album made music history by selling 1.287 million copies, the most since Eminem’s “The Eminem Show” 2002, and we all know the music industry was completely different then.

My thinking is that it’s a question of the right product as well as the right business model. Let’s take another look at the players and some of the thoughts that have so eloquently been expressed this week.

  1. The Artists. PandoDaily said it best: “Artists deserve to be paid.” Their goal is not just to make music, they are here to make a living. Sounds fair. They don’t want to be paid $17 for 1 million plays but they don’t need millions either. They think $180 is fair.
  2. The Music Providers: the businesses and services and who get the music to the people who want to hear it. In the past these were the record stores but today they are Amazon, iTunes, Google Play, Spotify, Pandora, Songza (now Google Music) and yes, Target and other retailers that sell physical copies. They want to be paid for the service they provide and now charge $10/month for “premium” streaming services and $1 for a digital download of a song, $10 for an album. Spotify keeps 30% of streaming revenue, iTunes and others takes a similar cut for digital sales.
  3. The Listeners: music consumers who have become accustomed to paying a certain amount per year for music in the past and are now adopting streaming in droves. They have historically paid $45-$65 annually for music but let’s face it, they are also used to getting music for free, via pirated content and the free, ad-based versions of streaming services.
  4. The Record Companies & RIAA: the middlemen who, in old models, found the artists and helped them record, market and distribute their music. They’d like to see even more income from the streaming companies but are OK with prices paid by digital downloads and for physical copies.

All four of these players all have a stake in the music business. Current trends all point to streaming music taking over from digital downloads as the prefered method to “consume” music. Yet the latest controversy shows, it’s still not certain that this model works for all four parties. When I say “works” it means that all four parties are happy: consumers are paying what they want and artists, record companies and providers get paid. The business model and the product still need to evolve.

David Lowery, representing the artists, wrote a great post yesterday that focused more on the business model. Focusing purely on Spotify he said that the freemium model doesn’t work in the long range as listeners aren’t being converted to paying subscribers. They like the free, ad-based listening model even though it has some listening limitations, that they don’t feel the need to upgrade to the paid, all-access tier. The numbers agree: right now only 25% of Spotify’s user base is on the paid subscription plan. The other 75% enjoy the free service. Yet the revenue created by the paying users is almost triple the revenue created by free ad-supported listens on streaming services. He suggests allowing the free listening for a limited period only and force listeners to subscribe at some point, just like Netflix. This would be good for the industry but I doubt listeners would go for it, again, given their historical spend on music.

It is his other suggestions that make more sense to me: in addition to changing the business model, change the product. Taylor Swift mentioned that she was OK with her music being included in the paid tier but was against including it in the free service. Changing the content of the free service makes a lot of sense. Windowing (delaying the inclusion until album sales have slowed down) also makes sense, especially when looking at the video model. Netflix doesn’t offer current seasons of TV shows or recent movies or even recently-on-DVD movies, yet they manage to charge $8/month to a growing user base.

But consider the actual product. Spotify says that in their free product “just like radio, you can pick the kind of music you want to hear but can’t control the specific song that’s being played, or what gets played next, and you have to listen to ads.” Evidently, as evidenced by 75% of Spotify’s users, these limitations are perfectly fine when getting a free product. These are not painful enough for users to consider paying the $120 annual subscription.

PandoDaily and Mr Lowery agree that Spotify should migrate the free users to subscribe by limiting the length of time people can enjoy the free version. I think that there is still a middle tier of usage that is not being addressed: a $60 annual subscription but with limitations that are not ad based but rather selection based. Perhaps limited by genre, perhaps by release schedule, perhaps by repetition, or perhaps by controlling the specific song, the product needs to change. By offering a middle ground that will allow users to pay what they are comfortable with for a limited but better-than-free service, perhaps music streaming can at last achieve that delicate balance between all four players.

And that would be best for everyone.




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