Streaming Music Services - There's Money To Be Made

The bottom line, as always, is the question of making a profit. I don't know if Tidal is publicly traded (their parent company which JayZ purchased is) but I do know about Spotify and Pandora and last I checked their balance sheets were not what I would call stellar.

My question is, "how can these companies survive without showing a profit?" This obviously applies to Tidal also and I'd be curious how this will shake out in the marketplace.

This is not a damning of streaming companies, I am simply trying to figure out the landscape of music in today's fragmented computer driven market.

I have seen articles discussing basic economics and the marginal value set by supply and demand. The marginal cost matches up with demand at that marginal cost. Marginal cost being the cost of making the next one of something. With digital music the marginal cost would appear to go to essentially zero. Of course no market is completely free, but the effect is one to consider and partly behind the difficulties in music currently. How do you profit on something with zero marginal cost? You have to add value or create scarcity beyond marginal cost.

One thing I have expected, but haven't seen is streaming concerts. Concerts happen live once, and that is it. Streaming coverage of a live concert isn't like being there, but it is still entertaining to fans and unique. Assuming it doesn't get released next week as a bluray. So why not streaming concerts, you pay a small price to get the stream, it gets streamed that one time ( maybe on demand for a limited number of days like anytime during 3 days). It never gets released otherwise. Sure maybe I pay $10 for it and invite 10 people over. But our $10 is not even available if the concert is across the country in a place we aren't and the band never comes to our town.

Another thing I wondered about is an idea a little like Kickstarter campaigns. A band instead of funding an album that way has one all ready for release. They make it known as soon as 10,000 people agree to buy it for $10 they will release it. If more than 10,000 buy it the price goes down (and the first $10,000 get a partial refund as a result). Just off the top of my head you make it a square root function scale. If 40,000 people buy it the price drops to $5. The fans get it cheaper, and yet the band makes more. If something reached gold album status the price would drop to $1.41 for the entire album and the band would gross more than $700k for the album. The more popular something is the less it costs, the more the band makes and that reduces the motivation for piracy. You still have the chicken and egg problem of creating some demand for your album to start with. Bands still have the chance to tour and make money off that. You also could limit the time for reducing the price to a year or two years with the price permanently set after that for those wishing to purchase it. Of course this is still an old dinosaur's view of the market where people want to own the music. More and more you only want access to it. Buying your own copy isn't on people's minds.

The bottom line, as always, is the question of making a profit. I don't know if Tidal is publicly traded (their parent company which JayZ purchased is) but I do know about Spotify and Pandora and last I checked their balance sheets were not what I would call stellar.

 

My question is, "how can these companies survive without showing a profit?" This obviously applies to Tidal also and I'd be curious how this will shake out in the marketplace.

This is not a damning of streaming companies, I am simply trying to figure out the landscape of music in today's fragmented computer driven market.

I think it's creative accounting. If you pour all the profits back into the business you don't have a profit to show at the end of the quarter. When Spotify goes public there will an influx of cash and the company will magically be profitable every quarter when it has to be.

Here is an interesting take from the always ornery Bob Lefsetz this evening.

"we live in a modern world where radio is strictly formatted, even rock can't break through, yet you're bitching that the problem is Spotify? The problem is YOU!"

http://lefsetz.com/wordpress/index.php/archives/2015/05/26/robert-kyncl/

Here is an interesting take from the always ornery Bob Lefsetz this evening.

 

"we live in a modern world where radio is strictly formatted, even rock can't break through, yet you're bitching that the problem is Spotify? The problem is YOU!"

 

 

http://lefsetz.com/wordpress/index.php/archives/2015/05/26/robert-kyncl/

From the same source his rules about all this

http://lefsetz.com/wordpress/index.php/page/5/:

Let’s state some rules.

1. It’s the best time to be an artist in the history of the world…especially if you make popular music, if you are willing to do it yourself. There are no barriers to entry, but you’d rather sign a deal with a major label, which is kind of like a slave signing up with a plantation owner or those Scientologists who wanted to stay in the hole. I can’t help it if you’re too afraid to embrace the new paradigm, that’s your fault. Meanwhile, you’re bitching that the labels don’t pay like they used to. You want more Spotify money, put your music out yourself.

2. Major labels push what sells. They’re businesses, not museums. You can excoriate the Top Forty all you want, but if klezmer music was the new rage, the majors would pick up that. To bitch that the labels won’t put out obscure music is like complaining to Detroit they don’t make vent windows anymore. It’s not cost-efficient.

3. When everything is available, there’s a race to the top. “The Long Tail” and other tomes perpetrated the fiction that we’d all get rich in the internet economy. Didn’t work during the dot com era and doesn’t now. As a matter of fact, the rich are getting richer and the poor poorer, in not only business, but art. The public is confused. They’re gravitating to the anointed and the popular. Tech helped grease the skids, by providing access, but it’s the public that chooses what to listen to. You can get your music on Spotify easily, YouTube even easier than that, but that doesn’t mean anybody wants to listen to it.

4. Change happens. Live went to wax cylinders went to shellac to 45s to 33s to cassettes and CDs and then files and now streams. The album was a result of the 33, didn’t exist before that. But now you want to keep it. Keep the buggy whips while you’re at it. You’re supposed to be an artist, using new tools to create something different and exciting. You’re like a painter bitching when Picasso and Braque came up with cubism. Embrace the new, it’s the only way out.

5. Piracy is a problem for recorded music revenue, not artistry. It’s actually good for artistry, you can reach your public for nothing, as you now can on YouTube. Get rid of music on YouTube and watch the ARTISTS go nuclear. They want to reach people for free. Because it’s hard to make a fan.

6. Radio is not forever. Bitch all you want about a closed system. But suddenly TV is unbundling, and despite all the radio hogwash there are so many better ways to experience music that one day music radio is gonna crash, the same way AM and Viacom have. Did you see Viacom’s ratings? Double digit declines, because their young target demo doesn’t watch TV anymore, they utilize other platforms and want it instantly, on demand.

Chris,

I did read the article. What I am commenting on is the numbers you are showing. Do you know were the money is or is this article basically a condensed version of what is already on the net?

I would like to see a real article with some direct information from the streaming companies, labels and artists.

Really who ever is making the lion share of the money is probably not going to want to talk. I only see it from the Artist side as those are the only people I work with. Well a bunch of mastering engineers, but they get paid usually by the artist these days.

As for iTunes, that has not really been the case from the Artists I have talked to. They may not like the quality of AAC/AAC+, but the money has rolled in from day 1 and it reaches a large audience. Allot larger than most of the smaller bands had before.

Thanks,

Gordon

Chris,

 

I did read the article. What I am commenting on is the numbers you are showing. Do you know were the money is or is this article basically a condensed version of what is already on the net?

 

I would like to see a real article with some direct information from the streaming companies, labels and artists.

 

Really who ever is making the lion share of the money is probably not going to want to talk. I only see it from the Artist side as those are the only people I work with. Well a bunch of mastering engineers, but they get paid usually by the artist these days.

 

As for iTunes, that has not really been the case from the Artists I have talked to. They may not like the quality of AAC/AAC+, but the money has rolled in from day 1 and it reaches a large audience. Allot larger than most of the smaller bands had before.

 

Thanks,

Gordon

Here's the deal, nobody who has any factual information is going to talk. The information must be pulled from all types of sources. The streaming services and the labels aren't going to talk because there is money involved and NDAs. The artists that talk are either the one's claiming they can't make any money and/or the ones using emotional "evidence" of why streaming is bad. If an artist came out and said, "Hey, I'm making a killing from streaming" the artist community would ostracize them and the public would hate them for making real money and getting "rich."

Everyone that I talked to back when iTunes downloads were popular said it would kill the industry because people only purchased a couple tracks even though the artist made a complete album. These were people making the biggest pop records in the world. Every time we talked I heard the same story of how the music business was in serious trouble because of iTunes. Now, these people want to hold on to iTunes as the savior and sell consumers something they don't want to purchase.

I disagree with Bob Lefsetz quite frequently, but I have to agree with him on this one. His 6 rules posted above by esldude are hard to swallow for some people, but his honesty is needed.

Artists' have had their cheese moved and they are fighting like hell to move it back.

 

 

Artists' have had their cheese moved and they are fighting like hell to move it back.

What does that mean? You mean it's bad they want paid or that they have been and now won't get paid or what? I'm having trouble following the arguments.

What does that mean? You mean it's bad they want paid or that they have been and now won't get paid or what? I'm having trouble following the arguments.

this may help - Who Moved My Cheese? - Wikipedia, the free encyclopedia

I don't think it is just the artists. It is the whole "old" music industry. The labels, the artists, the people who ran large studios to record them, all of it. The only obvious thing is things have changed and they aren't going back. Or as Chris said the cheese has moved, or another cliche you can't put the genie back in the bottle. Don't know how it will work out or even if it will ever reach a stable equilibrium, but it is different and is not going back.

this may help - Who Moved My Cheese? - Wikipedia, the free encyclopedia

Yeah, got that part. *s*

I agree the fact that artists should look at the future, let go of 'what was'. Take things in your own hands. Making music is about playing for a live audience, that's where the thrill once was and still is, and apparently also where the real money can be earned. Looking at the shelf of CD's you once recorded isn't very satisfying, especially not when your bank account stays empty.

Would that mean that, us Audiophiles won't hear any good recordings anymore? Together with the evolution of digital and streaming music the ways for artists to make good recordings has equally become easier and affordable. So I am not afraid about that...