Weekly Narrative Video – Streaming is Saving Music (May 19, 2017)
This week’s Narrative Video is on the Streaming is Saving Music narrative. This narrative was in the news several times this week, with Spotify’s 2016 financials leaking, news that SiriusXM is debating a bid for Pandora, and Rhapsody’s announcement that it’s making layoffs and replacing its CEO. The reality is that streaming music is doing wonders for the music labels, but the streaming services themselves continue to struggle. And it’s worth noting that it’s paid subscription streaming specifically that’s really giving the industry a boost. The video talks through these topics and other trends in the industry, reality-checking the prevailing narrative. Subscribers can see the video on the Streaming is Saving Music page. If you’re not yet a subscriber, you can sign up for a 30-day free trial here, and you’ll get access to this video, past videos, all the latest commentary on the site, and lots more besides.
SiriusXM Talking to Pandora about an Acquisition (May 18, 2017)
Pandora, which has long been one of the most popular online music services in the US but has also long struggled to turn a profit based on that popularity, is apparently in talks with SiriusXM about an acquisition. By contrast, as I wrote in a column for Variety a few months ago, the latter is one of the big success stories in the subscription content world, which I suspect mostly flies under the radar because it delivers through satellites rather than the Internet. What the two have in common, of course, is radio, though neither provides the traditional FM or AM variety. SXM already has a limited online version of its service, while Pandora has recently been branching out into on-demand music, but there’s probably quite a bit more that could be done by bringing the two sets of assets and their respective audiences together. The fact that Rhapsody today announced job cuts and the departure of its CEO is indicative of just how challenging being a second-tier player in the music streaming business can be. And in reality the second tier encompasses essentially everyone but Spotify and Apple, while even Spotify seems to be heading in the wrong direction financially.
Musical.ly is one of the few big app hits in recent years that didn’t come from one of the big established players and isn’t a game, while also being that rare example of a Chinese tech company that’s done well in the West. It’s popular with teenagers, who use the app to create short music videos using original songs, and Apple will now be the supplier of those songs, replacing a small UK-based provider. It will also therefore be able to promote Apple Music within the service, and will integrate with Apple Music for paying subscribers. Recode notes that the app has declined in popularity recently as measured by App Store rankings, but the reality is that its ranking has been extremely volatile, rising as high as 11th and as low as 92nd over the past six months. That volatility is driven almost entirely by the day of the week, with the app peaking over the weekend and dropping during the week – had Recode written its piece last Saturday, for example, the app would have been ranked #41. Given Musical.ly’s popularity within its target segment, Apple is smart to strike a partnership that allows it both to drive additional revenue and market to the app’s users. I’m almost surprised Apple didn’t just acquire the company and app outright, given Apple’s recent investment in creative and content apps with News, Music, and Clips.
Spotify is Hiring for a Hardware Project (Apr 24, 2017)
Spotify is apparently hiring a senior hardware product manager, even though it doesn’t currently make any hardware of its own. The job listing (which is as far as I can tell no longer on the Spotify Jobs site) suggests that Spotify is looking to create a hardware product, although there are no real details about what form it might take. Predictably, the focus is music and talk content, so this is likely an audio player of some kind. The fact that Spotify has now removed the listing suggests that it probably gave a little too much away (or didn’t expect any reporters to find the listing), though the attention this is getting now may well spur just the kind of applications Spotify is looking for even without a formal listing. A move into hardware does and doesn’t make sense for Spotify. On the one hand, given the difficulty it’s had in generating a profit from music services, it might see hardware as a source of margin. But hardware is a notoriously low margin business, with single digit margins even for large scale players, and with many consumer electronics companies actually in the red frequently if not permanently. As such, coming from a standing start into what’s likely to be an established category feels like a steep uphill battle for Spotify, and I don’t rate their chances highly. To top it all off, of course, Spotify currently benefits enormously from being a device- and platform-agnostic service, which makes it appealing for other hardware vendors to integrate it. If it starts to compete with those vendors, that attitude might start to change. Also worth noting is that the company seems to be hiring people with voice technology and natural language processing skills, which may be part of the same project, but also looks like a wider initiative at Spotify.
★ Samsung Uses Google Music as Default Option on Galaxy S8 (Apr 21, 2017)
Apple is starting a new program through which it will spend a month at a time promoting young relatively unknown artists through its various Apple Music assets, including the streaming service, Beats 1 Radio, and in other venues. When Apple first launched Apple Music, the Connect feature felt like it could be a great way for artists of all sizes to connect organically with their fans through the platform, but it really hasn’t taken off in that way. Meanwhile, SoundCloud and YouTube continue to do better in helping young artists get their start before they get signed to labels. This effort is aimed at a somewhat later stage in the game, but builds on Beats 1 DJ Zane Lowe’s reputation for giving artists their big break, but if it’s a monthlong effort it’s hard to see how it will be scalable. However, it’s all part of Apple’s pitch that its service is the best for artists, whether that’s through exclusives, discovery and promotion, or simply getting paid for their work (since it’s one of the few services that doesn’t have a free tier).
Pandora Opens Streaming Subscription to All (Apr 18, 2017)
Jay-Z quietly removes catalog from Apple Music and Spotify as Tidal continues fight for exclusives – 9to5Mac (Apr 7, 2017)
Jay-Z, one of the owners of the Tidal music service, has apparently pulled all his solo music from both Apple Music and Spotify, though without any kind of official explanation or much fanfare. In theory, it’s likely that he’s trying to reinforce one of the original value propositions of Tidal, which was that its artist-owners would provide exclusives for their music, though in practice most of the owners have continued to license their music to other streaming services, which have far bigger subscriber bases. Tidal has struggled financially, and recently got something of a lifeline from Sprint, but it may have decided that it needs more exclusives to drive interest and subscriber numbers. I’m not convinced it’s going to do all that well on that basis given that the vast majority of the global music catalogue is still available on other services, but this is yet another sign that exclusives – whether temporary or long-term – are one of the few sources of differentiation to streaming music services, whether or not that’s good for their subscribers.
Spotify Finally Readies an IPO…That’s Not an IPO – WSJ (Apr 6, 2017)
It looks like Spotify may be planning on a direct listing rather than an IPO, which could happen by the end of the year. What that means is that it would simply start listing its shares on the public markets without a formal public offering or opening up new shares for sale. That would presumably meet the IPO requirements in its latest debt agreements without the expense or other overhead associated with a traditional IPO. That, in turn, makes it look like Spotify really doesn’t want to list in traditional fashion but now has little choice but to work towards that goal, with this route as a compromise of sorts. It would presumably provide the needed liquidity for investors who wanted to sell out as well, though without the normal process there would potentially be a lot more uncertain and instability in the share price.
This statement from Spotify and one of the big three music labels confirms a report from a few weeks back, which itself made perfect sense. It’s paid streaming that’s been driving a revival in the music industry, not ad-based streaming, and as such the labels want to do what they can to foster that model. Since Spotify is simultaneously the provider with the largest paid streaming base and also offers a big ad-based service, it’s natural that the labels would want to use what leverage they have to push Spotify to differentiate its paid offering more. Spotify, in turn, needs both to sign long-term deals with the labels and reduce its royalty rates so that it can gain investor confidence ahead of an IPO. So this is a win-win, though it forces CEO Daniel Ek to compromise on a key principle he’s held to previously, which was not preferring the paid service in terms of the music library it offers. Still, we’ll likely see similar deals with the other labels, which may finally pave the way for that IPO, which is increasingly urgent for Spotify.
via The Verge
The RIAA just released its annual report on the financial state of the US music industry, and it appears that streaming crossed the 50% mark of recorded music revenue in 2016 for the first time, landing at 51% for the year, up from just 34% a year earlier, an increase of around $1.5 billion year on year in total streaming revenue. Apple Music was clearly part of that picture, as it grossed around $1.5 billion globally last year by my calculations, but once you spread that number across the countries where Apple operates and subtract its cut, it clearly wasn’t the only contributor to growth, with Spotify obviously another big contributor. Other things worth noting: this is really about paid streaming, which dominates overall streaming revenue, with around two thirds of the total despite far fewer users (around 25 million at the end of the year versus a likely 150 million for ad-based streaming). This streaming growth actually helped drive digital and overall revenue growth significantly higher this year after a fairly stagnant 2015 too. Also, based on my analysis of the three major music labels, streaming is still under 40% of their recorded music revenue globally, so the US is ahead of the global curve here.
It’s impossible not to see this new Spotify show as, to put it charitably, inspired by Carpool Karaoke, especially given the role the standalone version will play in Apple Music. But kudos to Spotify for finding a new angle on the concept and making it distinctive. It’s also interesting to see hip hop as the focus here – where Carpool Karaoke crosses all genres, this show will be much narrower and therefore find a smaller but potentially more engaged and passionate audience. It’s important to note that hip hop has been a big part of the rise of streaming service, and Apple has heavily leant on hip hop in building its music service, especially when it comes to exclusives and Beats 1. I’m curious to see how each of these shows does on its respective service, especially given that James Corden, arguably the element that makes the original version of Carpool Karaoke work, won’t be a permanent feature in the Apple version.
This article seems to be the result of a push by Kobalt around its new royalty-tracking app for the artists it works with. If you don’t know Kobalt, it’s a music tech company which acts as an intermediary between artists and streaming services and helps ensure accurate tracking and payouts of royalties. It’s using the unique data it has on Spotify streaming to push its app and broader service this week, and this article picked up on some of the data about how Spotify drives listening of less-known artists and songs with its curated playlists. This sort of thing used to be the province of radio, but of course in recent years the streaming services have increasing power to make new artists, although they’ve used that in different ways, with Apple using Beats 1 radio to literally replicate the radio experience in a streaming setting, while Spotify uses its playlists feature.
via Watch what happens when Spotify gives unknown music acts a big push – Recode (you might also be interested in this episode of the Beyond Devices Podcast, in which I interviewed Ryan Wright, CMO at Kobalt)
Spotify Acquires MightyTV to Improve Ad Targeting (Mar 27, 2017)
When I saw some of the headlines about Spotify buying a company which is good at recommendations, I assumed that would be the focus of the acquisition, but it turns out that the focus is actually on improving Spotify’s ad targeting. So you won’t see better music recommendations, and if you’re a paid user you won’t see any change as a result of this buy at all. I was a Spotify subscriber for a time, but have never used the ad-based service, so I don’t know how the targeting is at this point, but if it’s anything like other online video and audio services, it could use some help, so this seems smart. But of course good targeting requires good data on users, and I’m curious to see how Spotify will improve in that department – by itself, it presumably knows relatively little about its users beyond their musical tastes, so better targeting would likely require buying in third party data to enhance its user profiles. And therein, of course, lies the inherent tension in all ad-based business models – user privacy versus effective targeting.
Spotify’s deals with the music labels have long been a barrier to achieving profitability and therefore also a major barrier to an eventual IPO, especially because many of its relationships have been operating on a very short-term basis rather than being locked in longer term. It sounds like there might finally be light at the end of the tunnel, mostly because Spotify is finally caving on perhaps the single biggest sticking point in its relationship with the labels: the differences between the paid and free versions of its service. Spotify has, in fact, steadily eroded those differences, which used to be more significant but now amount mostly to a lack of ads, while the labels have long wanted Spotify to increase the differentiation between the two as a way to push users to the paid their and therefore compensate artists at a higher rate for their music. As I argue in the Streaming is Saving Music narrative, it’s not really streaming as a whole but more narrowly paid streaming which is helping the music industry thrive at present, and so those labels have every incentive to push that tier of service. On the other hand, Spotify has used that free tier very effectively as a funnel to create eventual paid subscribers, and the labels also want Spotify to IPO so they can get a return on their investments, which is why they’re finally showing some willingness to compromise too.
via Financial Times
Pandora Premium: the original music streaming giant is ready for prime time – The Verge (Mar 13, 2017)
I went to download the Pandora app so I could try out this new Premium service, but it’s not available yet, so the headline is inaccurate on that point at least. It also looks like there’s no desktop or even web app, which feels baffling given how many people probably listen to Pandora on a computer at the office. However, the app itself looks interesting – as befits Pandora’s heritage, it’s big on recommendations, though its characterization of everything else out there as “30 million songs behind a search box” feels entirely inaccurate, given how much effort Spotify and Apple Music put into recommendations. Pandora won’t succeed on the concept alone, but because (and if) it’s better at it. It’s always had a unique approach to that challenge, dissecting the music itself with its Music Genome Project rather than simply taking an Amazon-like “people who like this also like that” tack. But that means people actually have to experience it (or know someone who has) to know if it’s truly better, which means convincing them to give it a try will be the biggest challenge. For the 80 million regular users of the existing Pandora service that’ll be easy, but I’m not as sure about the rest of the world.
via The Verge
SoundCloud is beginning to look a lot like Twitter, another service which has lots of active users but which seems to be struggling to find a business model that can drive it toward profitability. In SoundCloud’s case, that has apparently meant it’s struggled to raise money over the past few months, and a possible acquisition by Spotify also seems to have fallen through. On paper, SoundCloud is in a hot area – music streaming – but of course even for the largest player in paid streaming (Spotify) it’s not yet profitable. Paid streaming has been great for the music labels, which have seen a turnaround in their fortunes over the last couple of years as a result of its growth, but not yet as good for the actual providers. SoundCloud is in an even worse position, being mostly a free provider, although it’s tried to turn up its paid services in the past year or so. I think the most likely outcome for SoundCloud at this point is an acquisition and absorption into something bigger, most likely Google.