Category Archives for "Commentary"
A report from the Wall Street Journal yesterday has Apple in talks to buy Jay-Z’s Tidal streaming service, and even though Tim Cook’s company has a truck load of cash on hand, this is one acquisition that seems to be a waste of money.
When Apple purchased Beats two years ago for around $3 billion, the company received not only infrastructure that was later used to launch Apple Music, but also executive talent in Jimmy Iovine and Ian Rogers (who has since departed), and branding recognition from Dr. Dre. The general consensus is that the company vastly overpaid for what it received, but at least you could look at the deal and see that it made some sense because a few pieces fit into the larger picture of what Apple was trying to do.
Not so with Tidal. It’s a company reportedly in executive disarray, so there’s no operational talent to acquire. Apple already has all the infrastructure it needs for streaming delivery, so there’s nothing to be gained there either. Tidal does have a high resolution CD quality audio tier, but Apple has been collecting hi-res masters for its Mastered For iTunes program for more than three years now, so it’s even ahead of Tidal in this area, so that’s not a fit either.
Maybe the one thing that might be interesting to Apple is that fact that Tidal has 4.2 million paid subscribers, many of them attracted to the service because of Jay-Z’s brand, and exclusives from Beyonce, Rhianna, Kenye West and Prince. Buy Tidal and you get the users, but who’s to say that those subscribers can easily be retained?
Granted, if the price was right (meaning very low – $100 million or less feels right), it may be a worthwhile gamble for Apple, if for no other reason in that it takes it off the market (although none of Apple’s deep pocket competitors seem to be interested). [Read more on Forbes…]
As Apple Music reaches its first anniversary, the service is now up to 15 million paid subscribers, second only to Spotify’s 30 million. That number may not be as rosy as it seems though, since it may be well below what many in the industry initially expected.
A recent report from Cowen & Co. predicted that U.S. revenue from all streaming services will double by 2021, but Spotify is still expected to hold the subscriber lead during that period and not Apple Music.
One of the reasons why the service can be considered to be underperforming is the fact that Apple iTunes has more than 800 million accounts with credit cards already on file, and all of them had the ability to take advantage of a 90 day free trial of the service when it launched. While it’s true that Apple Music has worked it’s way up to 15 million paid subscribers from an initial 6.5 million, that’s still less than 2% of the potential audience once considered easy to tap.
While there was no official prediction on the number of conversions from iTunes to Apple Music, you can bet that not many in Apple upper management were counting on a figure that low. It’s difficult enough to get buy-in from consumers who aren’t already your customers, but when you can’t even get your most loyal customers who’ve spent money with you before (and a lot, in some cases) to sign on, you’ve got a problem.
Granted, there are some territories where an additional $9.95 per month (or the currency equivalent of the territory) might be considered a hardship, but the fact of the matter is that there are over 580 million iPhone users worldwide, which is an expensive purchase no matter what part of the world you live. Even using that total, 15 million subscribers still brings the conversion rate to slightly above 2.5%. [Read more on Forbes...]
Now that Brexit has unleashed its shock and horror on the financial markets worldwide, other much smaller sectors are wondering how it will affect them as well, and the music business is no exception.
The traditional music business (meaning record labels) is run by a crafty street-wise bunch that know how to roll with the punches, and that’s why I think they’ll find a way to come of this with a net gain when all is said and done.
Most of the analysis of the situation that I’ve read so far centers on the fact that doing business in both the UK and Europe will be more expensive because of the escalated operating costs associated with keeping offices either in London or in Europe. Travel, labor, and finances will all take a hit as costs rise because of the increased paperwork involved.
It’s a fair premise that will likely play out that way, but remember that the industry has a talent for turning lemons into lemonade (although usually that doesn’t apply to the artists).
For example, back in the ‘60s, all record producers were just staff personnel of the record label, and paid as such. After Sir George Martin had huge success after huge success with The Beatles that netted EMI hundreds of millions of dollars in profit, he didn’t get as much as a Christmas bonus, let alone a raise, in appreciation for his efforts. As a result, Sir George bolted and became what amounted to the first independent record producer, demanding his own royalty on the records that he produced in the process. Of course, an exodus of successful record producers followed, and it looked like the major labels had a huge new cost on their hands.
The lemonade came when the labels hit on the idea of passing off this new cost to the artist, and the producer royalty has been the responsibility of the artists ever since. The record labels came out ahead because there were now fewer employees on the payroll, and this new very expensive cost wasn’t theirs to worry about.
Another example came in the late 80s when recording budgets where skyrocketing. At the time, the labels paid all the invoices resulting from the recording process no matter how large or small. This resulted in an accounting nightmare, with vendors constantly upset with slow payments, and everyone in the supply chain from the artist on down being constantly hassled about it. The budgets were higher than ever, resulting in more invoices than ever, requiring more accounting manpower than ever to keep up. [Read more on Forbes…]
With Taylor Swift and U2 the latest superstars to sign a petition to congress complaining about the 1998 Digital Millennium Copyright Act (DMCA), the movement appears to be gaining traction. Chances are this one ends up like others before it though, with lots of strong talking points presented, Congressman shaking their heads yes, but not much accomplished in the end. That’s because the movement suffers from a critical problem – it doesn’t have a politically savvy leader.
At issue is the fact that so much music is available for free on YouTube thanks to user uploads, and the service can’t be held liable thanks to the “safe harbor” guidelines of the DMCA. Although YouTube provides a means of finding and either monetizing or taking down the offending material, it’s a veritable whack-a-mole problem for copyright owners to keep up, as more illegal uploads are posted than are taken down. Plus, finding the violators is on the shoulders of the copyright owner and not the service.
That’s why both artists and record labels want the DMCA adjusted to put more responsibility on YouTube for policing illegal uploads, and the likes of Lady Gaga, Sir Paul McCartney, Ryan Adams, Cher, Sir Elton John, Jack White, Fall Out Boy, Yoko Ono Lennon, Bette Midler, Queens Of the Stone Age,Pink, Maroon 5, Mark Ronson, Pusha-T, Sade, Gwen Stefani, Sting, Beck, Ne-Yo and Trent Reznor, along with the previously mentioned Taylor Swift and U2, have signed on.
The big problem is that there’s no one directly speaking for the artists best interests, and no organization in the United States dedicated to lobbying the powers-that-be strictly on their behalf (although they exist in both Europe and the UK). It’s time for an artist association with a strong leader to truly represent the needs of today’s recording artist – a Music Artists Coalition (MAC has a nice ring to it), if you will.
The idea (but not the name) comes from a music insider who knows a thing or two about industry associations and their power. Rupert Perry, former President of EMI Europe and former chairman of both the UK’s British Phonographic Industries and the International Federation of Phonographic Industries, observed over lunch recently, “The thing that’s holding this back is that artists don’t speak with a single voice. They need somebody who’s as capable of putting on a suit and talking to a Congressman as he is speaking to a label or publishing executive.” The idea makes perfect sense, but that person hasn’t been found and organization hasn’t been created yet, and the cause can’t effectively be furthered until that happens. [Read more on Forbes…]
Twitter has made an investment in SoundCloud for a reported $70 million and if you’ve been following the story between the companies, you have to ask yourself “Why now?”
About two years ago Twitter almost acquired SoundCloud before walking away at the last minute, and an acquisition certainly would have made a lot more sense at the time, even though it might not have changed the futures of either company.
Back then Twitter wanted to capitalize on its high profile music users like Taylor Swift, Justin Bieber and Katy Perry, who had massive followings on the service (and still do) but weren’t able to take advantage by directly serving up their music to them. SoundCloud was struggling with both monetization issues (which still exist) and licensing problems, and theoretically could have provided the infrastructure for Twitter to transition to at least a partial music service.
Many think that Twitter was better off for walking away from the deal and keeping the focus on its core business, which in theory worked fine except for the fact that the company’s user base has plateaued in the meantime even with a focused agenda not diluted with delivering music.
SoundCloud has actually come a long way in that it now has signed licenses with the three major record labels, and has since worked hard to roll out its $9.99 monthly subscription service called SoundCloud Go. Still, it’s a cash-starved company and needs another round of funding to stay alive, so having Twitter as an investor in this round is most welcome.
That said, the benefit for Twitter isn’t as apparent. It’s not getting any of the technical goodies that come with an acquisition, and it’s buying a piece of a company that essentially hasn’t grown in valuation since its last go around.
In fact, out of all the music streaming companies currently in the space, SoundCloud may be the most baffling. It’s long been a boon to artists, bands and songwriters as a tool for free music distribution, and at that it may very well be #1 in the space. That market isn’t large enough to add enough subscribers to make the platform go however, and may be tapped out already. Attracting regular music consumers to its paid Go service may be limited to electronic music fans, since the platform is a favorite of DJs, but that genre seems to have plateaued as well. [Read more on Forbes…]
Artists, labels and music services alike continue to lament the fact that not enough free streaming subscribers are converting to the paid tier, yet the possible incentive to get those free tier customers to upgrade is being ignored by the different players along the product pipeline. Superstar albums continue to be released without the industry taking advantage of the considerable leverage that they bring with fans, which amounts to a missed opportunity to improve the health of the music industry.
What would be the perfect reason to upgrade? How about the ability to access the latest album by Radiohead, Drake, Kanye, Beyonce, Adele, Taylor Swift, or other superstar artist?
By making that new hot album available only on the streaming service’s paid tier, there’s a reason for the consumer to buy in (as we’ve seen with the upsurge of subscribers caused by latest albums from Beyonce and Kanye on Tidal). Although it would be better if a major release was available on every streaming platform for anywhere from two to six weeks before it migrates to the free tier, even an exclusive on a single on-demand platform like Spotify would work, as long as it was only available on the paid tier. Paid-only services like Apple Music could provide the same incentive by not having the latest release available during its free trail period, for instance.
That way, the artist, label, songwriters and publishers all get paid at the highest rate (and their complaints about the low payouts from streaming would diminish as a result), more consumers are turned into paying monthly subscribers, and the industry grows at a much faster pace.
Of course many of the current megastar release strategies are strewn with apprehension that equates to inaction. We may be in the last throws of the physical music business, but that segment still maintains a high-ticket and high-margin. Everyone wants that last surge of profit and no one wants to leave money on the table. But Spotify, who reportedly refused to window the latest Radiohead album on its premium tier, may be just as much to blame as well. [Read more on Forbes…]
With the battle over streaming music leadership raging on between Spotify, Apple Music and YouTube, there’s one major company that’s been lying silently in the weeds waiting for the right time to pounce on an industry increasingly ripe for the picking. Don’t look now, but it may be Amazon that may soon be the one causing the disruption in the music business, and not the other popular contenders.
Amazon’s already a major, but low-profile, mover and shaker in the industry, with reportedly somewhere between 75 million and 90 million yearly subscribers (the company doesn’t release such information, so this is just informed speculation) to its Prime service, and although most of that centers around 2 day merchandise shipping and video delivery, the different types of offerings coming from the Prime Music portion of its service have been growing by the month.
This slow roll-out is happening at a controlled pace, but you get the feeling that the company is learning what works best with each move while not intentionally making a lot of waves as it positions itself to enter the online streaming market full-force.
One recent example of this is when Amazon Music was added to T-Mobile’s Music Freedom data-free music streaming program, which is the first instance of Prime Music being available to off-the-platform users. The move didn’t cause a lot of headlines, but gives the company some experience in rolling out a service beyond its own closed ecosystem.
Step By Step
What might be more an indicator of the ultimate bigger picture is the fact that Amazon recently made it’s Prime Video service available as a stand-alone product for $9 a month. Just adding the ability to purchase the service on a monthly basis is a break from the traditional yearly membership required in the past. Another foreshadowing of the future perhaps?
Then Amazon Launched what amounted to a YouTube Rival with its Amazon Video Direct (AVD), which although it launched with only publishing heavyweights and no record labels, provides an interesting outline of how it will pay content partners, as well as how it will take down videos if copyright infringement occurs. AVD gives partners the option to upload their content to Amazon Prime Video (available to tens of millions of premium tier subscribers), make it available as an add-on subscription through its Streaming Partners Program, offer it as a one-time rental or a one-time purchase, or make it available to all Amazon customers, which is ad-supported like YouTube.
According to Variety, the Prime Video option pays video owners a 15 cents per-hour royalty fee in the US and 6 cents per-hour in other territories, but that appears to cap at $75,000 per year. On top of that, Amazon will also pay partners a 50% royalty of the retail price from one-off purchases and rentals. As with YouTube, Amazon will pay the partner 55% from any ad revenue received. Amazon will also distribute $1 million a month to the makers of the 100 most popular programs viewed by Prime members each month. Regardless of the percentages, providing a roadmap for how content contributors get paid sure looks like Amazon is setting up for something bigger down the road. [Read more on Forbes…]
Word came out over the weekend that Google was a clandestine bidder for Michael Jackson’s half of Sony/ATV Music Publishing, and the news had the music business wiping its collective brow in relief. Had that purchase happened, we might be looking at a very different industry landscape today.
To recap, last March a buy-sell clause was triggered in the agreement between Sony/ATV and the estate of Michael Jackson that allowed either party to buy out the other, which ended in Sony paying around $750 million for the Estate’s 50% ownership in the company.
At the time it seemed inevitable that the negotiation would go that way, although it was rumored that the Jackson Estate actually had a deep pocket investor who could put up the needed cash to take the deal the other way.
What we didn’t know then was that Google was also a buyer in the mix, and you can bet that was a major factor in Sony pushing hard to get the deal done. In retrospect, it’s surprising that it only cost Sony $750 million, in that it’s conceivable that Google’s presence could have easily pushed that figure much higher.
Now think for a second what the ramifications of Google owning part of Sony/ATV would be today. First of all, it would be part owner of the largest music publishing company in the world – one that manages 4 million copyrights of some of music’s biggest publishing moneymakers, like The Beatles, Taylor Swift, Michael Jackson, Ed Sheeran, James Brown, Elvis Presley, Oasis and Eminem.
What do you think would happen when it came time to negotiate the next licensing agreement with YouTube (which Google owns) and Google Play? It stands to reason that Google/Sony would give itself a sweetheart deal in such a situation, right? Imagine how the rest of the industry would have reacted to that one. [Read more on Forbes…]
One of the hopes that digital music brought was for a faster and more accurate way for everyone in the food chain to get paid. That sounds good on paper, but unfortunately hasn’t quite panned out the way anyone in the industry expected. While it’s true that it’s easy to count online sales and downloads in the digital realm as well as streams and views, digital accounting lags far behind the expectations of artist, label or publisher alike. But now, music’s big data problem is beginning to be changed thanks to the efforts of companies like Kobalt Music and DistroKid, a trend that hopefully will be adopted by the rest of the industry at some point.
One of the major problems in the current world of music big data has been that although the streaming services could provide accurate info to labels and publishers, it came in a format that was incompatible with their accounting systems. That meant that all those reams of data (more than ever, thanks to the services ability to granularly collect everything) was delivered in stacks of hard copy, which then had to be manually input into the label or publisher’s system. And of course, the problem was that the person doing the inputting was often an intern or a low-on-the-totem pole employee who was not equipped to deal with some of the more complex decisions that would come up in the course of inputing, which lead to inaccurate statements for artists and songwriters. And let’s not forget the inevitable human error that goes along with manual data entry that didn’t help matters.
This is a problem that continues to plague the majority of the industry every quarter, and in some cases, every month. In fact, many publishers secretly complain that the cost of the manual labor involved exceeds their revenue in many cases. Still, it’s their fiduciary duty to carry on despite these difficulties.
Now to be fair, accounting software systems are expensive, usually custom designed, and take a very long time to both implement and overcome their inevitable growing pains. While changing to something that’s more digitally compatible is in everyone’s best interest, it’s still a painful process, both financially and morale-wise. It’s not a remodel, it’s almost a full tear-down and rebuild.
However there is a light at the end of the tunnel. A few years ago Kobalt Music, lead by Swedish entrepreneur Willard Ahdritz, launched the Kobalt Portal, the first online dashboard that Kobalt artists and songwriters could use to discover their earnings in a timely fashion. In fact, the portal has now been turbocharged so it can even report in real-time, an innovation that has attracted over 8,000 artists and songwriters to the service, including such heavyweights as Paul McCartney, Prince, Gwen Stefani, Bob Dylan, Tiesto and Kelly Clarkson, among many others. [Read more on Forbes…]
It wasn’t that long ago when it looked like electronic dance music, or EDM, might be the savior of the music business, thanks to an impressive growth rate of 54% over the course of just three years. With overall CD and download sales slowing down, and streaming paid subscribers not increasing as fast as the industry expected, EDM looked like it was the record label’s shining star when it came to fertile new sales ground. The problem is, in the last year, the upswing has slowed to just 3.5%, but that doesn’t mean there still isn’t room for growth in the genre.
According to the IMS Business Report 2016, total EDM sales went from $4.5 billion in 2012/13 to $6.9 billion in 2014/15. In the past year, that growth slowed by quite a bit, increasing by just $200 million, which has a many in the music industry thinking doom and gloom again.
That outlook may be a bit premature, however, because even though the U.S. market seems to have matured, other high-potential markets are only now in the early stages of development. Cuba, South America, Vietnam, the Philippines, and China have all seen huge electronic dance music festivals and clubs launched this year alone. In fact, nine clubs out of 20 new entries into the DJ Mag Top 100 Clubs are in Asia, with four in China, and three in Jakarta. Even a club from the UAE was listed.
One of the reasons for all the optimism comes from the fact that out of all genres of music (and there are a lot), electronic dance music is one of the most transportable. Since it’s mostly instrumental (even if there’s a vocal, the lyrics often don’t play a big part in song), there’s no language barrier between countries as a result. This means that even when the genre has topped out in the major developed countries, growth can still continue in smaller and upstart markets, sort of like what happened with American jazz music of the 1950s and 60s.
While it might seem like most of the revenue growth is coming from live events, that’s not entirely true. Song streams and downloads play a significant part of the genre’s revenue makeup.
For instance, streams increased 33% in the U.S. last year to 15 billion, although that figure is somewhat tempered by the fact that album and digital track sales and genre market share fell. In the UK, however, streaming growth grew at a faster rate than any other genre in 2015, and EDM remained in the top three formats in terms of sales there. In France, a third of the radio stations dedicated more than 10% of their output to Dance tracks in Q1 2015, showing the format is alive and well there too. In fact, Europe in general loves the genre, since figures indicate that at least 1 in 7 people have recently attended an EDM event. [Read more on Forbes…]
(Photo: Andymoore1980 via WikiPedia)