Apple Music will launch on June 30. Until then, here is a snapshot of the current music streaming offerings via The Huffington Post:
There has been discussion about the percentage Apple will be paying rights holders. ReCode authoritatively reported Apple will pay over 70% of revenue. Peter Kafka goes on to succinctly summarize Apple’s offering:
Apple’s pitch to the music industry, essentially, is that its seven-tenths of a dollar will be worth much more than Spotify’s seven-tenths of a dollar in the long run, because its free service isn’t meant to compete with its paid service, and because it will sign up many more subscribers than Spotify, which says it has 20 million paying users.
For the last 6 months, many rumors have surfaced about how Apple plans to step into the streaming music arena. Speculation of how Beats Music will be incorporated has been rampant across the web and print media. Ashleigh Allsopp has compiled many of these rumors on Macworld UK.
Name change to Apple Music, lowering the subscription price, announcing a release in June at WWDC 2015, free trial period for 1 to 3 months, licensing deals between Apple and music labels not being in place, ability for artists to cross promote other artists, Android version release, suggestion by Apple to music labels to pull out of the free tier in other streaming services, Apple offering to pay the YouTube licensing fees to Universal Music so their songs will not be on YouTube — these are some of the many rumors that have circulated this year.
One fact to note — Warner Music Group announced that streaming music revenue surpassed revenue from selling downloads for the first time last quarter.
Stay tuned for which rumors are true once Apple announces their streaming music product.
The Department Of Justice is rumored to be looking into Apple’s business practices concerning streaming music. Why would the DOJ be investigating? According to The Verge, Apple has been pushing the music labels to remove the free tier from streaming services. As Spotify negotiates to renew their licenses with music labels, Apple is lobbying music labels to not include a license for a free music tier anymore.
If successful, this would greatly reduce the competition when Apple releases the new Beats Music. To date, Spotify is the most successful streaming service with 60 million users. 15 million pay for a subscription so 45 million use Spotify’s free (ad-supported) service. If Spotify is forced to delete their free version, it will unleash a lot of early-adaptor-music-fans that Apple may woo over to their new Beats Music.
Any other reason why the DOJ would be looking into Apple’s streaming agenda? Reportedly Apple “offered to pay YouTube’s music licensing fee to Universal Music Group if the label stopped allowing its songs on YouTube.” Now let’s state the obvious, YouTube is the number one music listening channel in the world, by far. If the worlds largest music label, Universal, were to take their songs off of YouTube, Apple will have artificially constructed a demand for their new Beats Music… maybe. Let’s see if paying loads of money up front is a successful strategy for Apple this time around.
A 2014 global music report has been released by the IFPI (International Federation of the Phonographic Industry). For the first time, Digital revenue was the same as Physical (CD’s and vinyl) sales with each having a 46% share. Yes, digital sales and physical sales were both about $6.9 billion USD in 2014.
Revenues from music subscription services grew by 39% and has reached 41 million paying subscribers, up from 8 million in 2010. In spite of the growth in streaming, downloads still account for slightly more than half (52%) of digital revenue. Downloading is down 8% from 2013 while streaming revenues are increasing to make up the difference.
Many artists, of large and small stature, continue to complain about the small amounts they receive from streaming. Since the statistics are showing consumer interest and growth year over year, a disconnect is perpetuating itself.
Ed Christman in Billboard wrote an exhaustive exhortation on the tricky payment structure from streaming services and how they might translate from record company to artist. Christman’s article “The Baffling (and Slightly Insane) World Of Streaming Payments, Explained” sheds light on the need for transparency from record company to artist.
Echoing the importance of transparency, some believe the record companies have not done the work of explaining the streaming model to artists. To this point, Believe Digital CEO Denis Ladegaillerie explains, “a significant number of artists in our catalog make more money in streaming than downloads.” A disconnect for sure.
Artist and producer Steve Albini, when asked about streaming services, comments that “If the internet has demonstrated anything over the years, it’s that it has a way of breaking limitations placed on its content.” To dismiss streaming services because of misinformation is first-and-foremost tragic for artists.
Building a business around openness rather than control is the way forward for distribution of entertainment. An artist fights obscurity — if there is an opportunity to diminish obscurity and distribute your music to gain fans, this is a road to prosperity.
European regulators are investigating Apple for its plan to bundle music streaming with its existing iTunes platform. The speculation is that Apple will release their music streaming service, which is based on Beats Music, in June. Assuming subscription only, with no ad-supported tier, European regulators are “said to be concerned that the company will use its size, relationships and influence to persuade labels to abandon free, ad-supported services such as Spotify, which depend on licenses with music companies for their catalogues.”
Spotify argues that its free ad-supported tier is critical to turn users into paying subscribers. 25 percent become subscribers currently, much higher turnover than other streaming services. Remember that Spotify’s ad-supported tier pays out less when a free user listens to music vs. a paying subscriber. Beats Music (and now Tidal) do not offer a free tier and are looking to catch-up to Spotify’s 15 million users. Now that Apple is involved, regulators are scrutinizing what the new licensing landscape might be.
Increasingly, the chatter from the music labels is for less support of free ad-supported streaming. We know the story well, artists are unhappy by the payouts from Spotify, yet it is their music label that pays them according to their contracts. The Financial Times points out:
streaming may be losing money and artists struggling to get by, but the labels have weathered the digital storm remarkably well. For instance, Universal made operating margins of 11 per cent in 2013 — nearly twice what they were a decade before.
At a time when sales remain stagnant, the profitability of intermediaries such as Universal gets ever harder to explain.
The most transparent service will be the one that pulls ahead.
In October of 2014, Tidal HiFi launched in the U.S. offering CD quality audio (FLAC files at 1411 kbps) for $19.99 per month. Last week the musician Shawn “Jay Z” Carter bought Tidal’s parent company Aspiro for $56 million.
Now, Tidal is offering two tiers. The Premium subscription costs $9.99/month and offers music at 320 kbps (same as Beats Music and Spotify). The HiFi subscription costs $19.99/month offering lossless quality audio. A free advertising supported tier is not available currently.
Jay Z gave 16 artists a reported 3% equity stake in Tidal. He intends for the rebirth of Tidal to be created by artists, for the fans, and to deliver a better value for all artists. The artist/owners are: Alicia Keys, Arcade Fire, Beyonce, Calvin Harris, Chris Martin of Cold Play, Daft Punk, Jack White, Jason Aldean, J. Cole, Jay Z, Kanye West, Deadmau5, Madonna, Nicki Minaj, Rihanna, Usher.
Having all this star power seems to have backfired as fans are vowing to go back to pirating instead of making successful artist even wealthier. The YouTube video of the press conference has more thumb downs than thumb ups currently. Pay outs to artists will not increase because Jay Z is now a streaming music company owner.
Another troubling area is exclusive deals with artists which Tidal is pursuing. Jimmy Iovine at Apple is reportedly trying to do the same thing with Beats Music. A song released exclusively on one service for a time is not great for fans. The movie industry calls it windowing. This strategy had its place in a different era, but not in todays social digital entertainment landscape. The obvious response from users will be, if I cannot get this song from the service I subscribe to, I’ll simply search for it and listen elsewhere — then no money goes back to the artist…
Will artist exclusive deals be the differentiator that will grow music streaming subscribers? No. Consider music fans that want to share music and playlists with friends — listening on different services because of exclusives is too much friction. Users are smart and will most likely find the music elsewhere, probably for free.
During a Q&A at New York University Jay Z and Tidal executive Vania Schlogel answered a curious question: “is it possible for independent artists to get equity in the company? How is that determined?
Schlogel replied: “Absolutely. We’ve set up a stock appreciation rights program already — it’s nascent, but it’s in place. And as we go along, we’re working with the artist founders and figuring out how exactly to grow and evolve it going forward, and figuring out how we will set up this program and send out that messaging, especially to independent artists.”
Bringing Bob Lefsetz’s thoughts to the discussion always adds color. Lefsetz believes Tidal will never gain traction. He wrote:
“Apple should have a free tier. Since not everybody subscribes to a streaming service, there’s a chance Spotify could be dethroned. But not by an entity that’s a walled garden. Meanwhile, by separating exclusives we’re just forcing the public to steal. That’s a solution? Spotify has reduced piracy and now we’re gonna bring it back?
MTV was hampered by a small footprint. They gathered artists to launch the “I Want My MTV” campaign imploring fans to lobby their cable systems to add the service. What happened? SUCCESS! Where is this same campaign today? Everybody’s so worried about giving the money to someone else that they’re stuck in the past with rearguard efforts.”
The only thing for certain is more people are aware of streaming music services since Jay Z’s Tidal purchase. Still to come, Apple/Beats Music release and YouTube Music Key wide release.
The Atlantic: The Golden Age Of Online Music Is Over (And Another Is Beginning)
Lefsetz Letter: More Tidal
Music Industry revenue statistics have been released for 2014. Read the RIAA full report here. Streaming music continues to be an ever-growing piece of the music industry. Highlights include:
⬥ Paying subscribers to on-demand music services in the U.S. have tripled since 2011.
⬥ The difference between digital downloads and streaming revenues has narrowed – streaming is approaching $2 billion while downloads have decreased to $2.6 billion.
⬥ United States paying subscribers grew 26% to 7.7 million in 2014.
The whole pie looks like this:
David Harrell is a musician in the indie rock band the Layaways which has self-released four albums. He reports that Beats Music payed out an average of 1.801 cents per stream from his December 2014 CD Baby account. His graph below shows the difference between the current Beats Music payout and average Spotify payouts (0.428 cents) for the last few years.
It is not surprising Beats Music is a higher rate. Spotify averages two tiers of users — paying subscribers (high rate) and free users (low rate paid by advertising). Spotify’s average payouts will naturally be lower than Beats Music which has no free version to factor in. All payments from Beats are based on paying subscribers (a high rate).
The real question is volume.. does Spotify make up the smaller revenue per stream with a higher amount of listens? People guess Beats Music has a few 100,000 subscribers at best while Spotify has 15 million premium subscribers… In this case, more people for less money is much better.
Apple will be launching their iTunes music streaming service in June at the Worldwide Developers Conference (WWDC). According to music industry sources, the Beats Music branding will disappear and the service will be “based on technology acquired from Beats Music, including curated playlists, cloud-based libraries…” The current price point is $7.99 which is $2 less than the current Beats Music subscription.
iOS and Android will be supported on the mobile side while the service will be integrated into iTunes for Mac users. There has been no mention of web browser support.
Apple has not officially commented on the new music service, so details may change between now and June. It looks like a farewell to Beats Music is imminent…