Lately, it seems like I just can't escape the increasing coverage on much certain misguided artists, labels, music managers or other music industry people dislike streaming / on-demand music platforms such as Spotify, Deezer or Simfy etc. Even thought I have vowed to stay out of the ‘future of music' debate because it is such an utterly dysfunctional industry run largely by unimaginative and egocentric execs and a bunch of lobbyists, I keep getting a lot of questions about just how exactly musicians and writers (and whatever the industry will become) will ever make enough money from what the leading streaming platforms are paying them.
If I am correct, right now, Deezer has roughly 6 Million paying users and Spotify (allegedly) has snagged somewhere around 15 Million paying users, so it is quite obvious that their possibilities for monetization are extremely limited. Considering the estimated 1.2 Billion Youtube users many of which are using YT as their primary (and free) source of music, all currently available streaming services pale in comparison. Expecting a major flow of new money coming from the streaming services – in their current form, and with their current pricing – is obviously an illusion (but then again, hunting and killing-the-golden-goose is apparently a favourite pastime of many music industry ‘leaders').
So how would they reach 100s of Millions of paying users, within the next 3 years? Do the labels really want them to grow that big, or are we facing a similar problem than Netflix ha(d)s with the major movie studios? Is it fair that the major labels, and the large independents, hold equity in the likes of Spotify, and that these services cannot lower the price of music to get more people to sign up?
Let me be frank.
Basically, the problem with streaming music is not that the users are unwilling to pay (or are mostly evil freeloaders), or that the streaming services are paying too little in licensing fees. The problem is the music industry's self-serving, self-defeatist, monopolist and uncooperative attitude, and it's legally sanctioned extortion practices when it comes to music licensing, combined with the still prevailing power of their global distribution cartels that make a real solution impossible.
Keeping this in mind, let's do some math, shall we?
- Right now, we have approx. 2.5 Billion people online, and an estimated 5 Billion users will be connected by 2020
- In 2020, some 80% of those 5 Billion people will use mobile devices as their primary internet access points (yes, indeed, as you already know, it's ALL about mobile devices)
- Let's be really conservative and assume that at this point we can effectively only reach 30% of all internet users with various streaming platforms, because of slow connections or lack of mobile broadband etc
- Let's say that today, in most developed countries, these users would pay (directly or indirectly ie via advertising etc) as little as $2.50 per month / $30 per year for a basic premium subscription (i.e. one that includes downloads to mobile devices but might stop a bit short of being totally unlimited, e.g. allowing 200 downloads but not 2000 downloads).
- Let's also assume we won't get $2.50 / month in the so-called developing countries, anytime soon, and reduce the average revenue from them to $10 / year, and let's further assume users in those countries would make up 50% of the total; i.e. the global average would be only $20 per year per user
- This means that if were to lower the price of streaming as outlined above, right now the music industry could make approx. $ 16 Billion per year; i.e. 30% of 2.5 Billion Internet users = 800 Million people (give or take) ‘paying' $20 / year / users in average – which is, incidentally, pretty much what the entire industry generates per year (see the Statista graph below)
- In 2020, we can certainly expect great improvements on how people will connect to the Internet, so let's assume we can at that point reach half of those 5 Billion people, i.e. 2.5 Billion people, but with even a declining average of say $12 / year ($1 per month) – this would yield $30 Billion per year. And that would just be the beginning.
Clearly, the solution to the streaming music conundrum is to a) get EVERYONE involved, and everyone to ‘pay' – and with that I mean either directly, or through bundles, or through advertising, or even via taxes b) build a new, premium-services economy on top of a ubiquitous ‘music like water' scenario. This could include offers such as HD downloads, remote viewing of live concerts, augmented reality apps, fan clubs, deep archives etc.
So, to all the execs running the likes of Deezer, Spotify, Rdio or Simfy (and to those that have invested in them) I think this is your only way forward:
a) You must make your offering so powerful, so cheap, so sticky, so irresistible that every single mobile broadband user wants to have it – not just the 2-3 % of the population that may eventually sign up for it now (which incidentally is exactly how many people paid for music downloads on iTunes, in the past). You'll need to get 90% of those connected consumers engaged with you, at a very low but profitable price-point, and then convert them to other premium services. You need to be better than Youtube, and you can- before Youtube just shells out the money and deflates the entire record industry business model in one big stroke.
b) I hear you (and God knows, I know how this works, personally): the labels won't allow it, and neither will the publishers or the rights societies. But mark my words: if they don't come around, by hook or by crook, you won't have a viable business. They will take your money and your equity, and run – once it's clear that most consumers won't pay as much as they want, or when most major artists will want to opt out. You can play hardball now, succeed and become indispensable (look at how Netflix did this) or slowly wither away as nice-to-have niche services that are guaranteed to be perpetual money losers sucked dry by old distribution cartels.
The money is there, clearly – now who has the guts to really make this happen?
Global music revenues chart by Statista (not including concerts etc)
Image via Billboard Magazine Sept 2014
Related video: Gerd Leonhard on Music Like Water