03/10

Music Labels Don’t Understand the Real Value of Music

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Memo to music labels: The “value” of music is defined by consumers, fans, and listeners, not by you and your minions.

From Billboard:

A renewed focus on the value of music comes as a transition point for the record business. Rob Wells, Universal Music Group’s president of digital who brokered deals with “freemium” services like Spotify, left the company in late February. Now the company is rethinking the value of unlimited free streaming, according to a label source. At the same time, Apple’s upcoming subscription service, slated for a June launch according to an industry source and media reports, will forego the freemium model for a paid-only approach…Industry sources say Apple has backed down from its effort to lower monthly pricing for its subscription service to $7.99 from $9.99. Apple would have to absorb the loss if it sets a price lower than the standard $9.99.

And here’s the part that really got me steamed:

Now the smoke is clearing and different attitudes are forming. Some labels feel Spotify should have more than 15 million subscribers, sources tell Billboard. Apple’s pay-only service could be a turning point. If Apple is successful in attracting large numbers of subscribers without unlimited, or at least significant, free listening, Spotify’s business model could fall under more scrutiny. “Spotify is good at giving it away for free, but it’s bad at getting people to pay for it,” says an industry source.

This is absurd. Spotify is remarkably good at “getting people to pay for it.” The issue is that there’s lots of free music around – streaming and over the air – and many people – indeed, most people – do not value the idea of a bottomless pit of music enough to subscribe to it at $10 per month or even less.

The fact is that as of 2014 Spotify had 40 million monthly active users including 10 million subscribers. That’s a 25% conversion rate, which is nothing short of extraordinary. And, I would heartily argue, that 25% is because of the “freemium” model, not in spite of it.

For years the top songs on iTunes have been the most popular songs on the radio. There’s a virtually direct cause-and-effect relationship there. Free radio drives the top of the iTunes charts. The whole point of “free” is that it drives interest and passion, and only the interested and passionate want a song whenever and wherever they want it enough to pay for it. Freemium is why on-demand is in demand.

A huge fraction of the listening audience has little to no interest in buying music at virtually any cost because they have no interest in owning a song they can hear often enough for free: Hearing their favorite song on the radio every few hours is more than often enough. Indeed, it’s functionally equivalent to as much ownership as the average consumer desires. And if you want it more than that, buy it or subscribe to an anytime, anywhere service to get it on-demand.

This is going to shock many of my friends in the music business (okay, I have very few friends in the music business, in case you can’t tell by now), but music “discovery” and “brand new music” are generally overrated and overblown. Why? Because for most listeners (apart from the youngest and most active) “new music” is “any song that has become a hit in the past 6 to 12 months” and “discovery” is “hearing that ‘new’ song on my favorite radio station.”

And if you don’t believe that, get out of the studio and get onto the street.

Most consumers don’t want to pay for a subscription to everything – they want to pay for exactly what they want when they want it. The metaphor is less like cable TV (which itself is slowly unbundling) and more like books. I may love books, but I’ll buy the ones I want, thank you very much. I’m not going to subscribe for “bottomless books.”

Apple will not be able to attract large numbers of subscribers without a significant free listening option. At best, they will only be able to subsidize a free listening option so the burden of payment moves from consumers to the overflowing coffers of Apple. Or perhaps they can build in a music fee to every new iDevice (as SiriusXM does with every new car), but that, too, is another form of subsidy.

Or, Apple will pay through the nose for high demand, exclusive content and rope off that content for subscribers only. But that move is more about restricting supply – a classic monopolist move – than it is about fulfilling demand.

The music industry routinely overstates the willingness of consumers to pay for their content because they are fixated on a dreamy past where the landscape was dotted with Sam Goodys and Tower Records and there was no monetization point between these destinations and your friendly local radio station. Choices? Nil.

As the movie industry proves again and again, the specter of illegal downloading is always around the corner awaiting an opportunity to demonstrate that restricting supply, complicating access, and hiking prices are sure bets not for increased profits but for increased losses.

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