The Music Industry is still searching for sustainable answers to its digital headache
As part of our morning trawl through Google Alert’s digital music digest there seems to be a new music streaming service popping up every day, offering free access to music with ‘millions of songs’ in its library. At the moment, iMeem and Spotify probably lead the pack with Sky, Virgin, Mog, Skype Music, we7 etc. each offering some variation on the above. They are based either on subscription-based or ad-funded business models, or a mix of the two. Sometimes you even get some token free downloads thrown in. But as the market gets flooded with these new services, will their revenue streams ever be able to cover the royalties needed to pay the record companies?
Doubtful. Record companies have a history of being greedy bastards and as the number of services offering ‘free’ keeps on growing, as a cruel twist of fate the global advertising revenues that feed ‘free’ are shrinking. At Music Balloon we’re biased – we won’t rely on ad-revenue or subscriptions when we launch – but it’s part of the future of how we are going to consume music so it’s worth having a look at it in more detail:
As of June 2009, Spotify were running up £60K bills per day in royalty obligations alone and their advertising revenue was bringing in just £82K a month. (Music Week article, August 2009). That’s almost a £2mil loss per month before subscription revenue. Recent Guardian figures are even more alarming, estimating streaming costs could be as high as £6.8mil per month. Whatever the costs are, they are significant. Therefore, Spotify also have to rely on a subscription model to bring in the real money in return for an ad-free music listening experience but at the moment they are way off the volume of subscribers needed to make the maths work. Spotify is cool; they have already made a massive impact on changing the mindset of the music industry and as they launch in the US they can only get bigger. Bigger sounds expensive though. The record companies have a vested financial interest in making Spotify work, but we hope they make a success of ‘free’ in the long run; a lot more people are starting to listen and experience music legitimately and to see that fail would probably send these new converts back out to sea on their pirate ships.
So, although the maths doesn’t work the impact that these streaming services are having on the music industry feels good. Their underlying theory about more ubiquitous music is capturing fans’ imaginations but for long-term success the financials also need to add up…
That means the ad-supported model becomes one piece of a much larger puzzle. They introduce and promote music to a fan-base but when that audience is offline or on holiday or like me, get huge enjoyment from building a music collection, actually owning some kind of experience with the artists becomes more important. And delivering an experience is key. The industry really needs to innovate with this in mind; the over-priced iTunes LP format is now building an even bigger toll-bridge between artists and fans – can digital music really get more expensive! An innovative, new download experience has great potential for artists, fans and even labels as the second stage to a ‘free’ streaming service… any ideas welcome, we’re launching ours in January next year.
Alex and Steve
www.musicballoon.com