Can Web Music Survive?

While no one would argue the Internet’s incredibly positive impact on so many aspects of our lives, it is interesting to see that long-held assumptions about it don’t always ring true.

Take, for instance, the common notion that the web is the ideal distribution platform for all kinds of goods and services, particularly digital media. There’s an entire segment of the world’s economy, in fact, which is arguably based on that hypothesis.

But several decades into the internet revolution, there seem to be several glaring cases where web-centric businesses based on these assumptions aren’t really living up to their potential—at all.

One of the most obvious examples is music. For so many reasons and in so many ways, the distribution of music digitally via the web seems like a match made in heaven. Music plays an important role in most people’s lives—an extremely important role for some consumers—so there’s strong built-in demand, and the small size of digitized music files makes them seemingly easy to transfer via the enormous range of routes over which we now have access to the internet.

And yet, here we are in 2016 with more news about the struggles of online music businesses than success stories to share. Market leaders Spotify and Pandora continue to lose money, as do players such as SoundCloud, and smaller services like Rdio and now MixRadio close on a frequent basis. Even the very biggest names in tech—including Apple and Google—have struggled to find a lasting, profitable business model for their large investments in digital music.

For a long time, of course, Apple had great success with iTunes. So much so, in fact, that they changed the nature of the music business. Unfortunately, that success also brought with it an entirely new, and more dour perspective from the traditional music owners—large music labels—that’s making new business ventures in music significantly more challenging.

Equally important, tastes in digital music consumption evolved from buying and downloading songs to streaming them. Consumers have become captivated by the option of getting access to an enormous range of musical choices, particularly in conjunction with the unique music discovery and social sharing capabilities that these services offer.

But streaming services don’t seem to be the ultimate solution either. Most are ad-based and struggle with converting free customers to paid ones. In addition, there’s growing resentment in the music industry about the royalty payments made to musicians from these services. In fact, at this week’s Grammy awards, there was an impassioned plea from the music industry about the inequity of receiving tiny fraction-of-a-cent payouts for streaming music.[pullquote]While people acknowledge that there’s value in content, paying for that content alone doesn’t seem to be a viable way of doing business long-term. .[/pullquote]

The problem is, despite these concerns about payouts to the music industry, online music companies still have to invest significant money in order to get access to new music. Perhaps to no one’s surprise, the real issue seems to be in how that money is being distributed.

The other challenge is one that seems to be similar to many other web-based media properties. While people acknowledge that there’s value in content, paying for that content alone doesn’t seem to be a viable way of doing business long-term. In the case of music sites, because they can’t seem to make money selling the music itself, they’re hoping to do so selling tickets to concerts, as well as artist’s t-shirts and other promotional items. It’s not likely to lead to gangbuster profits, but this more indirect model may at least lead to businesses that can survive.

Longer term, however, there’s going to have to be some serious soul-searching and re-examination of long-held assumptions about internet business models, because they’re clearly not all spun from the gold of which many believe the web is made.

Published by

Bob O'Donnell

Bob O’Donnell is the president and chief analyst of TECHnalysis Research, LLC a technology consulting and market research firm that provides strategic consulting and market research services to the technology industry and professional financial community. You can follow him on Twitter @bobodtech.

327 thoughts on “Can Web Music Survive?”

  1. “Even the very biggest names in tech—including Apple and Google—have struggled”

    Only if you collapse a decade and a half of history and conflate track sales with streaming businesses. Apple created online music, and made a ton of money selling MP3s for music publishers – hardly struggling. Now streaming is in vogue, and Itunes sales have declined, but it’s “struggling” only in the sense that CD sales are struggling — it’s still making money for publishers and artists, just not as much as before.

    Meanwhile it’s really *way* too early to tell whether Apple is “struggling” WRT streaming — but judging from the way they’ve been bragging about the number of paid subscribers to Apple Music, it sounds like they’re off to a healthy start.

    The problems with streaming have mostly been inflicted by music publishers, who are (once again) gutting the goose and then wondering where all the golden eggs went to — rather than simply adapting the radio model of royalties, which would have been lucrative, simple, and has a demonstrated track record of sustainability for the broadcaster, they tried to force the streaming companies to pay per listened to track — result, offended artists who are insulted by the low royalty rate, and bankrupt streaming services who cannot afford per listener payments on their meager advertising revenue.

    1. “The problems with streaming have mostly been inflicted by music publishers, who are (once again) gutting the goose and then wondering where all the golden eggs went to — rather than simply adapting the radio model of royalties”

      That’s not totally true. Just about every streaming service still alive and dead complained that they could not afford radio based royalties. So the RIAA capitulated, which also resulted in radio stations no longer able to stream their programming. So now everyone is suffering—the RIAA, the radio stations, AND the streaming services.

      Joe

      1. The decision to put the financial concerns of streaming music entities over the financial concerns of the songwriters, musicians, and artists is unsustainable.

        My sincere hope is that the fortunate artists who have control of their (P) copyright will refuse to allow streaming of their product. At least until they receive fair royalties.

        I also sincerely hope the unfortunate artists who don’t control their (P) copyright will sue the old guard record companies (i.e.: the RIAA) over the decision to drastically cut (P) royalties when they agreed to terms with the streaming entities.

        Streaming must become financially viable for artists or it must die. Music has real value and streaming entities do not.

        Let me preemptively address all the idiots who think this is unimportant: please post your bank account and credit card info online so everyone can freely share in the fruits of your “labor.”

      2. “every streaming service still alive and dead complained that they could not afford radio based royalties.”

        I was not aware of that, thanks for the correction.

        Still, though, my gut tells me that the woes of various streaming services probably can be traced back to the music labels at least as much as to the streaming services adopting poor business models.

      3. I think the elephant in the room is piracy. You’ve got to reach a price point where people don’t mind paying instead of torrenting the music. How that $10-ish per month is then split between distributor, label and artists is almost secondary.

        Also, a weird issue is that copyrights keep getting extended (life + 70 years or 95/120 years !). That’s not an economic problem, that’s a political one. I’m sure most artists would like more money earlier and less after their death…

        1. Piracy has always been an issue, even before the internet (mix tapes, etc.). That’s how the RIAA and MPAA were able to get a cut from each blank, recordable CD and DVD sold regardless of purpose. Probably the same with tape, too, but I never looked into that.

          I do think, as bad as the RIAA PR was with all the suing, people are generally enough willing to pay for something they value and I think we’ve returned to somewhat pre-Napster days and mentality.

          And then when you look at the business models of artists like Phish and the Grateful Dead who have no problem with and allow for “bootlegging” (as it used to be called) and still generate revenue, again the issue really isn’t “piracy” per se, but loss of control of availability.

          The recording and movie studios love to create a false scarcity. Digital really throws a crimp in that model. Remember our “exclusivity” conversation? Same principle but for the masses.

          I’m torn about the whole copyrights idea. My own solution is copyrights can only be owned by people, not companies, are never transferable (even to family), and are relinquished when the creator/s die. And the creators get to decide how “public” (fair use, public domain, etc.) their creations are.

          But, yeah, as of now definitely political and corporate driven (Sonny Bono not-withstanding). As much a fan I am of Lessig and the whole remix philosophy, I do think creators and their creations need protecting.

          I remember wanting to take a picture of Botticelli’s Birth of Venus at the Ufizi and being “accosted” by security. I asked, “Is Botticelli really not going to eat tonight if I take a picture?” I know it is a bit more complex than that, but that’s all I could think at the time.

          Joe

  2. The music labels (formerly called record labels) have a historical reputation for abusing both musicians and customers, as when they charged $18 for a CD that had 2 good songs on it. That led to first Napster and then iTunes. I don’t know who is responsible for the industry’s financial troubles now, but I’d assume the music labels are the most likely ones, which would mean they need to correct the situation.

  3. There are a number of other factors to consider. Pre-internet distribution there were effectively three disparate distributions—physical media, non-physical radio, live performances. The internet/digital media has obfuscated the non-physical and physical business models. What changed the nature of the music business was Napster. Apple was the only thing that stopped that hemorrhage. But of course, what the RIAA resented was their lack of control over Apple/Jobs.

    While the internet and distribution is a match made in heaven for the consumer it is hell for the RIAA and the artists who insist on maintaining their connection with the RIAA, simply because of lack of control. The RIAA could exert maximum control with the old models. They don’t want all music to be available to everyone for all time. They want to control availability, pricing, and bundling. In the old days there were only three people to pay to get music heard—the record stores, the radio stations, and local promoters/presenters. The internet is now a wild west and less an opportunity as far as they are concerned.

    You also conflate the music industry with the artists. There is a huge shake up occurring with regard to the machine. It is the 20th century _machine_ that is at stake, not music. Both Steve Jobs and Taylor Swift clearly demonstrate that if one provides something of value people are willing to pay. What they aren’t willing to pay for (and have no care about) is the intricate machinery and backroom dealings that lined everyone’s pockets except the artists for so long.

    I mean really, if only a sliver of a penny goes to the artist, who, then, is getting the rest? NOT the artists, that’s who.

    In the arts, unfortunately, the most impassioned pleas for arts support rarely is ever about the art or artists, but by and about supporting the institutions that have formed around the art and artists. As an artist I am insulted when that obfuscation is perpetrated.

    That’s without even addressing Modern worldviews that insist that art is irrational and is only valuable as long as it serves a utilitarian purpose. A worldview that artists also participate, so many of the problems are of their own making.

    Joe

    1. Since people want music as much as ever and always will, I think you’re clearly right when you say it’s the 20th century machine that is at stake, as it does not fit 2016. The onus is on the content providers (the music labels) to find a modern business model.

      1. The 20th century machine will disappear, but it will take a while. I’ll note that you said “content providers (music labels)”. That is pretty much the truth within the 20th century machine, but the true content providers are the artists not the music labels, and the artists are now being directly connected to the audience. The 20th century machine is being cut out of the process, slowly but surely. This could take a generation. The music labels will not find a modern business model because the labels are no longer necessary.

        1. I do think there is still a place for the music labels. No individual up and coming artist can generate the marketing and promotion that the machine can. But they will likely transform to more artist driven endeavors rather than suit driven initiatives. Some of the hottest record labels today are founded by other artists.

          Joe

          1. Basically agree, I just didn’t bother getting into the details of how some music labels will become entities that help artists in various ways. But the traditional music label is no longer necessary, or won’t be by the end of the transition. An entity that deals with artists and passes the majority of revenue to the artist wouldn’t be something I would call a music label anymore, it’s something different. I suppose it’s possible the current labels could make this transition, but I see it as more likely that it will be new entities taking on new models while the old labels die.

    2. I do wonder where the money goes and what is a reasonable payback for that artist’s song that plays for 4 minutes out of the 4 hours I’m streaming? Even if I pay $10 per day, split if into $2.50 an hour, then 15 songs, that’s only $0.17 per song. When you further split that by the 30 days in a month, you are down in the 1/2 cent area per song.

      Looks like the problem is volume. Paid music needs more payers and has too many artists to support.

      It looks like if the average artist gets played once a month, they could be comfortable if 10% of the US population paid $10 a month!

  4. When a new technology like online music comes along, it’s bound to shake up the old way of doing things, and it may shake it to pieces. Blaming the new technology for the problems won’t accomplish anything except delay learning how to work successfully with online distribution of music, and that’s what needs to happen.

  5. Does anyone ever consider the fact that music may not be as important as those trying to make money from it think it is ? Sure people like to listen to music but from that it doesn’t follow that they give it that much value. What function does music fulfill ? It can slightly alter one’s mood providing a momentary escape. If half the music in the world today was never produced the world would not be changed one bit. Much the same can be said regarding half the books of fiction. Music as a money making phenomenon is primarily a market filled with young people starting with the formative years of adolescence through the early twenties which is why music made so much money as the baby boomers moved into this age group. That era is over.

    There is no shortage of businesses who moan and groan over the passing glory days when it was easier to make money. Nothing lasts.

    1. “If half the music in the world today was never produced the world would not be changed one bit.”

      Curious how you reach this conclusion and how “half” is your watermark. Would the world be different if maybe three-fifths of the music was never produced? Three-fourths? Nine-tenths?

      Joe

      1. It’s an expression and not a mathematical formula. The point has to do with excess capacity. Does the world need someone to manufacture another ear and hair nose trimmer ? How about another type of coffee cup or maybe create another recipe for cupcakes ? How many people have DVR’s filled with shows they’ll never watch because they can’t find the time to watch them all ?

        Music is background not foreground for most people and it makes its most dramatic impression during adolescence. I don’t think this is news except to people who “just love all kinds of music”.

  6. I think part of the problem is that music has lost a lot of it’s importance.

    People used to have defined musical tastes that were central to their identities, if you ask someone of my age (the so-called millennials) what kind of music they like, a large portion of the time you’ll get: “I like a little of everything” as an answer.

    Of course, those people don’t really like a little of everything, and when you play them something really obscure like a French industrial-noise act they’ll realize that. What they’re really saying is that they don’t have defined preferences outside of what the popular channels of music play for them.

    Most of the time music is relegated to background noise. It’s easy to pull up spotify or pandora as background music for cleaning, partying, studying, whatever. It’s difficult to seek out new artists, buy music, curate your tastes etc.

    Considering so much new popular music lacks intellectual or emotion complexity, it’s easy to see why this has become the case. Unfortunately, that also means that music in general is just considered less valuable than it used to be.

    It’s a combination of low demand and high supply. The only people willing to pay large amounts of money are vinyl collectors, and many of them are looking primarily for older material.

    1. I think it is hard to argue that music has lost its importance. It may be easier to argue that broad swaths of particular preferences have lost their importance, which I think your points better illustrates. What the internet has done is opened up the available music from the few radio stations or groupings of genre specific radio stations that used to dictate what we could even listen to. That may mean more people do like a little bit of everything vs _only_ liking pop, or country, or hip-hop. Just because some obscure, esoteric music form can be pointed out does not negate the more general tastes people sport these days.

      Joe

  7. At somepoint do record companies decide that, like CBS and TV, it is more effective to _stream_ their own content? Does it make sense for music to adopt the “app as channel” model?

    Joe

Leave a Reply

Your email address will not be published. Required fields are marked *