Apple Music & The Make-Believe Streaming Music Market

Streaming Music MarketApple Music is the latest and greatest to enter a crowded space: the streaming music market. Like the other big new competitor, Tidal, Apple Music is only going to offer paid subscriptions, instead of ad-sponsored free music.

But why? Why is any company even bothering to enter this space?

There is no streaming music market. Period. Really, there’s no proof that people are wiling to pay for digital music at all.

A Numbers Blame 

Spotify still isn’t profitable. Even though Spotify just raised another $526 million to “compete” with Apple Music, the company still recorded an operating loss of $186m in 2014. That’s a huge increase from 2013, when Spotify ran at an operating loss of  compared to about $103m in 2013.

That’s why Apple Music and Tidal are only offering paid subscriptions. Because, after years of getting all music for free, people will surely throw dollars at reliable brands like Apple + Dr. Dre and Jay-Z + DeadMau5. Or so the thinking goes.

In reality, 75% of Spotify’s subscribers are on the free tier and there’s no sign that’s going to change anytime soon. The Guardian reports that the 25% of Spotify users who pay for the service account for 91% of its income.

Pandora, while managing to make a profit, recently exploded as a result of the Apple Music announcement. Now, there are big doubts about whether the company can sustain revenues and really just stay afloat at all. Despite the fact that it still has the biggest “audience” of listeners, at 81.5 million.

Source: Yahoo Finance

This all ignores the bigger problem: streaming music businesses are victims of their own success.

Loyalty v. Instant Gratification 

Despite the built-in social functionalities of Spotify, despite the ease-of-use and seamless audio delivery of Pandora, people aren’t loyal to these networks. At least most of them.

Think about it – if you’re listening to Spotify for free and an alternative comes along that promises no ads, you would switch right away. Whatever the playlists or the friends using it, it is, after all, “just music.”

Source: The Financial Times

Source: The Financial Times

An impromptu poll found that no one really cares about Apple Music or Spotify or anything at all. It’s Just Music.

The “Just Music” phenomenon is a consequence of streaming radio, personalized to taste. It’s the reason album sales keep hitting all-time lows.  

I’ve talked before about how music has become a utility. People turn on the streaming radio station and expect great music, amazing music. That’s all they expect and want from a radio station: infinite great music, for just about no money at all.

Until Pandora, Spotify, Tidal, iRadio, Apple Music (Beats?) manages to make the experience more than Just Music, people will keep switching to the cheapest faucet.

All Roads Lead to YouTube

The funniest thing about these misguided attempts to enter a make-believe market is that, for people ages 12-24, YouTube is the number one way to discover music.

And by “discover,” I assume that means listen to full albums for as cheap as possible that are uploaded by people who do not own the copyright. But maybe labels know that younger generations are a lost cause. They don’t buy albums at all.

That’s why we have Mumford & Sons clones, club music, or boy bands spewing out of pop radio at this point and little else. The predictable and/or retro sound appeals to broad demographics, which is the only way to possibly sell CDs.

“Consumers 35 and over are most likely to be CD buyers while consumers 25 to 34 are most likely to be digital music buyers… Young consumers aged 18 to 24 score an index of 98, which means they are only 2% less likely than the average U.S. adult to buy CDs.”

Nielsen Research, 2013

The reality is that iTunes is becoming the next CD. 

Younger consumers don’t know anything about buying CDs. There’s a good chance the whole idea of an “album” as opposed to a catchy single will soon be forgotten.

And now they won’t know much about buying digital music, either. It’s all about streaming.

Source: Nielsen

Oh, and by the way, YouTube isn’t profitable either.

 

The People Making the Music 

So streaming isn’t profitable, but that’s all anyone is doing. Royalties from Spotify and Pandora are bad and Apple Music only pays 58% royalties back to artists.

The hard truth is that there is a way to listen to music for free. Napster has been legalized and made profitable for distributors but not for creators. Essentially, this is Lars Ulrich’s nightmare come true.

If your music isn’t free – or even if it is – listeners have ways to find music that’s better than yours, from more famous people. There are bands like yours or similar enough that, if you don’t give away your music for free, your fans will just listen to something that’s basically the same – dug up by Pandora’s complex, personalized algorithms or YouTube’s good-enough sidebar recommendations.

Without albums and with the pittances served out by Pandora, Spotify, et. al., bands have lost a huge revenue stream.

“Music” as we know it needs to profit from live experiences and better-organized shows, because that’s something that can’t be streamed or digitized. At least not yet.

Like this post? Have something to say? Email me at blaiselucey.com@gmail.com or check out Digital Marketing for Bands: Everyone’s Doing It Wrong

Photo Credit: garethjmsaunders via Compfight cc
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