Friday, March 22, 2013

Subscription-Music Wars: The Greatest Trick the Majors Have Ever Pulled Off

This is a repost of an op-ed I wrote for Billboard....
Jason Herskowitz is a core contributor and co-founder of Tomahawk, an open-source music platform that -- among other things -- creates a music aggregation and interoperability layer across music providers. He talks endlessly on Twitter about the industry, you can find him @jherskowitz. welcomes responsible commentary -- contact with ideas.

Google. Amazon. Samsung. Apple. If the various rumors and reports are to be believed, four of the biggest companies in the world are all preparing for battle in the subscription-music market. There they will meet: the industry darling (Spotify), the critically acclaimed (Rdio), the old-timer (Rhapsody), the internationally renowned (Deezer), the highly-anticipated (Beats), the living room invaders (Microsoft, Sony) and a host of others in the U.S. and abroad (Slacker, Qobuz, Rara, Simfy, WiMP). They will also be competing for market share against other music-consumption experiences from YouTube, SoundCloud, Grooveshark, Bandcamp, Pandora, Vevo, Songza, iHeartRadio,, direct-to-fan artist platforms, music blogs, the scores of white-labeled music services -- big and small -- powered by the platforms of 7digital and MusicNet, and let us not forget about piracy of all forms.

Why all the new interest from the “big boys” in a notoriously difficult business, with razor-thin margins, that has very few (if any) success stories in a sea of failures? As everyone following the industry is quick to point out, the music market is finally -- slowly -- transitioning from the "ownership" model (a.k.a. buying from iTunes) to the "access" model (paying a monthly subscription fee for unlimited access to virtually anything).

Not only are the consumers learning the value proposition of streaming music, but the labels have learned just as valuable a lesson over the last decade, and that is the danger associated with having one partner (Apple) dominating a market, gaining too much power and ultimately be able to hold an entire industry hostage. This flood of new entrants from some of the deepest pockets in the world may be the greatest accomplishment the labels have ever pulled off.

The major labels are doing everything in their power to ensure that the subscription-music market has multiple strong competitors -- companies with other profitable business lines that can subsidize a music-subscription model that has never proven sustainable on its own. Not only does this generate multiple, hefty, upfront checks and guarantees but it also enables them to maintain leverage in the bi-annual licensing re-negotiation dance by playing these companies off of each other. In addition to getting money upfront, others are making sure they get a piece of the back-end action too. Access Industries (owners of Warner Music Group) is now heavily invested both Deezer and Beats. For music lovers, this increased competition means the continued and deepening user-base fragmentation across multiple music providers. In a vacuum this fragmentation is no big deal, but given the lack of music data portability across different services, this will break the promise of the social web for music fans who can’t easily share what they love.

I fear this fragmentation will inevitably lead services into exclusivity wars, where big checks start flying around to get content that their competitors can’t. It’s certainly not a stretch to expect to see the recently announced upcoming Nine Inch Nails album available only on the service in which its creator, Trent Reznor, is Chief Creative Officer. At SXSW, an executive from Xbox Music confirmed that labels have already started shopping exclusives to the providers. The more competitive the market, the bigger these bidding wars become -- which is dangerous and unsustainable on their own, given the economics of the subscription music market today.

The lure of bigger checks (which can be creatively accounted for) incentivizes the rights-holders down a road that ultimately leads us back to the failed model of the first generation of subscription streaming providers: MusicNet vs. PressPlay, where each only had a subset of the content that consumers were looking for. From there, there are really only two viable paths for a consumer to take to fill the voids: the creation of a music data interoperability layer that allows them to seamlessly piece together multiple disparate sources -- or a return to piracy. I don’t think anyone wants the latter, so I am back up on my soapbox about the need to create the former.

1 comment:

Mike Lewis said...

The amazing thing to me is that people think that this is a good business to be in. It's not. If a company makes any profits, the labels just jack up their price the next time negotiations come up. As a provider, you are completely beholden to the labels and nobody really has any point of differentiation.