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"Can anyone turn streaming music into a real business?"
March 12, 2013 9:34 AM   Subscribe

The Verge has a nice article looking at streaming as a business model (or not, of course...) "Do you think it's good or bad for the value of music if the only people who sell it don't care if they're making money on it?" David Pakman asks. "What you really want is an ecosystem with lots of financially healthy companies selling your product."

Cue a lengthy flame war in the comments about whether piracy, free music, etc., are good or bad things.
posted by lucullus (41 comments total) 7 users marked this as a favorite

 
Spotify is mostly great, but the ad placement is tone deaf. If it's 1am and I'm listening to Joy Division's "Disorder" for the 4th straight time, now is not the time to play an ad for Trojan condoms, because I am definitely not getting laid anytime soon.

I find it especially devious that they pause the commercial if you set the sound to mute or low enough not to be heard.
posted by hellojed at 9:44 AM on March 12, 2013 [8 favorites]


Spotify is like Napster with a lousier selection. (And the artists get paid about as much, too.)
posted by entropicamericana at 9:52 AM on March 12, 2013 [2 favorites]


I was hoping this article would answer the question "What is Grooveshark's business model?"
But it didn't.
posted by chavenet at 9:54 AM on March 12, 2013 [4 favorites]


I pay $10 a month for Spotify and I love it. It has cut into my album buying, I purchase mostly local music now.
posted by zzazazz at 10:00 AM on March 12, 2013 [3 favorites]


One record label executive noted that if subscription music were such a bad business to get into, then why would so many companies be jumping in?

Look, does anyone still believe companies start up based on business models predicting profitability? VCs don't necessarily care, they'll most likely sell prior to profitability. Either to a corporate acquirer or to the public in an IPO. Management doesn't care, they'll cash out at the same time (or earlier) than their investors and most of them just want to have a cool company and a successful exit on their resume, the bigger the better. There are two reasons why so many companies are jumping into streaming music: low barriers to entry; and it's a hot area.
posted by 2bucksplus at 10:01 AM on March 12, 2013 [5 favorites]


Its almost as if getting paid for people playing recordings of your music, which has never existed in all of human history up until some time in the 1950's, is total bullshit and makes no sense at all. The business model is easy, I pay $5 a month not to have boxes of CDs in my house or my hd filled up. I'm not buying the music, its worthless (in monetary terms), I'm buying convenience which is priceless.
posted by Damienmce at 10:01 AM on March 12, 2013 [3 favorites]


Grooveshark's business model is to break the law while building up a large user base and then use that user base as leverage in negotiating licensing deals with major labels.

The real question is why radio works file while streaming can barely survive. And the answer is that radio as a business was basically created by government regulation of royalty rates. The government could solve this problem in a day if it wanted to.

And, if you're against the government regulating stuff like this, then let's kill the laws that allow radio to pay fixed royalty rates and see how fast radio stations all shut down because the labels tend to go against their own best interests.
posted by GuyZero at 10:14 AM on March 12, 2013 [4 favorites]


That was an insightful article. I'm also nodding with approval at the author's correct spelling of smörgåsbord.

I think digital music will mature into a multi-channel market. Some people want to own their music, so they will buy it from Apple, Amazon, or Google. Others, like me, are willing to pay for the convenience of a premium streaming service. And others don't want to pay anything for streaming, so they will get ads with their music.

This is how the market for TV content shook out the 80s and 90s: pay to buy VHS tapes, pay to subscribe, or get the content for free with ads.
posted by Triplanetary at 10:19 AM on March 12, 2013


: "Grooveshark's business model is to break the law while building up a large user base and then use that user base as leverage in negotiating licensing deals with major labels."

[citation needed] AFAIK if they knowingly broke the law (ignoring DMCA takedown notices) they'd be run out of town on a rail. Their business model is to exploit a loophole in the law, perhaps, but then YouTube turned themselves into a multi-billion dollar company doing exactly the same thing.
posted by mullingitover at 10:39 AM on March 12, 2013


I've been into Songza quite a bit but I genuinely can't figure out their business model. There are no audio ads and no subscriptions. I might see one small iOS text ad when I'm first selecting a playlist, and then I can listen for hours (depending on how long the playlist is) until I see another ad when I want to choose another playlist. Usually I have my playlists bookmarked so I don't even have time to process the ad before the music has started and I've closed the app.

I could be trite and say "I guess I'm the product" but it's not even clear that that is the case - I've never received an email from either Songza or a 3rd party trying to sell me music or anything based upon what I've listened to.
posted by modernnomad at 10:40 AM on March 12, 2013 [1 favorite]


then let's kill the laws that allow radio to pay fixed royalty rates and see how fast radio stations all shut down

It's interesting to imagine what music would be like if that happened. Radio is really what holds "mainstream" music together; it's where a lot of people do all or nearly all of their casual listening and new-music discovery, and it's consequently where Top 40 stuff basically comes from.

Without that, things would get ... interesting. I think that pop music might get pretty regional or subculture-y, even more than it currently is, pretty quickly.

Even with iPods and streaming services via cellular-data, there's still a huge demand for music via FM radio (mainly to people listening in their cars). Radio stations serve this demand, playing what they think people want to hear along with a heaping helping of ads. Because of government regulation, they can basically play whatever they want. Without this regulation, the labels would almost certainly shoot themselves in the foot by trying to charge more based on the popularity of various artists/songs, and would probably drive themselves out of business. (C'est la vie, tiny violin, nothing of value lost, etc.) But the demand for music would still be there, the advertisers would still be there, and the broadcasters who want to sell the listeners to the advertisers would still be there.

What I think would happen is that the broadcasters would start procuring their own music without the labels serving as middlemen. Presumably they know, or could figure out rather quickly, what their listeners want to hear. Presumably they also know, at least in some cases, of local musicians or bands. They also have recording systems, not that this is really a barrier to entry anymore. So they are in a pretty good position to put the pieces together — they don't, today, because the statutorily-defined royalty structure doesn't warrant it. But they could.

Maybe the big broadcasting groups would basically reinvent music labels by another name, but there might be significantly increased regionalism, as different stations pursued content in the same way that they currently pursue advertisers and advertising.

Ironically, I think it's the mandatory, favorable-to-radio licensing structure — which was opposed by the recording companies when it was introduced — that's keeping the major labels alive and relevant today. Radio would survive without it, music would survive without it, but the Top 40-dominated regime probably wouldn't.
posted by Kadin2048 at 10:43 AM on March 12, 2013 [4 favorites]


"Jumping the Grooveshark , Professor Peter S. Menell, Herman Phleger Visiting Professor of Law (2011-12), Stanford Law School":

"Although Grooveshark eventually negotiated a deal with EMI, it never obtained licenses from the other major record labels: UMG, WMG, and Sony. (UMG recently agreed to acquire EMI’s record divisions.) So how does Grooveshark maintain a reliably available catalog containing substantially all of UMG’s, WMG’s, and Sony’s recordings? "

So yes I guess they do honour DMCA takedown requests so they're not illegal in that sense, but most of the music they stream was uploaded by users and grooveshark doesn't have a negotiated license to stream much of the music on their service. I am not enough of a lawyer to use a more descriptive term beyond "illegal" but it's probably in the realm of a licensing issue rather than than being criminal I suppose.

"Grooveshark e-mails appended to the UMG complaint reveal a disturbingly cavalier attitude toward copyright owners. Grooveshark’s chairman acknowledges that Grooveshark “bet the company on the fact that it is easier to beg forgiveness than ask permission.” "
posted by GuyZero at 10:44 AM on March 12, 2013 [1 favorite]


Spotify has one giant advantage on conversion to Pro by giving away the product on the desktop and then charging for the mobile product. First hit is free and all that. I don't have to get a Pandora sub because I can just fire up the app and off I go. For me to have Spotify in the car I needed to get the $9.99/month subscription.

The other half is that with Spotify I get a lot more value out of my $9.99 than I do giving Pandora $3.99. I couldn't give a toss about ads since my alternative is ad laden radio and I care even less about 192kbps streams since they just chew up more bandwidth. I'm on a mobile device on a cell phone network. I listen to 32kbps AAC+ streams when I listen to the radio back home or DI.fm and they sound decent.

Not only that with Spotify Premium I can download music on the app, keep it on my phone and access it even on things like road trips where we might dip in and out of Verizon coverage. I imagine it's an even better value proposition for T-Mobile or MetroPCS users that don't have massive CDMA 1x coverage.
posted by Talez at 10:45 AM on March 12, 2013


Oh, and in that article is this email from Grooveshark's chaiman:

"We are achieving all this growth without paying a dime to any of the labels.
My favorite story related to our case is the story of a kid who appears in front of the judge for sentencing for the crime of having murdered both his parents, saying “judge, have mercy on me cuz [sic] I am an orphan.”
In our case, we use the label’s songs till we get a 100m uniques, by which time we can tell the labels who is listening to their music where, and then turn around and charge them for the very data we got from them, ensuring that what we pay them in total for streaming is less than what they pay us for data mining.
Let’s keep this quite [sic] for as long as we can."
posted by GuyZero at 10:46 AM on March 12, 2013


GuyZero: many thanks for that. I figured I was being Blue_Beetle'd somehow by Grooveshark.
posted by chavenet at 11:05 AM on March 12, 2013


And I haven't been on grooveshark for ages, but I think they run ads. So on some level they're like any other ad-supported website. The dicey bit is how they "pay" their supplier.

Also - anyone who has chewed through a class on business strategy could do a 5-forces analysis of the music streaming business in half an hour and come up with a lot of good explanation as to why these companies all run at a loss (more or less).
posted by GuyZero at 11:12 AM on March 12, 2013 [1 favorite]


Spotify I recently learned is actually a Peer to Peer client to relieve bandwidth stress on their servers out to the clients. Clever, but sucks when you have a data cap on your phone.

Why isn't there a quasi-legal international entity existing? I would pay some rubbles for a .RU based streaming service that has everything.
posted by wcfields at 11:23 AM on March 12, 2013


I was taken by the comment I read a while back that Apple, Microsoft and Google should just buy out the remaining record labels so they could experiment with music services without the crippling costs and threats of lawsuits.

posted by mmrtnt at 11:40 AM on March 12, 2013


Regarding Songza's Business Model warning, TechCrunch link.

I really like sponsorship over advertising models. Marketing via annoyance rubs me wrong.
posted by DigDoug at 11:42 AM on March 12, 2013


I always thought a good way to make money would be to sell a music store rather than sell music. Everyone should have a music store.
posted by CrazyJoel at 11:43 AM on March 12, 2013


I always thought a good way to make money would be to sell a music store rather than sell music. Everyone should have a music store.

It's funny because it's true. It would be like Amway meets Shopify.
posted by GuyZero at 11:47 AM on March 12, 2013


I really like sponsorship over advertising models.

Songza runs ads - and I'm not sure how "sponsorship" is somehow different from "advertising".

But Songza's web site has plenty of display advertising on it and their iPhone app has ads from iAds.
posted by GuyZero at 11:50 AM on March 12, 2013


Wcfields, that's what grooveshark is. And it's not even a .RU

It is annoying that you need a jailbroken iPhone to use it though, although their html5 mobile site is pretty decent...
posted by emptythought at 11:58 AM on March 12, 2013


when it comes to any of the subscriptions services, it seems more honest to just pirate the music. the artists are getting nearly the exact same pay out. your 9.99/month or whatever is a convenience fee to dudes in suits who have never recorded a song.

buy direct from artists whenever possible, go to shows, and make sure the people you know hear the music that excites you.
posted by nadawi at 12:03 PM on March 12, 2013


WCFields - I'm amazed at how many spotify users don't know or don't care how Spotify works. For those who didn't bother to read the terms, spotify uses your pc to host encrypted peer to peer files that contain partial tracks. (think bittorrent, but you can't actually use the small files yourself). When a user listens to music, it's not coming from spotify's servers. Instead, it's pulling from the p2p network. To ensure the supply is there for other users, spotify doesn't shut down unless explicitly told to. If you just hit the "close" button, it minimizes itself. Likewise, it attempts to start up when your pc starts up. So basically, by installing spotify, you agree to host their content for them for free (some people are even paying them for this privelege).
posted by Crash at 12:39 PM on March 12, 2013 [5 favorites]


I always thought a good way to make money would be to sell a music store rather than sell music. Everyone should have a music store.

Frank, or at least his estate, is already on it: Roxy by Proxy - the license
posted by low_frequency_feline at 12:39 PM on March 12, 2013


In the future, everyone will have a music store for 15 minutes.
posted by 2bucksplus at 12:43 PM on March 12, 2013 [1 favorite]


I've been into Songza quite a bit but I genuinely can't figure out their business model.

In addition to the TechCrunch article linked above - with a lot of these services - music, video, text - I'm honestly not convinced that they have one. They make a product on a bit of seed money, get investors (or bought outright), get paid, get out. The investors just look at the eyeballs that they have (1 MILLLION downloads on day 1!) and figure that they can monetize that easily.

But there's no brand loyalty or barrier to moving away from them once the monetization gets more aggressive. In fact, there'll be a newer program, that is in the earlier stage in the cycle. So people go to the newer one, and the old one just...dies.

I'm not saying it's a good or bad thing, mind you. But there doesn't actually need to be a reasonable business model.
posted by Lemurrhea at 12:43 PM on March 12, 2013


Songza runs ads - and I'm not sure how "sponsorship" is somehow different from "advertising".

The article talks about brands building playlists. The iAd thingamajobbers are easy to ignore, as they aren't audio, interrupting the audio you're consuming.
posted by DigDoug at 12:45 PM on March 12, 2013


spotify uses your pc to host encrypted peer to peer files that contain partial tracks. (think bittorrent, but you can't actually use the small files yourself). When a user listens to music, it's not coming from spotify's servers. Instead, it's pulling from the p2p network.

WTF. This isn't bullshit.
posted by entropicamericana at 12:56 PM on March 12, 2013


Despite all of the foreboding warnings all this article convinces me of is that the streaming business model still needs to be ironed out, not that streaming itself is going anywhere. I'm convinced that programs like Spotify are completely changing the way people think about music consumption and their music consumption habits to a similar or greater degree than things like Napster did. Now that everyone realizes how nice streaming music is and knows it's possible the large demand is there and growing. When there is a demand that substantial somebody will make it work.
posted by Defenestrator at 12:57 PM on March 12, 2013


Spotify I recently learned is actually a Peer to Peer client to relieve bandwidth stress on their servers out to the clients. Clever, but sucks when you have a data cap on your phone.

Does the mobile app actually participate in the p2p sharing? It makes sense for the desktop application, but I would assume on mobile you're only receiving.
posted by ymgve at 1:48 PM on March 12, 2013


Cue a lengthy flame war in the comments

Cue the question: how long must we continue to beat this dead horse?
posted by Twang at 2:52 PM on March 12, 2013


Does the mobile app actually participate in the p2p sharing? It makes sense for the desktop application, but I would assume on mobile you're only receiving.

I believe that is why they charge you money for using it :).
posted by jaymzjulian at 4:27 PM on March 12, 2013


No such thing as a venture-backed company lacking a profit model for its products. A venture capitalist would go to jail from defrauding his limited partners if he invested in a tech company whose products did not model out to be worth multiples of the valuation at which was investing, and the definition of worth is a positive discounted present sum of future profits.

It is certainly true that some venture backed companies' don't have an operating-profit model for the company on an independent basis, i.e., the goal is to build a future-profitable profit which must be acquired to reach the stage of actual profit. (You might be thinking "web 2.0 that has to be bought by Google" but it's more often "biotech startup that has to be bought by Pfizer.")

Streaming companies complain about structurally higher royalty rates than paid by radio, but need to appreciate that they only exist because of those higher rates. Had music publishers and record companies been asked accept radio-level royalties, they would simply have said "no" because those royalties would give them no hope of ever replacing physical media sales and would leave them terribly worse off as online started to cannibalize radio (given that radio is so much more effective a means of promotion of new artists).
posted by MattD at 5:54 PM on March 12, 2013


Not sure why Last.FM is rarely mentioned in these articles, even though Alexa says their traffic is similar to Spotify's. Not that the news there is any better.
posted by dhartung at 2:33 AM on March 13, 2013


I wish Mog did a better job of promoting itself. It's sound quality is superior to that of Spotify (pace Spotify), and it's catalog just about as big. Beats bought it; I hope they don't screw it up.

But either cuts down on music I buy (though mostly that was used CDs, to be honest.)
posted by professor plum with a rope at 3:02 AM on March 13, 2013


I'd pay 2x what I pay for Mog (currently $10 USD/month) if the extra money went to the artists.
posted by professor plum with a rope at 3:04 AM on March 13, 2013 [1 favorite]


Um, i play music on youtube - because i know what that is, and because it's usually there - with the quality set to lowest, and convert online to crappy mp3, then buy on itunes (because i have it, i'm ashamed to say - i didn't buy myself an ipod, i would never have done that) but if i like more than one track, then i buy the CD on ebay usually, sometimes amazon and once so far on discogs.com (a bit 'your problem if it goes wrong'), rip the CD to .wav & lossless, chuck the CD to the charity shop or resell if worth a few bob. CDs are just cheaper and better quality. I don't keep them, i keep DVD backups zipped, and that's it. I am constantly exceeding my broadband limit, but mainly i was so ignorant of the alternatives until i read all your comments. Also, i have no smartphone, i have a nice phone with sensible functions and an acid green LCD face, so the streaming thing's less attractive. I think the itunes part of this is costing a bit too much, but it's supposed to be better than just mp3. Is it? I have looked at fairsharemusic but they never have the one song i want.
posted by maiamaia at 12:59 PM on March 13, 2013


The dirty thing about Spotify is that because the premium service is paid it makes you feel like you're paying for music just like when you buy an album from an artist. You're not. You're giving cash to major labels and other corporations who own Spotify shares. Having said that it is an awesomely convenient service and I would and do feel totally happy using it for music exploration and back catalog listening... It's just that if you pay for it (or any streaming service) you must must MUST remember that that money is not supporting musicians. You supporting corporations that occasionally give money to a very small percentage of musicians.

If you love an artist (especially a 'small' artist)... think about trying to find a way to give them money in the most direct way you possible as that money is what keeps letting them make art. That may not be buying their music in iTunes, it's definitely not buying their CD second hand, and it's certainly not just streaming the music and thinking that that fraction of a penny makes a difference.
posted by Mr Ed at 2:19 PM on March 13, 2013 [2 favorites]


It's also a wonder why services like spotify don't split the monthly subscription of a premium subscriber (after licensing and costs etc) amongst the artists they listen to each month... For us smaller artists that would make a MUCH more interesting value proposition and I'd love to see the maths on that.
posted by Mr Ed at 2:22 PM on March 13, 2013


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