Streaming: A Financial Failure.

Why Streaming Music Models

Arent Working Out.
paul resnikoff
publisher, digital music news
vienna music business research days
october 2, 2014

Please Interrupt This
Presentation.
Or, Save Your Questions
Until the End.
Streaming Is
Currently Exploding.
Track-by-track, more people consume
music via streaming than any other
recorded music
format.
US-based Revenues, 2003-2013. Source: Recording Industry Association of
America (RIAA)

The Secret to Streamings Current Explosion:
Mobile Broadband Ubiquity
Just imagine
An inexpensive instrument, not bigger than a watch, will enable its bearer to hear anywhere, on sea or
land, music or song, the speech of a political leader, the address of an eminent man of science, or the
sermon of an eloquent clergyman, delivered in some other place, however distant. In the same manner
any picture, character, drawing, or print can be transferred from one to another place.
Millions of such instruments can be operated from but one plant
More important than all of this, however, will be the transmission of power, without wires, which will be
shown on a scale large enough to carry conviction. These few indications will be sufficient to show that
the wireless art offers greater possibilities than any invention or discovery heretofore made, and if the
conditions are favorable, we can expect with certitude that in the next few years wonders will be wrought
by its application.
from The Future of the Wireless Art, Wireless Telegraphy and Telephony: Popularly Explained (p.67) by Nikola Tesla, 1908.


Streaming Is Transforming Markets Like Sweden...
Source: IFPI Svenska Gruppen

...and
Norway
Source: Norwaco
The Only Problem:
Streaming Music Is Financially
Unstable and Unsustainable.
In 2014, streaming music:
(a) is not financially viable for artists
(b) is not a viable, sustainable business model overall
(c) is driven by mega-acquisition and Wall Street interests
(d) offers only a short-term financial solution for major rights owners
(e) has a speculative path towards long-term scalability
Streaming Music: Definitions
Not physical, not a download, not discretely owned music, or
traditional broadcast radio.

Streaming Music: Definitions
(a) internet radio
(b) on-demand track streaming
(c) on-demand video streaming
(d) satellite radio
(e) internet-based broadcast streaming
(f) other variants: i.e., cached content for offline streaming
Streaming Music: Dominant Players
(a) internet radio
Pandora (US, Aus/NZ), Spotify Radio (Americas, Europe, Aus/NZ, parts of Asia), iTunes Radio
(b) on-demand track streaming
Spotify, Deezer
(c) on-demand video streaming
YouTube
(d) satellite radio
Sirius XM Radio (US)
(e) internet-based broadcast streaming
ie, Radio 1 online, iHeartMedia, Inc. (formerly Clear Channel Communications), most other radio stations
Streaming Music:
Dominant Players
streaming is not financially viable for
artists
Spotify claims per-stream payouts reach $0.05 (half-a-penny), though this is considered
exaggerated (YouTube pays far less).
If I tried to make my albums with what Spotify pays me, I wouldn
t make them. I couldnt hire other musicians or someone to
master it; Id have to do everything myself.
- Beck
streaming is not financially viable for
artists
Major labels are notorious for not paying artists streaming revenues.
streaming is not financially viable for
artists
Streaming platforms do not reinvest in content; major labels hardly
perform that function anymore.
And one weird thing is that iTunes, Apple, Spotify, Google, whatever, all of the people who are profiting [and]
YouTube who are profiting off the artists from the small level to the huge levels arent really feeding very much back
into the creation of new content. But wouldnt it seem that the place that is making the lions share of the profit should
actually also be putting money back into the creation of content to make a healthy ecosystem?
- Amanda Palmer
streaming is not financially viable for
artists
Streaming is cannibalizing other formats, but pays fractionally less.
At the moment, people need to listen to my song on Spotify
about two thousand times before Ive earned about the same as
one sold CD.
- Anssi Kela
streaming
is not
financially
viable for
artists
streaming is not a viable, sustainable
business model overall
(i) Low percentage of paid vs. free (ad-supported) users.
(ii) High, variable, and unpredictable cost of goods (content licenses)
(iii) Low per-stream advertising rates
(iv) Preponderance of attractive, free options
(v) Reluctant participation from top artists
(vi) Elevated churn ratio.
Low percentage of paid vs. free (ad-supported)
users.
Total paying streaming music subscribers, WW: 28 million*
Total paying streaming music subscribers, US: 7.8 million**
Spotify total paying subscribers: 11+ million***
YouTube total paying subscribers: 0
Sources: *IFPI; **RIAA; ***Spotify
Preponderance of free, attractive
options.
YouTube total paying subscribers: 0
Advantages over paid Spotify:
Larger content availability worldwide.
Greater viral sharing capabilities.
Richer video content.
Extremely large selection of mash-ups, covers, and unauthorized content.
High, variable,
and
unpredictable
cost of goods
(content
licenses)
High, variable,
and
unpredictable
cost of goods
(content
licenses)
"...while Spotify's revenue growth is impressive, its overall
financial results are alarming.
"In fact, virtually every new dollar of revenue went directly to
music companies as royalty payments, evidencing the fact that
the more members Spotify adds, the more money the
company loses. In almost a one-for-one scenario, every dollar
Spotify is generating immediately exits the company due to
licensing fees..."
"No matter how we slice the math, it is patently clear that
something's gotta change soon on Spotify's business model if
the company is to survive."
PrivCo Financial Assessment of Spotify.
Elevated
churn
ratio.
Elevated
churn
ratio.
"Again, this is not a Spotify problem, it
is a fundamental issue with the
freemium music model: many more
people decide it's not for them than
continue using the service."
Mark Mulligan, MiDIA Research
driven by mega-acquisition and
Wall Street interests
In the absence of a fundamentally sound business model, the focus
shifts towards exit events like acquisitions and IPOs.
(1) Spotify preparing for IPO currently (Goldman Sachs a lead investor)
(2) Universal Music Group earned $400 million on a 13 percent stake in Beats by Dr. Dre
(acquired by Apple)
(3) Major labels pushing for a sale of Spotify at north of $10 billion.
(4) Labels aggressively negotiating equity shares in streaming companies.
The major label business model in 2014
Image adapted from
a photo by Alejandro
Hernandez, licensed
and modified under
Creative Commons
Attribution 2.0
Generic (CC BY 2.0).
Major labels have really given up on selling music, it seems.
Pushing Spotify to an IPO is what most of the senior
executives at the major labels are concerned with.
BitTorrent chief content officer Matt Mason
False economics?
more subscribers = sustainability
CNN: At what point can an artist survive on a Spotify income?
Daniel Ek, Spotify CEO: Well, I mean, the interesting thing here is that were just in its infancy when it comes to
streaming. And we just last week had an artist announcement where we basically said if there would be 40 million
subscribers paying for a service like Spotify, it would be more than anything else in the entire music industry, including
iTunes.
And were not too far away from that number, which is the interesting thing. So, Im absolutely
sure that artists will make a decent living, and actually the industry will be larger than its ever
been, in the next few years.
Who Will Save
Streaming?
Who Will
Save Streaming?
One billion users is 1/7 of the earths population. If 1/10 of those
people were to be part of a subscription service like Spotify has, and I
m a huge Spotify fan, at $10 a month Do the math. Thats a billion a
month.
Thats $12 billion dollars. Thats bigger than the entire music
business coming out of one company.
Even if it was 5%, now musicians are suddenly in a game that people
are ready to pay for, their lives are changed.
Bono.
The Impact on
the Recording
Is Marked. But
Can We Really
Blame
Streaming?
The Impact on
the Recording
Is Marked. But
Can We Really
Blame
Streaming?
Streaming: A Financial Failure.