Last week’s announcement by PRS that they were cutting the streaming rate by almost 75% down from £0.022p to £0.0085p per stream raises more questions than it answers. Does it signal the society capitulating to the bullying power of Google over the YouTube standoff, or does it signify a readiness to embrace new models and hence agree with the view that cheaper streaming rates will bring in more revenue over the medium to long-term?
This posts analyses what this new rate means for; a) artists, b) streaming services and c) the advertising industry. Furthermore, does this mean that Pandora and Rhapsody who both pulled out of the UK market due to their view that the previous streaming rates being non-viable for their businesses, mean that they will now re-enter the UK market? Can the UK market actually sustain two new entries to the market in these harsh economic times? Will it in actual fact only drive down prices that advertisers are willing to pay? And if that is the case, then is it more of a problem than a benefit for the digital music industry?
Drilling down, so instead of an artist requiring just over 40 streams to make £1 they will now require more than 100? TMV does want to know how that benefits artists, publishers and labels? Does it not instead devalue further in the eyes of both music services and the general public? TMV asks the question: How does this benefit the industry? In an increasingly competitive digital world will this new rate make it increasingly harder for independent labels to make a buck? How will it help investment in new upcoming artists? Because if there is no sustainable money to be made why would labels invest in an artist? These labels expect to recoup their investment a hell of a lot quicker than in days past – and so how does a lower streaming rate help that? Quite frankly it does not!
Going further, TMV asks the question: Will cheaper streaming rates lead to a cannibalization of al-la-carte sales, which currently keep recorded music rights owners afloat? If yes then how are cheaper streaming rates beneficial to the industry and artists alike? Advocates of these cheaper streaming rights have generally come from big corporate behemoths like Google who instead of leveraging the power of premium music content in terms of advertising rates, instead choose to lobby for cheaper rates to fit their weak UGC and underleveraged premium content ad-funded business models.
As previously stated in TMV. Scale needs to be a two-way street. Just because cheaper streaming rates scale for streaming services does not necessarily mean they scale for major and independent music rights holders. For there to be a sustainable business streaming services scale needs to also work for rights owners scale. If the scaling only works for one side, then it will fail in the medium to long-term.
According to Andrew Shaw, managing Director of Broadcast and Online at PRS for Music, he believes these “new streaming rates will stimulate growth in the digital music market and will benefit [There] licensees and … members”. Going further Andrew states the new rates are “a good deal for music creators and music lovers”. TMV would state they are a great deal for streaming music services and music lovers, but would question the validity of his statement that these rate cuts are good for artists or rights owners.
Streaming Music Services
Obviously, streaming services from We7.com, to Spotify to Muzu.tv and beyond will be cheering big time for this rate change. Will it lead to a rise in uptake of these services? Only time will tell. However, TMV do believe that whilst it may now make their business models more sustainable, will these rates actually mean increased use and therefore increased revenue to both services and rights holders? Due to our current harsh economic conditions globally, will these rate cuts prevent a streaming sites shakedown of what TMV believe is necessary for the stronger streaming models to survive over the long term?
Can the UK market sustain large streaming services like Pandora and Rhapsody re-entering the UK market place? Will it just mean more streaming companies competing for the same advertising dollar? Going further can the ad-funded model and the brands that finance advertisements on such sites sustain so many streaming sites? Are brands willing to increase advertising to such models to in effect subsidize giving away music for free? These are all key questions that need to be considered, in TMVs view before any predictions are made.
Proponents of the view that cheaper stream rates will lead to a massive uptake in use of these services do not have a basis from which to base these claims. Let’s be clear TMV are not denying usage may go up, however it is in no way guaranteed. What happens if uptake stays stagnant or worse still declines? As has occurred in mobile music sales over the last two years? Where would that leave rights holders, these streaming propositions and also the brands that use them as an effective advertising channel?
The Advertising Industry
Obviously, advertisers have in TMVs view come out best of all stakeholders involved, as they will not have streaming services demanding higher cpm rates to be associated with what to the public is perceived as giving music away for free. As TMV has clearly stated being associated with giving away music for free has a higher value than standard advertising and streaming sites need to be leveraging this fact. Unfortunately, I personally do believe that such a dramatic lowering of the streaming rates in turn just devalues music in the eyes of media buyers and brands.
Reinforcing this view was a meeting I had last week with a Director from one of the UKs larger media buying agencies who was rather surprised at such a large rate drop. This media buyer asked me so “where does this leave the artist and what they receive?” I stated that the industry has generally made bad decisions in the digital world – you just need to see how through their own in-competence the recorded music industry helped create the monopoly that is Apple iTunes. Going further, I made it clear that instead of adequately leveraging the value of music content, rights holders have instead generally squeezed an already much abused artist.
TMV does wonder if what we will now witness is how this lowering of streaming rate affects or indeed cannibalizes al-la carte sales. Al-la-carte sales are the one thing that although margins are tighter than with the CD, are still immensely more profitable than streaming rates. TMV do sincerely hope the industry witnesses on a global scale a massive uptake in streaming consumption of music that will put our fears to rest. I just do not see how making an artist or rights holder have to increases the level of streams from 40 to over 100, to make the same £1 is beneficial to either the artist or the rights holder.