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HomeArchiveThe Streaming Music Business – Is It Sustainable? PART 2:

The Streaming Music Business – Is It Sustainable? PART 2:

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This week we analyze the sustainability of the music streaming business from the perspective of the streaming services themselves. Next week we examine whether there really is enough advertising money from brands and their associated agencies to sustain all the streaming services currently in the marketplace.

With the hype surrounding Spotify and its recent $50 million investment to boot, investors certainly view streaming music services as viable. It seems labels do as well, considering the level of praise directed at Spotify in particular. Last week we examined the low revenues generated for content owners and artists alike from streaming services.

So, if artists, publishers and some labels are still complaining about the share they receive, how do the streaming services fare?

The vast majority of streaming services, Pandora, Last.fm, Imeem and numerous others are based around an ad-funded model where an advertiser/brand purchases advertising to be associated with music. Yet what are the costs to the streaming service in terms of running there services so consumers can access music for free. First up in most cases the services have to “purchase” licenses from the copyright owners to be able to stream their music. Depending on your streaming businesses territories, this could amount to a few million before you’ve even started.

Then you add the backend infrastructure and technical setup along with the maintenance and upgrades that go along with that. Then there are marketing costs associated with building your brand in what to TMV seems to be an overcrowded marketplace. Oh, and all this before you’ve even managed to secure advertisers to spend their marketing budgets with their respective service…

This is where it gets interesting as there are some streaming services that only display, banner ads, and others like we7 or Spotify that actually also embed audio ads into their streaming services. Some like YouTube and Muzu.tv insert pre-role and post role audio-visual ads into the music content that fans/consumers watch and listen to.

The key incoming revenue’s that these services receive is from that advertising and how much an advertiser’s is prepared to pay for it. Between services it seems to differ quite substantially. Some large services like YouTube only receive around £4:50 per thousand views whilst other services are able to attract anywhere between £15 – £25 per thousand views.

But let’s examine the breakdown of what that advertising spend covers. Well obviously, the aforementioned costs as well as the performing rights society %, which differs from country to country but is around the rate of £0.0085 per stream in the UK. So if you as a streaming service receive a median of around £9 per thousand CPM (which BTW is being rather generous).

If your service manages to display 4 ads per streaming song this would mean that £2.13 from every 1000 ads displayed would have top be paid to the publishing side of the music business. This does not include the record companies being paid as there is a different right associated with the recorded piece of music, probably equating to around the same figure or a little higher than £2.13 per 250 songs streamed from a streaming music service.

Imagine the above breakdown if the number I used, as a median CPM was closer to the £3 per thousand YouTube generally receive. Not pretty in TMVs view!

All in all it sounds pretty fair right. So why do these streaming music businesses still believe streaming rates are two high – as illustrated in last week’s post by Tim Westegren Founder of Pandora?

However, let’s look at the terrestrial radio segment, as being truthful radio is a lot like these streaming services. The only real difference being that you cannot stream the songs you want on demand. Yet different radio stations have different rates they pay per song broadcast on their networks. For example, if an artist was to receive one play of their music on BC Radio 2 they could expect to see around £53 (before publishers take their cut etc.).

Yet Radio 2 has an audience of around 3 million at any one time. In effect BBC Radio 2 is paying the equivalent of £0.000017666 per listener (or stream of music). Streaming music services do rightly point to a significant disparity between their services and that of traditional radio. This disparity gets even worse if we are talking about radio stations such as Virgin Radio (UK) who only pay the equivalent of around £14 per song broadcast.

So, have streaming services wrongly bore the brunt of artist, label and publisher complaints? In certain circumstances TMV would have to say yes, they have. However, the comments made by Daniel Ek in terms of an article Helene Wrote for the Guardian on (Source date) where Daniel stated that unsigned artist could not actually get on the service and all they had to do was get a record deal displays a total ignorance of how hard it is to get a deal these days.

The fact that competitor services like We7.com offer access to all artist no matter how small or large and that their streams and download service is offered really sets out the differing USP’s of different services. The majority of these new streaming services have strived to offer a stripped-down free ad-funded proposition with different incentives to upgrade to premium monthly subscription options have to date largely failed.

Going further, services like Rhapsody in the US started off with a decent level of paying subscriber numbers to their streaming service. Yet the last year or so has witnessed quite a dramatic drop in their subscriber numbers. Could this have anything to do with these new ad-funded services offering free access? TMV certainly believes so.

So, focusing on the question of whether streaming music services are sustainable in the medium to long-term only time will tell. It is clear that all will also have to incorporate other income sources like tickets and full downloads into their propositions to survive in this quickly changing landscape. TMV does believe we are very close to a “shakedown” which will see a number of these services flounder in the next 12 months or so. However, the services that remain will in TMVs view be stronger and be able to look forward to a sustained presence for years to come.

 

 

Author

  • Wayne Rosso

    Wayne Rosso has worked in music and technology for decades. He has worked with such artists as Aerosmith, Bee Gees, Crosby, Stills & Nash, Public Image LTD., Beach Boys, Phillip Glass, Fkeetwood Mac, Rick James, New Kids on the Block, Slash, Evanescence and scores of others.

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