
Spotiwhy? : Are Subscription Music Services a Sustainable Business Model? - OoTheNigerian
http://www.musicthinktank.com/blog/spotiwhy-are-subscription-music-services-a-sustainable-busin.html
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glenngillen
So the author says they are, up to a point, and assuming they get significant
penetration. But it's based on an average listening rate of 2.5 hours a day,
which is apparently what an average american teenager listens to. I'd have
thought the average american teenager probably has the highest music listening
rate of any demographic. I know my own usage would be closer to an hour on the
days I queue up music, but that would be only every other day at best.

If that is closer to the average listening habits, then the royalty per stream
calculations end up over 5x more profitable and above the magical 1 penny/play
mark.

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adambyrtek
Not necessarily. I'm a programmer (not a teenager anymore), and I listen to
music almost all the time while working, which is definitely more than 2.5h
per day. Of course I might be an outlier, but as streaming gets more popular
and easier to use, more people would listen to it in the background, like
radio.

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justincormack
Thats what I thought of, but then I looked up average radio listening hours,
and they seemed to be about 0.2 hours per person (UK figures). So I think you
may still be an outlier.

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ryanklee
Yes, but, _radio_ listening hours? Probably the under-30 demographic only
listens to the radio under duress. My knowledge of this is anecdotal only, but
other than w/r/t exceptional cases (NPR, highly curated college stations),
there's perceived generally to be near zero incentive to listen to the radio
by everyone in my peer group or behind my peer group in generational terms
(I'm thirty). On the other hand, those same people seem more or less wedded to
other forms of consumption (digital music players, pandora, etc). Listening
when exercising, listening in the car, listening when appropriate at work,
listening while cooking dinner, listening during coitus, etc. etc.

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bgentry
Very nice breakdown and analysis of the business model.

I too agree that assuming 2.5 hours per day on average is a stretch. I
generally listen to more than that, but i'm fortunate enough to have a job
where I listen to music while working. Most people don't get to do that very
much.

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mattdeboard
Subscription music services are my preferred way of consuming music. I had a
Zune subscription for over two years (eventually cancelled when I lost my Zune
and just started using my iPhone... Zune's big weakness was its hardware
exclusivity), and I signed up for Spotify premium as soon as I could. I like
sub models because I am paying for music, I can get whatever music I want
(almost... bands like Arcade FIre don't license their music to these services
I've found) whenever I want, and the actual data is well-manicured in terms of
metadata.

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whopa
Rdio has Arcade Fire. Strange that Spotify doesn't....

But yeah, I agree, subscription music services are the future. The holdouts
(Beatles, Metallica, AC/DC, etc.) will eventually license their stuff,
otherwise their fan base will erode. I already think that their tardiness to
the digital download party has hurt them already.

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tatsuke95
Subscription music services are as sustainable as the content owners want them
to be. Just look at Netflix. The content owners take advantage of the tech and
foothold providers have, then eventually squeeze the providers until their own
distribution system comes online.

If you don't consider it that way yet, it's coming. The bright side is that
eventually "content owners" stop being the major labels and become the actual
musicians. This industry is ripe for a wide open distribution market.

~~~
untog
"The bright side is that eventually "content owners" stop being the major
labels and become the actual musicians."

I keep hearing this, but I still don't buy it. Record labels do actually
provide a service to artists- generating publicity, scheduling live
performances, etc. Don't get me wrong, a lot of them _are_ evil, but an artist
is still at a distinct disadvantage if they are labelless. There's a reason
why only bands like Radiohead made a splash when they went without.

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morrow
I don't think the argument lies with whether or not record labels provide a
valuable service to their artists, they do, but more if the value of their
services will remain above their cost. When they were the only distribution
game in town, it was a no-brainer as you either distributed through them or
you didn't distribute on any meaningful level at all. Now that there are more
and more tools and services available to artists that replace some, and
possibly soon all of the labels' functionality, the question becomes at what
point does their cost outweigh their value?

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mikefox
Cost of goods sold for an artist are fixed whether their song is streamed 100
times or 100 millions times. After that cost is recouped, it shouldn't matter
much what the rate paid to the artist per stream is. Why are we still clinging
to this expectation that artists must be multimillionaires to be satisfied
with their careers?

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omnivore
I was a Rhapsody user from its inception, maintained an account even when I
bought a Zune and got a Zune Pass and now switched the Rdio + Spotify and
bought an iPod touch. For me, I consume a lot of music and I want the easiest
way to sync my collection to the devices I use -- office, home, portable --
and so, I'll happily pay for that. The alternative before was simply to
download it and pay nothing. Physical music is nice but it takes up space, is
prone to being lost (I once lost 200+ CDs on a transcontinental flight in my
late teens...it sucked. A lot) and I'd prefer the cost of 2 albums a month to
hear whatever I want over the cost of buying the media. I'd consume a lot less
the other way.

The fact these services have finally hit the mainstream is no accident.

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mhitza
Ok, but spotify is available in the following countries as well: Sweden,
Norway, Finland, the UK, the US, France, Spain and the Netherlands.

Why not use those as well to calculate the possible yearly revenue?

~~~
justincormack
You can do the numbers... The article is about how to model this. Expandi g to
the whole world does not change the argument much as you get a bigger pool of
artists too. He was comparing off US revenues on eg CD sales. There are still
huge national differences in music preferences.

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mseebach
I've seen a few discussions of Spotify revenue models, but they all miss the
most obvious (to me, at least) comparison: That with radio, which seems to be
the closest match. What's the revenue per play per listener there? I'd expect
Spotify to compare rather favourably with those.

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nasmorn
Radio doesn't kill the necessity of owning music the same way as a
subscription service. You can't listen to your favorite 10 love songs over and
over after a break up on radio. Or the band that your peer group has elevated
to exaltation. Radio can plant a song in your brain and you then want to hear
it more often thus making you more likely to buy your favorites.

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qxb
A related infographic from last year by David McCandless, "How much do music
artists earn online?": [http://www.informationisbeautiful.net/2010/how-much-
do-music...](http://www.informationisbeautiful.net/2010/how-much-do-music-
artists-earn-online/)

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cletus
The author makes three errors, one of which he stipulates (the he doesn't know
the revenue split). The other two are:

1\. Streaming is basically a perpetual source of revenue. If 1 download is
equivalent to 200 streams then ask yourself how many times on average does
someone listen to a purchased song?

2\. The comparison you should be making isn't to digital music purchasing but
to radio royalties. The formulae for this are complicated (flat fees to BMI,
ASCAP, etc and then a complex formula after that for distribution to writers
but currently not performers, except for Internet "radio").

Of course streaming (renting) earns you less than a purchase.

The recording industry likes to paint this as the artists are getting screwed.
And they _are_ getting screwed but not by streaming services. They're getting
screwed by the recording industry [1].

Fact is, very few artists can survive on CD sales and digital downloads alone.
Most artists survive by performing and even that's being eroded by the
recording industry who uses fall guys like Ticketmaster to charge "fees" that
fall outside of the revenue split with the artist on ticket sales. The public
hates Ticketmaster. Artists hate Ticketmaster. The industry loves
Ticketmaster.

[1]: <http://www.techdirt.com/articles/20100712/23482610186.shtml>

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earbitscom
> _The recording industry likes to paint this as the artists are getting
> screwed. And they are getting screwed but not by streaming services. They're
> getting screwed by the recording industry [1]._

This isn't an or proposition. Artists are being screwed by both. Yes, the
industry takes the lion's share of revenue from artists. That doesn't mean
that on-demand streaming services aren't a joke in terms of compensating
artists.

And you're wrong about your #2. The comparison should not be made to radio
royalties because radio play has been shown to increase sales, since if you
want to hear a specific song you heard on the radio, you still have to buy it
or sit around waiting for it to come on. People compare Spotify revenue to
purchasing because, if your music is on Spotify, there is no reason for anyone
to buy it anymore. If it replaces purchasing for most people, the revenue
needs to stack up by comparison.

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cletus
That doesn't invalidate my point because curation, which you can argue radio
is, and promotion (radio stations are paid to pay particular songs) is still
possible with streaming. Just look at Pandora, last.fm, etc.

Also there are different definitions of streaming. The purest definition is
where you have to have an Internet connection to listen. There will be various
levels of caching involved here. For example, the service might cache the
entire song--possibly several songs--to avoid stuttering and service
interruptions.

Another model might better be called "cloud management" of music where you
have a cloud-like iTunes interface (or even a non-sucky interface) that would
sync that playlist to your device for offline listening, something I think
iCloud will either be or quickly become.

Bandwidth and service issues are going to make local storage of music a
superior solution for some time to come (IMHO).

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earbitscom
I wasn't arguing for or against the article or your overall argument. I was
simply pointing out some issues with two of the things you said.

