8Sided Blog

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On Exclusives and Windowing

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Jonathan Galkin, Co-Founder of DFA Records, in PIAS Blog:

“All of these ‘streaming exclusives’ are for the 1%. This is not my fight. It sort of feels awful all around, regardless of the scale of the artist. It’s like having to join a gym in order to buy a pair of sneakers.

“This is the least democratic way to hear discuss and enjoy new music. It shouldn’t be a scavenger hunt to find an album, and albums shouldn’t be used as bait to build tech companies.

“But, you know, good for Kanye and Drake and Beyonce. But it leaves little room to focus on the discovery of new music, which is what DFA is all about.”

Music Business Worldwide:

Per Sundin (Universal): “It’s exactly what happened in the US with physical product. Best Buy said, we’re going to buy 2m AC/DC albums, and it was: ‘Wow, 2m albums.’ But eventually when you looked at the real record stores, the Towers that closed and others, you’re killing the people who feed you.”

Mark Dennis (Sony): “It’s the wrong thing, without a doubt. People who believe that exclusives are going to bring the market forward are the most naive people in the world. We have to learn from what’s happened in the past: when people haven’t been able to consume music in the way they want, they turn to piracy. We’re just not learning! We’ve got to be realistic. What will move the market forward is having content across all platforms, giving the consumer the ability to make their decision and use great products.”

So, not much love for streaming exclusives. However, windowing may soon have a new champion. Via Music Ally:

With no free tier, Apple Music has been able to pitch itself as a premium-only option for album releases, as has Tidal. SoundCloud, meanwhile, made premium-windowing part of the industry pitch for its recently-launched SoundCloud Go subscription tier.

Sources have told Music Ally that Spotify was in advanced discussions with Radiohead’s management company Courtyard and label XL Recordings about a deal to make A Moon Shaped Pool the first album to be windowed to premium subscribers on the service.

“We are always looking for new ways to create a better experience for our free and paying listeners, and to maximise the value of both tiers for artists and their labels. We explored a variety of ways to do that in conjunction with the release of Radiohead’s latest album,” said {Jonathan} Prince {of Spotify}.

“Some of the approaches we explored with Radiohead were new, and we ultimately decided that we couldn’t deliver on those approaches technologically in time for the album’s release schedule.”

Reading between the lines of Prince’s statement, it seems that this is less a case of getting cold feet about premium windowing, and more a case of Spotify wanting to make sure the technology to make it work was robust.

Ad-Supported Optimism

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Pitchfork:

When asked about the near future of free music streaming, Robert Kyncl, YouTube’s chief business officer, tells me, “What’s next is more ad revenue coming into it.” For instance, the advertising conglomerate Interpublic Group recently revealed it was shifting $250 million in TV ad spending to YouTube. Kyncl suggests advertisers could increasingly take money off traditional radio, too, and put it on the service’s clips. The record industry’s business model always differed from TV and radio in that fans bought specific songs or albums, but now it’s being tied into that same advertising-based model through free streaming.

“The music industry as a whole hasn’t earned that much from advertising, and now that’s changing,” Kyncl says. The reason industry coffers haven’t previously spilled over with ad revenues is partly a quirk of U.S. copyright law. Unlike in some other nations, radio broadcasters here pay royalties only to the songwriters, not the labels that own the recordings. But on-demand streaming service providers like YouTube and Spotify must pay both types of royalties. So, according to Kyncl, as listening goes from analog to digital, the music industry can look forward to a bigger share of the revenue from a larger market. In other words, labels—and artists who own their own master recordings—have gone from “monetizing only the super fans, by selling them CDs and LPs and tapes, to making money through ads from everybody that enjoys music,” he explains. “And that’s a big deal.”

Encouraging Steps Towards Closing The Publisher Data Gap

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Music Industry Blog:

Artist concerns about transparency in streaming services are well founded but it is an eminently fixable problem because virtually all of the necessary data is in place. When a record label or distributor licenses music to a service it literally provides a data file of its music which is then ingested (uploaded) by the service. But when service licenses from a music publisher or PRO there is no such data file, because the recorded works are owned by the labels. Publishers do not even provide a comprehensive list of what works their license covers. So music services instead do a ‘best efforts’ licensing effort, licensing all the key publishers and PROs.

The problem is that until there is a market level solution that sort of action won’t go away. This means any music service operating in the US, where there is a statutory damages system, cannot operate with certainty that it will not face another legal suit with potentially vast damages awarded. The nightmare scenario is that streaming services start pulling out of the US, or restricting their catalogue to identified works (which largely means major publishers only) rather than face potentially fatal legal challenges.

The music industry needs a solution and now just like busses that never come, two arrive at once: Google’s Open Source Validation Tool for DDEX Standard and Canadian PRO (Performing Rights Organization) SOCAN has acquired Medianet essentially as a digital rights reporting play.

Previously.

I sort of feel like the old guy grumbling “we can land a man on the moon but we can’t even (insert impossible thing here)”, but in this data-obsessed age we really should have a centralized publishers database that can be updated and utilized throughout the industry. Hopefully multiple companies getting involved (there are also rumors of Music Reports entering the fray) will finally bear some fruit, and we can begin slowly stumbling our way out of this wild west phase of the streaming economy.

Who’s To Blame For Music Startups’ Bleak Outlook

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David Pakman in Medium:

(The) bleak outlook for profitability among standalone digital music companies is a direct result of the high royalty rates incumbent upon startups who wish to license digital music for use in their apps. Whether you negotiate voluntary agreements or avail yourself of the existing compulsory licenses, you will not turn a profit. At least, no one ever has. The few that refused to pay these rates were often sued out of existence.

The end result of these perilous market conditions is that the only companies who can afford to be involved with digital music are the internet giants prepared to subsidize their digital music services with profits from their other businesses. The high royalty rates and up-front cash advances required by the record companies prevent profitable, sustainable businesses from emerging. As a result, the recorded music businesses is left only with these giants: Amazon, Apple, YouTube and, to a lesser extent, Spotify and Pandora.

But this is a “crisis” of their own making. Many of us argued for years that it was in the industry’s best interest to create a healthy ecosystem of hundreds or thousands of successful companies, all enjoying successful businesses around music. But those arguments fell on deaf ears, and instead the industry fought repeatedly to raise royalty rates over and over again, despite evidence that not a single company ever achieved profitability.

In my mind, it would have been in the best long-term interests of the recorded music business to enable the widespread success of thousands of companies, each paying fair but not bone-crushing royalties back to labels, artists and publishers. But the high royalty rates imposed upon startups, even after clear signs over the past 19 years that the strategy killed companies, has prevented a healthy ecosystem from emerging. It’s a bed the music industry made for itself, and now it is left to lie in it.

On the other hand, via Hypebot:

The indie music community has embraced Bandcamp and its suite of direct to fan monetization tools. And unlike most music tech startups, Bandcamp, which launched in 2008, has been profitable “in the now-quaint revenues-exceed-expenses sense” since 2012.

Bandcamp grew 35% last year, according to new stats just released by the direct to fan music platform. Fans are paying $4.3 million to artists monthly using the site, including 25,000 records a day.

Subscription-based music streaming “has yet to prove itself to be a viable model, even after hundreds of millions of investment dollars raised and spent,” the company wrote in a blog post. "For our part, we are committed to offering an alternative that we know works.

Update; There’s now a rebuttal to the original piece, via Medium’s Cuepoint:

More and more artists have chosen to go independent, direct to consumer, self-release their art. Stuff like Blockchain is exciting. If the labels are so impossible to deal with, then shouldn’t the investment be in platforms that will succeed in a post-label world? Shouldn’t the new startups, or the established players, be investing in content and talent development directly with artists, in a more substantial way? Shouldn’t they just take their great ideas and bypass the stubborn major labels?

Update 2; via Music Business Blog:

The music industry is in a transition phase. In such periods, the old and new worlds co-exist and collide. There are statistics that both sides of any argument can hold up in their defence, in fact they can often hold up the very same numbers to support opposite perspectives. Similarly, the comparisons you chose to benchmark with, can paint entirely different pictures. Such is the nature of transitions of human and business behaviour. For example, 83% of Spotify’s gross revenue going to rights is clearly too high and unsustainable, yet $0.00098 per song going to artists is also clearly too low and unsustainable. Something needs to give, for both ends of the value chain.

Maybe if/when Spotify gets to 50 million subscribers it will feel it has enough clout to compel rights holders to rethink licensing economics. Perhaps it will take Spotify getting to a 100 million to make that happen. Perhaps it will never happen. But if it doesn’t, the economics of streaming will remain so broken that only companies with ulterior business objectives will remain viable players, enter stage left streaming’s Triple A: Apple, Amazon and Alphabet (Google). The labels need to ask themselves whether that is the streaming future they want…

A Boost for DJ Mixes and the New Streaming ‘Sub-Economy’

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Billboard:

The National Music Publishers’ Association (NMPA) and Dubset have reached a deal that will allow the NMPA’s independent members, both publishing companies and songwriters, to take part in a new streaming “sub-economy” that only recently became technologically feasible. This new revenue source is through derivative works, or pieces of music that are wholly or partially based on others’ creations, like DJ mixes and remixes. Through its MixBANK, Dubset cross-sections these creations and identifies their constituent parts (a vocal line here, one-half of an entire song there), determines the appropriate royalty splits, then services them to its clients, like Apple Music.

Dubset isn’t the only company making advances in this highly technical space. SoundCloud’s new subscription service, Go, uses an undisclosed process to identify derivative works, which its platform has plenty of. (This, despite a recent report to the contrary.)

Hypebot:

Through the Rights Agreement, NMPA members who opt-in will have access to Dubset’s MixBANK platform where they can set terms and rules around how and where their catalog may be used in mix content. Each time a new mix or remix is delivered to MixBANK the clearance rules set by rights holders to determine whether the content is cleared for distribution are applied. Cleared mix and remix content is then made available to legal music services under an approved royalty structure.

Pay no mind to Digital Music News’s shadowy anonymous sources … DJ mixes and remix culture are on the rise in the social sphere.

(Previously)

Update (May 25, 2016); via Hypebot:

Dubset Media announced today that it has reached an agreement with Spotify to use its MixBANK distribution platform. The deal makes it possible for DJs to upload and legally stream their mixes and single track remixes. In addition, the new agreement is expected to enable Spotify listeners to stream radio shows and other user generated mixes that have not been previously legally available to music fans.

RIAA Announces Streaming Will Count Toward Platinum and Gold Certifications

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Pitchfork:

Since 1958, the Recording Industry Association of America (RIAA) has awarded platinum and gold certifications based on the quantity of albums sold by an artist. One million sold copies meant a record was platinum; half a million meant gold. Today, the RIAA announced a change in that methodology. Now, it will count on-demand audio and video streaming, along with the traditional album sales, in determining whether a record is platinum or gold.



One stream doesn’t equal one sale, however. Instead, 1,500 on-demand audio or video streams will amount to one album sale. (On-demand streaming refers to the ability to choose what song you’re listening to—services like Spotify and Apple Music, not internet radio sites like Pandora.) The RIAA’s announcement didn’t mention how these 1,500 streams will be tallied up—for example, whether one stream of a 17-song album will count the same as 17 streams of a single taken from the album.



Billboard:

Effective immediately, the RIAA will include on-demand audio and video streams and a track sale equivalent in determining which releases get the coveted album awards, a change that follows a similar tweak in 2013 to include on-demand streams for its Digital Single Award.



“After a comprehensive analysis of a variety of factors,” writes the organization in a statement, “including streaming and download consumption patterns and historical impact on the program – and also consultation with a myriad of industry colleagues the RIAA set the new Album Award formula of 1,500 on-demand audio and/or video song streams = 10 track sales = 1 album sale. Also effective today, RIAA’s Digital Single Award ratio will be updated from 100 on-demand streams = 1 download to 150 on-demand streams = 1 download to reflect streaming’s enormous growth in the two plus years since that ratio was set.”

Welcome To The Jungle: Amazon Could Enter The Streaming Fray

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The Verge:

Amazon could be preparing to challenge Spotify, Apple Music, and other subscription music services with a full-fledged rival that’s much bigger than Prime Music. The New York Post reports that Amazon executives have kicked off licensing talks with the music industry for a Spotify-like offering that would tentatively cost $9.99 per month.



Prime Music, a perk that comes included with Amazon’s annual membership, offers on-demand and ad-free access to over 1 million songs. But the overall music catalog isn’t anywhere near as large as those offered by Spotify and other paid services. It’s pretty scattershot, often missing the newest releases that consumers can stream elsewhere. Prime Music is a nice “there when you need it” kind of thing, but it’s not any real threat to Spotify. It seems Amazon is ready to change that with a standalone service that’s completely separate from Prime.



Mashable:

Perhaps the most surprising detail about the latest rumor is a claim that the expanded music offering would operate as a standalone paid service with a fee — rumored to be $9.99 a month — separate from Amazon Prime.



By providing the music streaming service separately, it could give Amazon an alternative product to pair with products (the rumor is it might offer a discount when purchased together with its Echo personal assistant). But that would nonetheless mark a departure from its usual strategy. Consider that it has invested heavily to build what is effectively a mini-Netflix, complete with original programming, and yet that offering is not broken out, but rather kept with Prime.



If Amazon is planning to go whole hog on streaming then they will need to pay special attention to interface and design. Much of the Amazon digital space is overly clunky (including the store site, though it works out of familiarity) and lacks the intuitiveness and ‘razzle dazzle’ that they will need to compete as another music DSP, especially with younger listeners. As far as another tech giant presumably entering the fray, I suppose it’s good in that the battle will push streaming quicker to the mainstream with higher rates of adoption for paid services (one can hope, right?). But the battle could also lead to cut-throat underpricing and lower pay-outs, as well as a lot more release windowing and exclusivity which (IMO) doesn’t much help streaming’s cause.

Moving Past The Jukebox Model

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Wired:

Spotify announced today that it’s acquiring two companies: Soundwave and Cord Project. Both are small-ish startups, founded in the last couple of years, that have won accolades for their design chops. Soundwave in particular makes perfect sense for Spotify. It’s a social tool for finding, sharing, and talking about music, which are all things Spotify would like to be as well. Cord Project is a more curious fit: it’s an audio-first messaging app, a sort of walkie-talkie for the smartphone age.



What Cord really did—what founders Thomas Gayno and Jeff Baxter do best—is design audio experiences. “For years,” Gayno says, “we’ve been listening to music on phones and on laptops kind of the way we listen to music on our hifi stereo, by just looking for a song and hitting play.” We find and listen to music like we’re at the world’s biggest jukebox. Spotify has recently started experimenting with variations on that form, with features like Running and Party and the brand-new Behind the Lyrics feature it created with the folks at Genius. They’re trying to do more than just find you music you’ll like—they want to change the way you experience it altogether. That’s a hard problem to solve.



Through The Echo Nest’s incredibly detailed tech and its years of usage data, Spotify has a ridiculous trove of data about much more than just music. The Cord crew is the start of a new team at Spotify dedicated to turning that data into entirely new kinds of auditory experiences, “leveraging all the amazing technology that is available on my MacBook Pro, on my iPhone, all these things,” Gayno says. “The accelerometer, the geo-localization, all the social network data I have provided, is available for Spotify to create a compelling music experience.”



“The place to innovate is on the consumption side,” Baxter says. “So we’re still working on that. It’s still, what are unique ways that you can serve up audio to people, on phones, but also on devices of the future?” It’s not enough to have 30 million tracks in your library anymore. The streaming wars will be won by the company with the best experience, the best discovery, the best tools for listening to the right thing at the right time in the right way.



As SoundCloud seems to be moving towards Spotify’s model, Spotify in turn appears to be implementing tools for more SoundCloud-like interaction among users. And the idea of playlists and suggestions based on one’s activity, location, and such is intriguing. The streaming wars are apparently moving on from who’s the best at ‘discovery’ and into the social, user-experience terrain. Apple has had a history with social integration in their music services but, with the failure of Ping and the underwhelmed reaction to Connect, it’s an area that’s still up for grabs.

Soundwave presents some interesting concepts that Spotify could easily adopt. Here’s an interview with Soundwave co-founder Craig Watson on an episode of the Music Biz Podcast from a few months back:

Untangling Streaming’s Copyright Conundrum

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For publishers, purchases result in mechanical royalties that are paid by record labels, which must match their recordings to the associated songwriters and pay the publishers accordingly. In contrast, streaming royalties are paid by the streaming service, shifting the administrative burden to companies like Spotify. Both purchases and on-demand streams require mechanical licenses to be obtained from publishers. This is where Spotify appears to have problems — it does not have publishing licenses for all the songs it streams.

A key problem is the compulsory license used by subscription services. A subscription service doesn’t need to secure mechanical licenses from publishers in advance of adding their musical works to its catalog. It can send what’s called a notice of intent and simply pay the appropriate royalties. But it’s not quite that easy in practice.

Because record labels are not required to provide publishing information associated with their sound recordings, services don’t always know which publishers they’re supposed to contact and pay. The end result is an incomplete record of songwriting credits and publishers for tens of millions of tracks.

Major music companies, which have equity in Spotify, want the streaming space to grow and believe imposing damages “could trigger mutually assured destruction,” one industry participant told Billboard. That could explain why some publishers are trying to reach a resolution with Spotify through the NMPA that would deliver back royalties in return for foregoing legal action.

Here’s the thing about copyright law: historically, as new technologies come along, copyright has a lot of trouble dealing with them. And, typically, the pattern is that the industry freaks out and tries to stop the new technology, but eventually someone duct tapes on a new bit of copyright law to cover it. Unfortunately, this means that there are all these weird periphery sections of copyright law that are supposed to apply to specific circumstances, which then get made obsolete by later technological situations, and it leads to lots of confusion and anger… and lawsuits.

There is also a complex bit of copyright law, known as Section 115, which gives the specifics on compulsory licensing of mechanical licenses in certain circumstances, if certain rules are followed. But here’s the crazy thing: it’s 2016 now, streaming services have been around for years, and still no one’s entirely sure if Section 115 compulsories actually apply to them. It’s never actually been tested and many services (including Spotify) assume they do, but a potentially big question is whether or not they really do.

Spotify can (and likely will) argue that it complied with the rules required in Section 115(b) for a “notice of intention” in order to get the compulsory mechanical license. Basically, Spotify would argue that it did what is necessary to get a compulsory mechanical license when it was unsure of who held the publishing/songwriting rights on a song. If it actually did do this, {David} Lowery’s case may be dead in the water — though I’m guessing Lowery’s lawyers will argue that it failed in some aspect of properly using Section 115 — or, as mentioned above, that Section 115 doesn’t actually apply to streaming services. If Spotify did not actually follow Section 115’s rules, then Lowery’s case suddenly is a lot stronger. Similarly, if a court suddenly determines that Section 115 doesn’t apply… well, then a lot of streaming services are in serious trouble.

Make no mistake, people … we – the music industry – are at fault here. Our data is fucked and in some cases non-existent. We all know it.

Some labels / distributors don’t upload the relevant meta or do and it’s corrupt and thus this situation arises. We need a global rights database … we’ve needed one for years. It’s time for this to be actioned properly with full support from every corner of the business. Until now much of the industry has been a bunch of lazy bastards cutting corners or uploading bad data at the expense of our life blood – the artists. That is unacceptable. If the meta was there Spotify would pay.

And despite having blanket licenses in place we are letting the services we deliver to take the blame for our industry-wide tardy incompetence. It actually saddens me that of all the digital service providers {David Lowrey} could have chosen to go after he’s going after one that actually recognizes this fact and are actively trying to build one. If Spotify are found to be at fault here every DSP will be guilty of this without exception. But I believe the fundamental fault here lies with us, the industry. Not the service … and we have a collective responsibility to sort this out.

Streaming’s Elephant In The Room

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Music Business World:

If you missed it, video music streams – YouTube with a bit of Vevo, essentially – were bigger and grew faster than audio streaming services in 2015 {according to recent Nielson data}. That’s all audio streaming services combined – including AOL, Beats Music (RIP), Cricket, Google Play Music, Medianet, Rdio (RIP), Rhapsody, Slacker and Spotify.



In 2016, then, the music business’s quest to restrict YouTube’s dominance of ‘free’ music looks like a bigger challenge than ever before. “This is absolutely the legacy Lucian {Grainge} is determined to leave,” one ally of the UMG boss recently told MBW – referring to Grainge’s recently-inked new contract with Vivendi. “Getting ‘free’ under control and dealing with the YouTube problem is his No.1 business priority.”



Yet there might be one more ace up the sleeve of Grainge and his old mentor Doug Morris. Sony and UMG are both major shareholders in Vevo – a platform that’s part-rival, part-partner, part-moneymaker and part-irritant to YouTube.



As many have pointed out, if Vevo’s YouTube relationship fell apart, it would be a in a world of pain. Lots of people can’t even distinguish between the two brands. But what’s often overlooked is that the Vevo/YouTube balance is more reciprocal than many appreciate. According to ComScore, Vevo uploads bring in around 38% of YouTube’s monthly traffic. (Videos from Warner Music, which isn’t an investor in Vevo, independently attract another 20%.) Messing with Vevo means messing with a significant chunk of YouTube’s existing $9bn annual revenue.



With all this talk of Spotify and publishing lawsuits, YouTube’s dominance in the free arena remains the hulking elephant in the room. Personally, I’m much more eager to see them reined in than Spotify.