Tag Archives: YouTube

Get Rich and Die Trying: A Look Inside the Music Industry’s Collective Death Wish

Money in fist

When you love music as much as I do, it’s hard not to be troubled when you see the entire industry careening toward economic collapse. It’s even more troubling when it’s so evident that the industry is bringing its demise upon itself.

The clubby collaboration between the major record labels and Spotify has placed the entire music industry on top of a precarious investment bubble, and in so doing has left the industry on the teetering brink of economic implosion.

Spotify’s most recent round of funding a few months ago valued the company at $8.4 billion. The entire US recording industry was valued at $6.972 billion at the close of 2014. Though Spotify has yet to make a profit (their net loss tripled from 2013 to 2014), its valuation is based upon the growth of its customer base. It’s valued like a tech company, not a traditional music or entertainment company. One might think this is healthy for the industry, a sign that the music industry has embraced technology and is receiving valuations that acknowledge as much.

But here’s the first problem.

One of the reasons why tech valuations can be supported is economies of scale: as a customer base grows, a company not only gains a greater hold on the market but its costs go down (as calculated per customer).  But that is not at all the case with Spotify.  Sure, there are some tiny tech-based economies of scale as it relates to Spotify’s servers and whatnot.  But nearly 75% of their post-tax revenue is paid out to record labels, and these royalty costs do not go down at all as Spotify grows.  As Spotify grows, more songs are listened to, and their cost base goes up.

Here’s the second problem.

Spotify’s insistence on the freemium model locks it into chasing customers that just aren’t profitable.  A paying Spotify customer generates 26 times more revenue than a user of the free service, and although the percentage of Spotify users is stuck at around 25%, paying customers account for 91% of the company’s income.

But won’t the freemium model convert users to paying customers over time?

Here’s the third problem.

The average customer spends about $48 per year on iTunes.  Given iTunes scale, you can consider their average customer to be a pretty good proxy for an overall average customer (probably even spendier than your average customer, given that they are customers who are still buying music to begin with).  So, if you are betting on people to convert to the paid tier of Spotify and other streaming services, you are expecting your average person to nearly triple their yearly expenditure on music.  And you are expecting people to do this despite the fact that there are going to be legal and free alternatives available to them… with the second most popular alternative (second to YouTube) provided by Spotify itself!

For paid (read: profitable) streaming services to succeed, the pricing is probably going to need to come down by half. And, as it turns out, Apple tried exactly this. In the early days of their negotiations with labels, Apple had planned to charge $5 per month. But the major labels wouldn’t allow this. Subsequently, Apple tried to dig in its heels at a $7.99 monthly charge, but once again the major labels wouldn’t sign any agreements below $9.99 per month.

Why are labels not trying to steer this boat away from what is obviously an iceberg of permanent unprofitability?

And here’s the fourth (and biggest) problem.

The major record labels, collectively, own about 20% of Spotify.  That means that they have a stake in Spotify that is worth about $1.7 billion, and they have seen this stake double in value just since September of 2013.  So, despite the fact that Spotify is unprofitable and is contributing mightily to the persistent unprofitability of the entire music business, why on earth would the labels care?  They are getting significant royalty payments that Spotify has to pay regardless of profitability, and with their collective 20% stake in Spotify they are riding the valuation that is predicated upon the false hope that the company will some day become profitable.

This intertwined interdependency of the music industrial complex risks ruining the economics of the music industry permanently.

So how can the industry innovate and pull out of this death spiral? This very question is the fuel for future blog posts.

Stay tuned.

Kanye’s Adventures in Social Media, vol. 2

After lots of leaks, Tweets, and anticipation, Kanye finally released the video to his single “Power”… and found himself in the middle of a social media trick.  Of course, in Kanye’s words, he didn’t make a music video.  He made a painting.  Shot as if it were a wall in the old wing of the Art Institute come to life, this proves that the increasingly elusive music video is still a vibrant and inventive art form.

However, if you were off looking for this video in recent days, you may have found yourself quizzically looking at a stranger with a harmonica.  Bad News Brown, the self-proclaimed “first hip-hop harmonica player” posted his video a few weeks ago but titled it “KanYe West – POWER (Official Music Video).  285,000 views later, this bit of deception has put Mr. Brown (or is it Mr. Bad News?) into the cultural conversation.

Is this a pathetic ploy?  A clever bit of social media subterfuge?  Or both?

Straight Outta the Rec Room

I typically try for a bit more than just a funny YouTube video on this blog, but my wrist is currently in 18 pieces and this vid is really funny.

I laugh, but go hard, fellas.  Why the hell not.

I know for a fact that there have been times when music has moved me to do far sillier things; I’m just lucky there wasn’t a video camera around.

Virtual Jam Session

If one can have beliefs about what I post and what I do and don’t post only 20-something posts, I would say that I’m not a big believer in just posting cool stuff and saying “hey look, cool stuff.”

And, for those who know me and my musical tastes, anything that involves the words “jam session” is usually warning enough to get me to run for the hills.

But then there’s this.

Most YouTube video pastiches are a bit like crafts projects.  You want to credit the effort, though you seldom celebrate the aesthetics of the end result.  This one, however, actually ends being a good song… and the visual style threads together in a loose, effortless way.  It ends up feeling like one of those film clips sometimes captured by chance in a band’s recording studio: except this recording studio spans four continents.

Beats digitized price tags, doesn’t it?