On Spotify, Deezer and music platforms ... in the rearview mirror

You are now the CEO of music major X.  Challenge: the value of recorded music is trending fast towards zero.  What do you do ?  Why, of course, embrace Spotify as the future of music (and games, and TV...).  Ever wondered about that €200M enterprise value ?  Mais bien sur !

Now, girls and boys ... let's dig. 

Majors: the slow car crash, or "thank god for the Beatles"

Let's think about the dynamics of music for a second to see how you get to embrace a formerly little-known and formerly hardly funded Swedish startup as your saviour.  Here you are, sitting on a legacy catalogue of music and you are faced with a few issues:

• No paying customers: The next-gen consumers of your product have forgotten or never learnt what copyright means, a problem in large part of your own making (see Gerd Leonhard: the system is "certified dysfunctional").  As a result the average kid walks around with 30,000+ songs in his library, most of which he never listened too, none of which he paid for.
• No market stranglehold: you used to be the king of physical distribution, but in 10 years this will be a tiny portion of the industry's revenues.
• No hits: You are having trouble "manufacturing" your next hits.  You traditional marketing techniques don't work and you cannot remember the last time you sold 10,000,000 copies of an album
• No top acts: Your top artists are getting syphoned off by LiveNation in a live entertainment industry dominated by 80 or so acts that they can mostly pay better than you.  Bye Bye Madonna.  Then of course some of them die before the Tour and sell a ton of CDs still, so sometimes you get one back.
• No new acts: let's face it, you are hardly the aspirational brand for the new artists out there, themselves digital natives who grew up on P2P networks

So your traditional method has been: let's license our content at silly MG's per stream and ask for the payment upfront, since most of these guys will go bust anyway.   Oh wait, was that a self fulfilling prophecy ?   Did we shoot ourselves in the other foot too ?  No wonder a second-gen company that promises a premium service predicated on streaming music with a traceable set of users and that offers you some equity pre-lawsuit is a godsend.  Well done Spotify for embracing so well the current woes of the music industry in a way that delights users too.  And let these licensing fees flow !! Move over iTunes ?  Not sure.

"Dialtone" Startups galore, Giant Jukeboxes everywhere !

The promise is the same across the board: a continuous music/media experience, whatever your location and device, supported by advertising or subscription.    It's not exactly groundbreaking, but a few enablers are in place to make it happen:

• Quasi-negligible bandwidth costs
• Embrace of the industry including better deal terms
• Monetization methods getting to scale ... combined with the overdue love affair between media and advertising (think Moby / Groove Armada licensing deals)

It's not really that complicated, is it :-) 

Besides Spotify, take a look at Deezer: an interesting case.  Great entrepreneurs (Jonathan Benassaya, Daniel Marhely), decent player and tech, the pirate players who decided to play ball with the support of the "best French entrepreneur you have never met", Xavier Niel.  A grassroots success (remember BlogMusik) as we like them, application-less for those who prefer that paradigm, to date with bigger traction than Spotify but less hype, tech and industry endorsement.  But watch that space, I would hate to bet against this entrepreneur.

I should add we7 (StevePurdham-run, well executed, less extreme than either, funny how we all fit to our national stereotypes),  GoomRadio (huh, I still don't get that player guys ?) and a bunch of others.  Special kudos to granddaddy Pandora, shame we cannot get you over here anymore.  Personally I love both Deezer and Spotify but could never quite stomach the aggressive valuations achieved from an early stage.  But that's just me;  I have been very wrong before.

Side benefit: Fred Wilson gets his "music dial tone".  Let a thousand startups bloom... 

Streaming is for old men

Most of the data I have on young kids is that they prefer downloads and want a lot of them.  Those who predict the death of the iPod and piracy might be drinking too much Kool Aid, time will tell.  What I am sure pretty sure of is that paid-for streaming or download is for that rather large population of people who would prefer a good legal alternative, but I am not sure it's for everyone.  The industry would be smart to look at its overall global licensing policies to stop making it so f@@@@ hard to deal with them on a global basis.

Screwing the artists ?

Hmmmm...   Ever wondered if equity payout were included in artists' compensation and contracts ?  But I digress, let's move on...  I know, let's talk about piracy instead, at least we have a common (if highly distributed) enemy :-)

Next step: platform plays

I have been meaning to write this post for about two years, a nice email from Mika Salmi and some time wasted on the Eurostar and I finally get to it (a bit late).  But the debate keeps moving, thankfully.  Next horizon: majors are now faced with a plethora of semi-long tail artists which are difficult to market in the classical ways that they master so well.

What is a young aspiring musician to do ?   The future of the industry will not be written by today's catalogue owners, I am convinced of that.  The answer is simple: we need a tech platform approach to self publishing and distribution for quality music.  Anyone come to mind ?

Comments

[Robert]

Hi Fred,

TO answer your last question. www.sellaband.com
You should check it out over the next few weeks, some major announcements are coming.

Cheers,
Robert

[Robert]

A short description

Sellaband provides an alternative to the traditional music industry. It is a platform that empowers artists to record their next album, funded by their fans. The fundamental difference is that instead of taking a financial stake in the album of an artist we enable the artist to raise a recording budget with the help of music fans. This will give the artist maximum flexibility and control over their music.

[Fred]

kids stream music, but not on spotify

fact: more kids listen to music every day on youtube than ipods, itunes, last.fm, pandora, spotify, myspace, and every other music service you can name

[Michael]

www.jamendo.com is the place for new music and band.

25.000 albums published here already, growing every day, with a nice up side :

- the creator can choose to offer the music for licensing -and earn money on it. What's more, the purchaser doesn't have to pay the collecting society. Quick, Ducati and any others are already taking advantage of great music, at minimal prices - with the artist getting a bigger cut than he could have dreamed of before.

The 21st century record label ?

[twitter.com/ivospigel]

Good post Fred!

I found the way Last.fm suddenly decided to start charging, but only outside the US, UK and Germany, particularly dumb. Commented on it a few months back at http://tinyurl.com/da7jx5
Talk about shooting yourself in the foot.

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