The following guest post comes from Martijn Tjho, CEO of Amsterdam-based digital distribution platform FUGA. The platform has a number of big clients, including Ultra, Armada, and Black Hole Recordings. Tijho has candidly pointed us to a growing problem for Spotify: growing attrition among member labels, many of whom are quietly (and confidentially) leaving.
While participating in a Panel Discussion during ADE [Amsterdam Dance Event] this year, seated next to Stuart Knight from Toolroom Records (a customer of FUGA). We discussed services like Spotify and praised them for their growth. Anticipating the 'label' business would grow at the same pace. However, over the last couple of weeks, I've seen a shift indicating it could be more complicated, causing me to re-evaluate my position on the subject or at least do more research.
The reason for my doubt is directly related to several requests from our labels to perform a 'Take Down' in FUGA. We use this feature in FUGA to remove our customer's entire catalog or parts thereof from Digital Service Providers. The label executives (who shall remain nameless), mentioned that the reason for their take down directly corresponded to the lowering of revenues through iTunes and other a la carte services.
A couple of months ago, while in London I met with a former major label CEO and he told me that he thought "subscription services" are a bit like what book/music clubs were in the past, serving a particular niche. He believed that these services would eventually end up having a small, but important market share. At the time of our meeting, I told him I thought he was wrong and a bit old-fashioned in his thinking with regards to the digital music space. Most people who know me, know that I cannot hide my passion for digital music nor my frustration with Major record label executives. However, those people also know that when I'm wrong, I have no problem admitting it and in this instance, I may have been wrong in my judgment towards my ex-Major label exec friend. Actually glad that I paid for the coffee that day!
I still think it's a bit too early to know for sure what is to come with regards to current developments, but definitely worthwhile to monitor closely. I'll know better if I start to see other FUGA customers experiencing the same difficulties. Is more than just a growing pain? I don't know yet, but I do know that either way, labels must begin to develop a product life-cycle strategy that is built around the release of a digital product, IMHO I think it should look something like this:
A new album, EP, track, bundle or whatever product configuration based on the artistic efforts of the musicians is introduced in the Marketplace, on a very exclusive basis in partnership with one or more Digital Music Services. In return the product is featured, advertised and a "buzz" is created for the right target audiences. This period is not aimed at profit and may even cause losses, but fully aimed at getting the right people to "hear" and "like" what is being released. From this point the "buzz" is created, with no guarantees of whether or not it will work, just the possibility that it may and if it does will generate a huge profit.
The product distribution is ramped up, but still not available everywhere. Advertising/promotion efforts start to pay off and the products gain traction. As a result sales increase, the margins are still high (exclusive product) and the product becomes more and more popular as the demand grows.
This is the time when you can broaden distribution even more, ramp up promotion to the max and your product becomes fully established. At this stage competition of other products will become more fierce and pricing becomes an issue, margins get smaller, but volumes are higher, so there still is a good business.
Sales start to decline, as other products become more popular and saturation has taken place. This is the time to release the product on subscription based music services/clubs. Revenue and profits drop as a result of the low ARPL (Average Revenue Per Listener) advertising is only done on these services and the product becomes a true back catalog item. (This will be true if these streaming services actually cannibalize a la carte revenues).
Now it's time to license your product or the individual tracks to compilation creators and other businesses aimed at (inexpensive) mass usage of your music. This is where the "long-tail" promise may materialize.
Unlike any other products, the music product life-cycle never really ends. Changes may occur as the urge to listen to a particular product or song slowly fades away, eventually being replaced by new music.
When people are in a certain mood or want to (re)create a mood, they usually want to listen to the same music again. By having a subscription to Rdio, Spotify or any other streaming service provider with the "we have everything" concept will allow that customer the ability to play that song over and over again in order to recreate that mood, earning money for the song owner(s) every time they do.
Is the industry still too fixated on unit sales and fear the shift to a model based on access? Are the streaming services indeed not more then a subscription club and should they be treated as such?
After speaking to a few of my other clients over the last couple of days on this subject, we all agree there is still a lot to learn. For instance, in the territories where Spotify has matured a bit more (like Sweden, for example), the revenue derived from Spotify is becoming extremely significant.
So on the one hand I have clients who believe Spotify is cannibalizing their iTunes and a la carte revenue; yet, on the other hand clients who also admit experiencing no downfall whatsoever in their iTunes sales. In some cases arguing that Spotify has actually boosted their iTunes sales substantially.
I guess in the end what is truly important when entering into unknown territory like the digital music space is that we share our experiences good or bad with each other. The beauty of the internet is that we can share information on a global scale and by doing so drive growth based on facts, instead of blocking growth based on fear.
SirSedric Thursday, November 10, 2011
Interesting take on the impact of Spotify. I personally agree with you, the market is afraid to change the model of sales as user-level access to the music changes.
Visitor Friday, November 11, 2011
meh... the proof is in the pudding. I delivered two product lines to spotify in June 2011... by July 2012 I'll have my own math to see if it makes sense or not. If does, I'll re-up, if it doesn't... bah bye...
Pretty much, I think everyone else will be able to look at their pre/post #'s by this time next year. If Spotify and their Major Label backers are smart, they'll try to IPO and get out by then.
Disrtibutor Thursday, November 10, 2011
I also run a digital distribution platform. No plugging here so i will not kiss and tell what one. We are seeing a steady rise of Spotify revenue. 25% last report period. I sort of agree with Martin. I think the idea of staggered release is relevant for some acts. For new acts it is simply a waste of time. They need their music available everywhere. Music is fast becoming a commodity. I make no judgement, but this is a fact. if you have real demand for your release then staggering may be the answer. But almost no new acts have this. Just my two cents.
2 cents Friday, November 11, 2011
2 cents, that's about what you get from what, 100,000 spotify plays? and to go from 2 cents to 4, you've just increased sales by 100 percent!
Yves Villeneuve Thursday, November 10, 2011
Success partly comes from promoting the song/album while limiting the buyer to the best option when buying it.
A good promotion campaign will bring your target market to visit your exclusive, well established and well paying music retailer. Having too many retailers dilutes the consumer buying impulse process. Having a good product is essential for viral campaigns.
@ninenorthlp Thursday, November 10, 2011
@tylerjackbutler Thursday, November 10, 2011
@luddub Thursday, November 10, 2011
@jfedor Thursday, November 10, 2011
steveh Friday, November 11, 2011
Here is a quote from a comment from another blog - it is a clear admission of the iTunes cannibalisation effect:-
"In essence, Spotify and iTunes are two different commodities that simply produce the same product, but in two different fashions.
I doubt either will replace eachother, one is a streaming application that allows all the music you want instantly at your finger tips (with a hard set subscription fee), but at the end of the day you hold no ownership over said music whether it be hardcopy or softcopy. The other is a “pay as you go” service that allows you to purchase singles or albums alike at a set price, giving you softcopy/digital ownership.
I use both iTunes and Spotify. However I never purchase songs off iTunes anymore because their is essentially no benefit to doing so. If you sign up with Spotify (premium), your songs are always accessible regardless of internet connection as long as you set them as offline as well. These songs are accessible on both PC/MAC and Iphone, so basically all the places you are going to need them."
gaetano Friday, November 11, 2011
As sad as it may seem, on demand streaming as it appears here can only lead to decommodification. Consumers have already begun to make the distinction that music should be, and is now free.
As it stands, the conditioning and desensitizing we're seeing here is moving towards just doing without (or going to an already established purchased, or acquired library of content) when the streaming server can't be accessed.
Fans and consumers are being more and more removed from the results of this, especially what it does to the artist.....but then again, hey, it's just business right?????
Bas Grasmayer Monday, November 14, 2011
Go do a survey and ask consumers if they think music should be free. Hardly anyone thinks that's reasonable.
Convenience is the driving factor and if the mental cost of music listening is reduced, people will generally favour it. As an example: having to pay $1 per song carries a high mental cost, since it requires a transaction for every track. A $10 Spotify subscription carries a much lower mental cost, since it's just the one transaction and then all you can eat.
I fork over a guaranteed $120 per year, which I doubt I was spending on recordings. Besides that, I still purchase music, visit live shows & spend money on music in different ways.
The music biz is alive & well. It's the recording industry that's got a problem.
Mr B Friday, November 11, 2011
Martijn Friday, November 11, 2011
You are right. DMN made the title. We are a bit more then just a delivery service, but lets not get into this. The reason I made this post is that we do have a very close relationship with our clients and when we see something worthwhile sharing with the community, we do so, hence the post. I got a lot of response to this post, even from our partners at Spotify. A follow up post will be shared, as soon as we have finilized our research on this. Please contact me directly if you think you can add value to the research and discussion. M
steveh Friday, November 11, 2011
Dear Mr B
Your shrill and ignorant response is not advancing your cause.
Fact:- one iTunes track purchase earns an indie label the equivalent of 2-300 Spotify streams.
How many tracks do you listen to 2-300 times?
How is the income from Spotify ever going to match iTunes income over time?
Impossible - the math just does not work.
And even if it was possible how long would it take? 10 years 20 years?
This is the music business - it's a quick business. How on earth can 10 UScents in 10 years be better than 50 UScents right now?
There is absolutely no doubt that a consumer making a total switch from iTunes purchasing to Spotify represents a cannibalisation. Please get real!
About getting real Friday, November 11, 2011
Reality is that streaming is the future. The one option is going to totally take the place of the other. This is an undeniable fact. All the indicators point in this direction. It is what the consumers want and therefore will get. Simple reliable access. So cannibalization is not really a very interesting argument to have. prepare to fight for the highest number of streams.
steveh Friday, November 11, 2011
your argument is totally bogus.
1. If streaming is going to "totally take place of the other" as you say then this is indeed total cannabilization and indie labels indeed have to be very concerned that their income will shrink.
2. Even if streaming subscribers numbers hundreds of millions there is no indication that the income derived by artists/labels will match what they now earn from physical and iTunes sales. Most of the money will go to the streaming companies. If Spotify becomes giant it will be on of the nastiest major corporation the music business has ever known. Is this what we want? Is this the future?
3. But if as you say "It is what the consumers want and therefore will get." how come the uptake on streaming subscriptions is still quite small? What is your evidence that it is "what the consumers want"?
4. If we are to be totally guided by "what the consumers want and therefore will get." why don't we just give up and give in to the torrents and illegal downloads? That is evidently really "what the consumers want":- free music. But we can't capitulate to this because then we would have no business left. Spotify's payouts are so low it's only marginally better than free. Why should we capitulate to this and not go all the way and capitulate to free?
5. Spotify shills like you are display such an insufferable smartass conceit with your "we are the future and you're all losers" bullshit that it really makes me wonder:- why do you have this kool aid drinking wish to evangelise? I mean if Spotify was so fucking great we'd all be seeing it, but all I know is that I see tiny income from Spotify on our IODA and Orchard statements compared to good income from iTunes/Amazon/eMusic etc. So what's it all about eh? What is your real agenda?
Shill? Friday, November 11, 2011
As you seem to be an American you would not have seen the overwhelming popularity of Spotify in Europe. Almost everyone who tries it becomes hooked.it is simply the more convenient way of consuming music. The implications for record labels and artists ARE dramatic. But so are the implications of global warming. Both are inescapable. Calling me a shill just demonstrates your lack of proper argument. We ARE totally guided by the market and technological advances. Thinking otherwise is delusional. Music became free almost ten years ago with Napster. Putting the genie back in the lamp has proven impossible. The debate needs to be about how to live under new circumstances not how to fight an impossible battle.
Yves Villeneuve Friday, November 11, 2011
We shall have to Friday, November 11, 2011
Wait and see. My money is on streaming.
We were not discussing compens Friday, November 11, 2011
That is a totally different debate. What we are discussing is the future distribution models for music. And it sure aint unit sales.
steveh Friday, November 11, 2011
No I am from the UK and I've been closely following the Spotify story since early 09.
I undoubtedly know far more about it than you do.
You speak of "overwhelming popularity" of Spotify, but here in the UK iTunes is still a vastly more powerful force. So you are falsely hyping up Spotify, and my characterisation of you as a shill is not incorrect.
Yes we have to live under the new circumstances, but unfortunately many aspects of Spotify represent a corporate throwback and works very much against the interest of indie labels.
You can smell this from the way their licensing process has been sweetend by undisclosed payments to majors and the woeful lack of transaparency in their payment structure to those who actually make the music.
I now see why you evangelise. From your talk of Napster and genies, you sound like what we might call a "freetard".
You certainly don't run a music label - that's for sure.
Practically speaking though, Spotify is facing a problem as more and more artists keep their new releases away from it for the first 8 weeks or so of release. This in many ways will render Spotify into a second tier service. Is this what Spotify's billion dollar investors were hoping for?
Definitions Friday, November 11, 2011
"Shill" An accomplice of a hawker, gambler, or swindler who acts as an enthusiastic customer to entice or encourage others.
That is a pretty strong accusation. BTW. Saying that itunes is still apowerful force in this context is a bit like saying Horses are vastly more popular than cars a year after the introduction of the motor car. Spotify and services similar to it are the only viable future for mass communication and distribution of music. The fact that spotify is a major label corrupted company is not really relevant. Also most brits still have hot and cold water coming from two different taps, so not exactly a great country to gage the spread of new technology ... :)
steveh Friday, November 11, 2011
Dear oh dear is that the best response you can muster?
Nope Saturday, November 12, 2011
But lets stick to the actual matter at hand
paul Friday, November 11, 2011
Yes, to clarify Digital Music News created the title, not Martijn. That said, I'd offer that the description is top-level but not inaccurate, I'm using it in the sense of 'getting something from over here to over there' [ie, a store, other outlet, etc.]
musicservices4less Friday, November 11, 2011
All this business model discussion is kind of beside the point. Business models depend on being able to control various business factors the main one being supply. Right now the internet provides infinite supply i.e. free. It is what is now the old story, you can't compete with free. The consumer always wants free. Housing, food, transportation, education, etc. The same is true for consumer goods, whether necessities or entertainment. If consumers didn't want free, why would they shop for the lowest price? This message is finally getting through to various governments and slowly (but surely) laws and regulations are being put in place to eliminate those free items that the creators/owners do not want out as free. And it will be done to protect privacy and so-called freedom of speech, though the latter issue is questionable as a legitimate issue when it comes to entertainment. If you are a label, artist or work in the music business you really need to actively support SOPA and related legislation in the U.S. Everyone on all sides of this issue should pay attention to the upcoming Judiciary Committee hearing next week on November 16.
Thomas Friday, November 11, 2011
When looking at Coldplay and their latest release (not yet on spotify but sold 80 000 download in the UK first week) I wonder if we will see a model similar to the movie industry, which '"releases" movies to theatres first (iTunes), and when the novelty wears off we will find them "on netflix" (streaming services). This would diminish the value of streaming services, and they would problably do all in their power to prevent this development. For larger acts like Coldplay, such a strategy makes perfect economic sense.
Yves Villeneuve Friday, November 11, 2011
Visitor Friday, November 11, 2011
Actually: 1) It is true that Spotify has great market penetration in Sweden, but so has Deezer in their territories and other services have been rather succesful in their local market. 2) A monthly subscription to Spotify is less than the price of a physical CD, and most of my friends bought at least one CD per month back in the day so with those figures to compare with streaming is s a pretty good deal for the consumer 3) The finer details of the music discovery process stretches way beyond what you might find on your own using iTunes.
So, for the consumer, streaming services are a good deal. For artist, not so much. Competing streaming services will drive prices down. This race to the bottom will not benefit artist and labels. As long as they are powered by advertising, one can understand why this doesn't work. Ad-space is not a scarce resource on the internet, after all.
Yves Villeneuve Friday, November 11, 2011
I am calling part Bullshit on 2) and full Bullshit on 3).
Visitor Sunday, November 13, 2011
See how I made it easy for you to call bullshit? I am user friendly!
Spotify nomore Friday, November 11, 2011
All I did was put my stuff up on Spotify in March. Since then I have seen a 40% drop in iTunes sales and a fat $8.35 check from Spotify.
I took everything off. I'll report back in 2 months
gaetano Friday, November 11, 2011
This is what I expected.
I will expect some serious backlash once artists start seeing their sales and BMI/ASCAP checks floundering.
Also, Can someone please help us put together the statistic that shows how Spotify can decipher how it's "averting pirating" while not "averting sales"?
Group Therapy Records Friday, November 11, 2011
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diogenes dog Saturday, November 12, 2011
Well I also run one of many digital aggregators except this is a very niche one. I have also had one my labels asking me to take their content down. However, the monthly revenues as a whole (ie, as the aggregator) have been steady going upwards since day one (and not much added content). That label takes the most substantial share of it and once he saw the number of XX number of months, he was just surprised and couldn't believe it.
So if Spotify / streaming numbers are going to be analysed 'per se' (ie, it is 1000% less than a download), then we'll never move forward. If one starts seeing the revenue over a period of time and as a business income which wasn't there before (ie, physical distros not paying their bills to labels), it's a different ball park.
Overall our iTunes sales have been quite sadly slim but still fluctuating within reasonable spreads. If I had to bark against another tree, the biggest impact of all and probably making our aggregator's business unsustainable is the dramatic fall in eMusic revenues since they took on majors content. Those sales have become beyond pathetic so Spotify is at least compensating part of that loss.
Happy times ahead
Martijn Sunday, November 13, 2011
Since this topic has created a lot of debate, I think it's safe to say there is a lot of unclearity with regards to the different services out there and how they impact your (music) business. We will put a survey online and start gathering somne real data accross different genres, labels, services. My post was intended to trigger the debate, and it did. From the start of the digital music space, I have been looking into all diffrent kind of initiatives and see them succeed or fail. One thing that has always wondered me about subscription based, all you can eat models is that every song get's priced the same. So it becomes a numbers game. Imagine that would be true for cars, phones etc. The reason Apple can make the products they make is that it comes with a price. The same could be true for music. You have a small following but what you make is of high value for your fans, they are willing to pay more, but when you also offer it for almost free, why would they do this (paying more)? As a result your net income goes down and you won't be able to make another "non commercial" release. What I am finding out is that there is no one truth and one model that will fit all. If you want to drive a Ferrari you know you need to put in some real cash. If you would be able to get access to a car like that for a couple of dollars per day, imagine what the long term effects would be. At the same time I am a big fan of Spotify and pay for a subscription every month. In my 37 years of being alive I found out one thing: "If it's too good to be true. It really is too good to be true"
The next post on this subject more research will be available and I have invited the streaming services to provide me with facts. (data) The same I will ask from all our clients and to the readers of DMN. Have a great Sunday! M
Spotify Solution Sunday, November 13, 2011
1.The Spotify monthly fee should be treated as a licensing fee bank account shared by Spotify and the artist /label.
2. Spotify should also be able to sell advertising for extra revenue.
Listener gets to hear the same song only 5 times for free. On the 6th listen his IP address is requested to purchase the track. If he is a Spotify Premium member, he gets to hear the track 10 more times for free. If not he pays ( withdraws) .20 cents from his monthly bank account ( .10 cents to the artist/label and .10 cents to Spotify) and gets the track added permanently to his playlist.
Jeff Sunday, November 13, 2011
sites like grooveshark and spotify offer a new medium to consume music. the last time there was a major shift in the way in which we consume music from 1999, the major record lables and large bulk of the music business, refused to embrace the new landscape. this approach has proved to be catastrophic. i dont think this shift is something that can be avoided. once consumers realize this medium is available, theres no restricting it. we've seen this be true with file sharing. now, it's time to embrace the change, stay ahead of future change, and generate a new model for growth.
gaetano Sunday, November 13, 2011
It's one thing to shift from one type of format to another, but something completely different to potentially enable and justify a system that could devalue or decommodify both content and product.
The reality is that the MP3 was in development since the late 70's/early 80's. If there's anything to learn from industry debacle in the late 90's is that we need to look even further ahead and extrapolate the potential of the trends we're seeing now.
@gabhal Monday, November 14, 2011
@Spartz Monday, November 14, 2011
jungleland2 Monday, November 14, 2011
As an indie label owner, Spotify is a great tool to get my artists' music heard, but it is not a viable revenue stream any more that internet radio or Napster are.
As a music consumer, I can get my fix of a new release and not buy it, not steal it and move on. This does not really help anyone either.
It is a great tool for giving an artist that has been recommended to you a few spins (and not just the single), but since I can play it as many times as I want, it FEELS like I own it and keeps my checkbook in my pocket.
As long as the free version is as fantastic as it is, I see little reason to pay for Spotify, unless I was going to use it with my smartphone.
I dont blame artists for limiting their Spotify (free) options, I expect this to be the choice of more and more of them (and make new releases primarily for paid subscribers.
I listened to the Beach Boys SMiLE box set three times, got my fill and most likley will not purchase it. Who did this help?
Electronic Music Distro Monday, November 14, 2011
This was our first full qtr supplying content to Spotify/Simfy/Rdio/MOG etc
Total Q3 digital revenue was down for the first time in 4 years
Fall in revenue = 14%
Spotify & Co accounted for 82% of all tracks 'consumed'
Spotify & Co generated 2.6% of revenue
Spotify does not make good business sense for labels and artists.
UNKNOWN Tuesday, November 15, 2011
I run a digital label and I am one of the Electonic Music Artist on the label. Digital Distribution for what reason? I tried it with Ingrooves. Sure, I was catalogued on over 100 sites and Ingrooves took 50 cents on every track sold for the service. Then the moved to add a 200 dollar a month fee to distribute content as well as take 50 cents. I fired them.
I signed with Itunes directly. Now, I see bigger payout amounts and I keep a majority of what I sell. I have all the real time, tracking data, I have graphs, I have lists, Itunes sends me reports every week and I have money deposited every month via electronic wire. I am carried in over 100 territory's world wide and carry the Itunes name on all marketing.
I see very little point of "digital" distribution if you have to pay an up front fee. If they do not market, shop your tracks and get your tracks reviewed why in the heck would you pay anyone to distribut your music now adays?
I see ZERO advantage to Digital Distribution as I tried it for three years and I make more money now, directlly with Itunes than I did with 100 stores carrying my music.
Also why is Beatport looking to become a distribution player now? Because they can't compete with Itunes. So, now they will charge their current clients, a fee to place them on Itunes. Thus, driving more traffic to Itunes.
Bottom line, distribute your own music and use the money for smart marketing.
Martijn Wednesday, November 16, 2011
Good for you. With this in the back of my mind I created FUGA. There is a lot of value for people and businesses like yourself to work with a (technical) solution to manage complexity. But you know your music best and should be in charge of promotion and marketing. A digital distributor can add a lot of value, but if they take more then they add, indeed it doesn't make any sense.