iTunes Chart-Toppers (a/o February 21st):
You can debate the merits of Spotify versus iTunes Match all day; you can even dismiss the discussion as apples-to-oranges. But in order to win this game, you need money ― a ton of it. That is, just to survive the insane licensing costs, year after year! And for all the advantages that Spotify (and its competitors) bring to the table, the financial picture on streaming still doesn't quite make sense.
Here's the latest financial quarter reported by Apple, who just reported their highest revenues and profits ― ever.
...and here's the financial story we're seeing at Spotify, based on data from 2010 (the latest we have).
Pop the hood, and the mounting cost structure looks something like this (apologies in advance for our graph):
When it comes to rights, both are paying large ransoms to major labels for licensing approvals. The difference is that one can definitely afford it, while the other may or may not be able to afford it even a few years from now. One has an insane pile of cash; the other has an insane pile of investor cash. See the difference?
Then there's the licensing terrain. Technically, Apple is doing the majors a favor. One can legally challenge the requirement to pay licensors like Universal Music Group for the right to cloud-enable content; the other absolutely must pay or face closure. In fact, Spotify has doled out ownership stakes to get the required approvals, with investors - not subscribers - providing the upfront cash. This is a discussion about financial survival, not just user experience!
Then there's the issue of the content itself. Already, we've seen some of the biggest artists in the world withhold content from Spotify, either through flat refusals (Beatles, Led Zeppelin, Adele) or perilous windowing delays (Coldplay, The Black Keys). All the tens of millions in licensing costs can't force these artists to play ball, yet it's not even an issue over on the iCloud. As one executive at a Spotify rival put it, "we're not sure if that's gonna work."
Maybe this isn't a Super Bowl, in fact there's a good chance it's not a winner-takes-all game. But it is a game that requires huge amounts of cash and lots of time to survive, especially since major label licensing periods eventually expire, again and again. Apple has tens of billions of dollars and patience, they can survive, adapt, remodel. Spotify has investors that want a return and major labels that are desperate for cash.
And remember, if the chips are really down, Apple can make this all free. Just like Google.
/paul.
Comments Closed
Pat Tuesday, January 24, 2012
I can see why some of the big record labels are still witholding their product. In other post, you showed how poorly, or not at all the artist were going to be paid. Why would they want to open up their music if they weren't getting paid??
@travisbernard Tuesday, January 24, 2012
Very interesting read.
alex Wednesday, January 25, 2012
Food for thought, but definitely apples and oranges, you're comparing a cloud locker with a streaming service. It's like comparing youtube to rapidshare.
I think the fact the majors have shares in spotify makes it far more likely to succeed in the long run and the fact that they haven't turned a profit yet is a red herring. They are in a growth stage, pumping all of their cash into expanding into new territories. They are a VC's wet dream and I can't see them running out of cash any time soon.
IrishRogue Wednesday, January 25, 2012
The Music Industry needs to wake up and rather than chase the pirates,use that time and money to focus on collaboration between the Major Labels and licensing music online. They also need to build a relationship back with customers especially those who file share.
The likes of Spotify are trying to provide a legal service and as this article points out, the industries greed, is preventing this. Perfect example of this is the lobbying of SOPA!! Now other industries are learning from the Music Industries mistakes and providing valuable legal services i.e. Netflix.
People are willing to pay for a service thats fair and they get value for their money. Instead you get a huge Beatles music fan, whos also been downloading music illegaly for years. He dicides hes going to set up an account with Spotify only to find he cant listen to one Beatles song. However in a matter of 20 minutes this person can download the whole beatles catalogue illegaly! and have it anytime he wants??
For years the Industry had complete power! and charged over the top prices for albums! Now the tables have turned. There never going to stop illegal file sharing, as its proved in the past it will continue to be one step ahead and adapt to any changes. What it can do is convert the majority of Music lovers into paying for the Artists they love at a fair price!! and provide quality services and distribution channels!
And in the words of the great Neil Young
"Hey hey, my my
Rock and roll can never die
There's more to the picture
Than meets the eye."
Fjes Wednesday, January 25, 2012
Spotify has the advantage of being owned, partially at least, by the big three. In Norway (and Scandinavia), we're further ahead in the progression of Spotify, and we have an alternative called Wimp (much the same, but no free version and more focus on the national scene). The royalties are increasing fast, and we're at least back to the income as it was in 2005. Together, Spotify and Wimp generates more revenue than iTunes and the other 13 digital music shops does in total - and it's increasing.
The difference between iCloud and Spotify/Wimp, is that iCloud demands user interaction on another level than entering an artists name and pressing play. In the off case of an album not being available for streaming through the general service in Wimp, you can just buy it with a click (Led Zeppelin/Coldplay etc., goes on your phone bill), and it will be available on all your devices - no matter what brand it is. I think Apple was too late this time - I have at least not heard anyone talking about iCloud for music here.
nathanJE Wednesday, January 25, 2012
Michael Robertson:
Why Spotify can never be profitable: The secret demands of record labels
Imagine a new hot-dog selling venture. Let's also say there's only one supplier to purchase hot dogs from. Instead of simply charging a fixed price for hot dogs, that supplier demands the HIGHER of the following: $1 per hot dog sold OR $2 for every customer served OR 50 percent of all revenues for anything sold in the store.In addition, the supplier requires a two-year minimum order of 300 hot dogs per day, payable all in advance. If fewer hot dogs are sold, there is no refund. If more than 300 hot dogs are sold each day, payments to the supplier are generated by calculating $2 per customer or 50 percent of total revenues, so an additional payment is due to the supplier. After the first two years, the supplier can unilaterally adjust any of the pricing terms and the shop can never switch suppliers.
Would this imaginary hot dog establishment be able to generate a profit? Never, because the economics are one-sided. The supplier will always elect the formula that captures the largest amount of money for themselves, completely disregarding the financial viability of the store. If the store miraculously managed to generate a profit, the supplier would simply raise the rates after two years.
{worth the read}
http://www.michaelrobertson.com/archive.php?minute_id=358
gaetano Wednesday, January 25, 2012
This is kind of an interesting thought, but in the end Itunes Match is just a completely different beast from Spotify.
Knowing Apple, they'd sooner wait till Spotify was on the chopping block, then buy them.
Honestly, if that were to go down things would be very interesting in regards to the power struggle between the labels and Big Tech (but really just mainly Apple).
buying Wednesday, January 25, 2012
you're going to see Spotify, Rhapsody, MOG and/or Rdio get bought in the next couple of years, whether it is Apple, Google, Verizon, Comcast or someone. The one's that don't burn through cash will stand solo. MOG has no money, Rhapsody has debt and is far behind internationally, Spotify is owned by VC's and majors and will be the first to get flipped if they don't show they are profitable soon and no one knows what Rdio is.
gaetano Wednesday, January 25, 2012
Agreed,
One of my biggest fears would be that Spotify got gobbled up by the majors. I want to think that Ek and co would look at someone like Apple and realize that right now they have the majors by the balls, and if they decided to somehow get them on board it would tip the scales in a different direction.
I guess that begs the question of whether labels, artists and their art are better off being beholden to Tech companies or the dying old guard...
All things considered I'm gonna go with the former.
Then again, twitter has been turning over investors for years now without ANY idea how to monetize, Facebook hasn't gone public yet, and there are a lot of rich people willing to dump their funds into concepts they deem potentially profitable...
What was that one recent startup that shit the bed before even getting out of the gate again??
Yves Villeneuve Wednesday, January 25, 2012
croels Wednesday, January 25, 2012
And that is the reason why I left the digital music industry. At the end of the day it's Apple, Google and Amazon cash against debt ridden independents (Spotify, Mog, Juke, etc.). Guess who's going to survive?
And it's all thanks to the labels, the hotdog analogy is spot on as I've experienced for the last 10 years.
@FnkShui Wednesday, January 25, 2012
I'm pulling for Spotify to figure it out and succeed.
@shawnragell Wednesday, January 25, 2012
46 billion reasons?
Well maybe just one reason: financial stability.
Pat Wednesday, January 25, 2012
OUR SPONSORS
© 2011 All Rights Reserved
Follow Us