Ari Shohat is the founder and CEO of Digitally Imported, an online radio service with over 3.8 million monthly listeners.
Transforming premium service: Three ways music services can cash in on their most valuable listeners
The top digital music services are still struggling with a very basic problem: How to get listeners to pay for content. While there will always be users who prefer a free option, there are many listeners who, if given a more enticing option, would invest in a richer experience.
The era of the free ride is over
Analysts have described the current business model for streaming music as “inherently unprofitable,” and recent earnings reports underscore this point. Artists, songwriters and music services alike are dissatisfied with the current financial structure of the online music industry.
It may seem like users are the only ones coming out ahead, but they are also suffering – some in terms of cost, and all in terms of quality.
Inverting the online music value proposition
Because so few users have a financial stake in the current online music market, users’ needs are largely overlooked. Most services cater to a huge base of free listeners, who are getting exactly what they pay (or don’t pay) for – A “Do-It-Yourself” experience that lacks cohesion, consistency, diversity and direction. Meanwhile, paying subscribers get relatively little bang for their bucks.
In order to evolve the online music business model toward profitability, the current value proposition must be inverted: Free and illogical pricing models, commonplace technology features and homogeneous, overplayed content need to be replaced with dramatically superior experiences. Once this shift begins, a growing base of premium subscribers will vote with their wallets to steer music services toward greater innovation and more balanced pricing.
What are users willing to pay for?
1. Human Sensibility:
When done right, human curation is perhaps the highest value any music service company can add to its offering. Along with Digitally Imported, other services have strongly embraced the value of the human touch, including Apple, as evidenced by its strategy with Beats Music.
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Recognizing the value of the human touch, some music services are striving to imbue song selection algorithms with more human-inspired traits. By achieving a more “human” experience, they hope to build the value of their offerings and attract morepaid users, a strategy that continues to fall flat.
The problem with this approach is two-fold. First, human curation is defined by individuality, artistry and imagination; there is simply no technology that mirrors these traits.
Second, many music services are missing a crucial step – drastically reducing the overall size of their music catalogs – before song selection begins. Track quantity, once considered a selling point in digital music, has been replaced by track quality. Continual, intensive human editing of the full catalog is the backbone of successful curation. Algorithms laid on top of bloated, unwieldy music catalogs are doomed to dredge up low-value content and disappoint listeners.
2. Scarcity:
Beyoncé’s 2013 album, released exclusively on iTunes, sold a record-breaking 828,773 copies in three days. When access to desirable content is restricted, even for a relatively short period of time, there is a much higher likelihood that users will pay for it.
The power of scarcity is not limited to big-name artists. At Digitally Imported we stream more original, exclusive and first-to-air content than any other online music service, and feature both well-recognized and up-and-coming artists and DJs. Some of this content becomes more widely available after the negotiated exclusivity period ends, but in the meantime, our high proportion of exclusive shows and mixes boosts total listening time and builds loyalty, contributing to our 90% renewal rate among paid monthly subscribers.
3. Discovery:
The prevailing approach to content discovery is fundamentally flawed: User-driven personalization merely reinforces existing habits, rather than diversifying and deepening content selection.
Of the 25 million-plus available digital tracks, only a tiny fraction is of high value to a listener at any given time. Counter to common practices, the most popular music should not dominate users’ limited listening opportunity. Rather, it should be continually moved out of rotation, making room for discovery of new content.
Expert curators, much like traditional radio and club DJs, are the best resources for tapping into trending music, filtering out stale content and resurrecting vintage tracks at the right moments. The resulting experience is authentic, entirely unpredictable, and a perfect balance of fresh, familiar and revived content.
Each act of discovery offers listeners a unique thrill, whereas hearing the hottest hit becomes less exciting with each repetition. Music services will earn more listener loyalty and premium subscribers by cultivating a sense of musical adventure than by recycling overexposed tracks.
Music services: It’s your move
The current financial structure of online music is a pressure cooker. Music services have created a vicious cycle, relying on free offerings to entice rapid user growth, and in turn pressuring the creative community and a small base of paying users to render this model viable.
In reality, this pressure is facing the wrong direction. Rather than pushing artists and songwriters to lower the cost of content, music services must challenge themselves to evolve in order to compel more listeners to invest in experiences they care about. This may be easier said than done. But unless these companies have endless resources to counter mounting financial losses, climbing the value chain is the only way out of the red.
Photo by Björn Olsson on Flickr used with the Creative Commons License
Whatevs. This is why I send WFMU a check every year. YMMV.
Thanks for nice article.
Your point 3 above just hints what Radio and streaming DJs could do to the revenues if both entities would operate as a music store! They can stretch the spectrum of music that is brilliant to many and would always bring cash as they serve the goods.
Hey Google, only you can do it, convert Radio and streaming to PRIMITIVE music store NOW!
It will deliver $100B music industry and double Google.
Is anyone gonna mention how smart it would be to lose ‘On-Demand’ streaming? Creating unique streams to millions of people is a money pit.
Is anyone gonna mention how smart it would be to lose ‘On-Demand’ streaming?
Why stop there? Let’s go back to pre-internet access methods. While we’re at it, let’s raise the prices – it’d be smart to charge $100 for an album instead of $10.
The answer isn’t being less responsive to the market and consumer demands – the answer is finally starting to be more responsive to them. Now, I know that’s not something the big players in the industry are super comfy with, but that’s where the money is going forward.
Creating unique streams to millions of people is a money pit.
No. As implemented by Spotify, Pandora et al, yes; but necessarily a money pit? No. Not even close. Contact me at repx.net if you want – we can talk maths 🙂
No. As implemented by Spotify, Pandora et al, yes; but necessarily a money pit? No. Not even close. Contact me at repx.net if you want – we can talk maths 🙂
But what’s your security like Sarah?
When hosting peoples masters and property on your servers, what sort of security are you implementing to help ensure you won’t be hack and everything stolen?
Will you even be running your own servers??
Plum Minnow Publishing:
But what’s your security like Sarah?
Excellent. We have a LOT more to lose than you do in the case of a hack (basically, you know, years of full-time work and effort on this, lots of money, ruined reputations, having to start over from scratch with nothing, yada yada yada).
The coolest thing about RepX is that, by design, our incentives line up perfectly with yours. From security to making money: you do well, we do well; you don’t do well, we don’t do well.
You can ask my co-founder Grant, though, he’s the tech wizard and he’d be happy to explain to you in detail why your stuff is safe with us. Nothing is guaranteed, of course, and I won’t try to say “there’s no way anything could be hacked” (my partner was a big time hacker even before the internet was a thing – everything can be hacked, given enough time, persistence, and resources) – but we go above and beyond to make sure the probability is very low, so you have to determine whether it’s an acceptable risk of doing business. This particular risk is one you can’t fully eliminate, you have to minimize and manage it as well as possible.
Plum Minnow Publishing:
Will you even be running your own servers??
Yep. Already are, in fact, and we’ll build them out appropriately as we grow.
Sarah, Music industry is run by artists or ex A&R guys. The only businessman on the horizon inside of music industry is Len Blavatnik but he is not hands on. To many ventures in the POT.
This is the main reason why music is not MONETIZING!
Larry Page is the best guy, if not the only guy, to “shake it up” and deliver the GOODS!
1) “Human Sensibility”
What the actual heck is this? It doesn’t even make sense.
“drastically reducing the overall size of their music catalogs”
Seriously? How is this ever going to work?
Well, I agree with the point that a music service does not need a Spotify-size catalog to succeed.
When digital content first became a thing, not everything was available digitally. Therefore, it made sense that services competed on the amount of digital content – when it’s hard to find what you want, a service that has more content (and therefore more chance of having what you want) is better than a service than has less, simply because it has more.
But now everything is available digitally – we’ve swung to the other extreme actually: there’s an almost incomprehensible amount of content available. There’s no way any one person could meaningfully consume even a large portion of what’s available.
When it comes to size of catalogs, there are diminishing returns. Up to a certain point, bigger is better; after that point, each addition is worth less – potentially even to a point where further additions can actually decrease the value of the service by creating an unpalatable degree of noise for the consumer (plus that tyranny of choice stuff).
What’s the optimal amount of content for a service? Impossible to say with the data available. Reason, however, tells us that the optimal amount is probably less than 80% of the content available on Spotify (approx 20% of their catalog has never been played, therefore presumably is irrelevant to the value users place on the service).
Specific content probably matters more than sheer volume, as well. A catalog of, say, 1-2 million songs that meet some criteria around popularity and timeliness would likely be more than sufficient for most consumers, and present a better matching of the “product” with the way they actually value and consume it.
Horseshit
+1
The forum is something else
Public Service Announcement
rpymzk4 dot herokuapp dot com
$100B Remi?
I’m guessing no one was able to decipher this post. This is pretty damn interesting.
Not bad but he’s certainly wrong about one thing.
“At Digitally Imported we stream more original, exclusive and first-to-air content than any other online music service, and feature both well-recognized and up-and-coming artists and DJs.”
Uhh…mixcloud, beatport, thefuture, even plumradio is brand new and still matches or beats DI in terms of this. This guy should look closer at his competitors maybe.
This thing you point out is an example of what I described as “hor****it”.