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@TaylorSwift13 Thinks Outside the Stream to Bridge the Value Gap

November 25, 2017 Comments off

There are several myths about streaming, but none so prevalent as the “savior” trope, which streaming services are doing their best to splice into the DNA of the music business.  Without streaming, we are told, then piracy: “Streaming stops piracy”.  Piracy, of course, is a constant, and is factored into sales these days as a limiting factor.  Also factored in is the cost of the faux legality of piracy on DMCA-protected services which also must be managed in order for windowing to work.

Streaming is now baked into the charts, which is the first step to becoming a self-fulfilling prophecy: “Streaming is radio”.  Artists must stream or be lost:  “Windowing punishes fans” (just like selling albums “punishes” fans).

All these myths ignore the basic proposition that windowing, exclusives and other contract based rights are simply ways to divide up our property rights–no more, no less.  And contracts take two to tango–if the deal is bad, no one will take it which undermines the myth.  And like all myths that fall apart when reality diverges from dogma, the curia fights back.

Given Spotify’s monopoly, or certainly dominant, position in their streaming market, it should not surprise that they push all of these myths, and they seem to do it like clockwork whenever Taylor Swift releases a new album.  Why?  Because Taylor Swift has four–count ’em–four albums that sold over one million copies in their first week of US release.  And–she’s the only artist ever to have done so.  And–she windowed every one of them, pre and post Spotify’s US launch.

Title Year Sales
Reputation 2017 1,290,000
1989 2014 1,287,000
Red 2012 1,208,000
Speak Now 2010 1,046,000

Let’s be clear–any distributor getting a Taylor Swift record in the fourth quarter sure makes up for a multitude of commercial sins in their year.  At least that’s true of profit-making companies whose executives actually have consequences for commercial sins.  Loss-making companies, on the other hand, are not motivated by pesky things like profits if they are on the “get big fast and exit” track.  You may say, oh, that’s so 1999, surely they have learned their lessons from the Dot Bomb debacle.

Nah.

The exit is still the thing for these venture backed tech companies.  The problem with exits is that the people who are only in it for the money move on to self-driving cars, climate default swaps, bitcoin or whatever.  People who are in it because they love it are stuck with the consequences.  The music business will be picking up the pieces from the streaming exit for decades because of a simple logic:  You cannot take away something that sold at a $10 price point and replace it with something that “sells” at a $0.005 price point and expect to have a business.  Remember–the trendline since 2008 is predominantly flat so while streaming may be a bigger piece of the pie, the pie itself is not growing much.  That’s cannibalization.  We’ll see how much that trend changes this year–and how much of that change is Taylor Swift.

Recorded Music 1973-2016

Source: RIAA

It must be said that there’s a real question of how many Taylor Swifts the business will sustain going forward if we don’t listen to the lesson she is teaching for those who care to pay attention and think outside the stream.

Remember that salted in the 1,290,000 units that reputation sold in week 1 are quite a few units that were sold as a fan package on an exclusive–there’s that word again–at a higher price point than the general release CD.  That should mean that the gross revenue to the distributor conservatively averages around $8 after discounts or something like $10 million in distributor gross for the week (in the US alone).

Producing that amount of streaming revenue would require approximately 2,000,000,000 streams in a week depending on whose average streaming royalty you buy into.  “Call It What You Want”, Taylor’s first single from reputation, entered HITS song revenue chart at #4 with 9,259,698 streams earning $66,186 (a chart with revenue metrics I have a quibble with due to averaging of free/sub streaming revenue, but that’s another subject).

Regardless of the underlying math, you can see that there is no way that streaming is going to put much of a dent in the revenue from the physical release.  If you are in a future oriented profit making business and not an exit oriented loss making business, you like those numbers.  Why?

Because it tells you that you could probably keep doing this for a while.  That’s called a career, and it’s what managers were supposed to foster.

How was this received at the dominant streaming platform?  Spotify hired the former Lady Gaga manager, Troy Carter, as its “global head of creative services” reporting to one Stefan Blom.  (Mr. Blom was formerly chairman at EMI Nordic, but songwriters will recognize Mr. Blom as the Spotify executive who can’t seem to find millions of songwriters despite Spotify’s vast technical abilities and signs Spotify’s “address unknown NOI” filings with the Copyright Office denying royalties to millions of songs.)

Mr. Carter did not take well to Taylor Swift’s decision to hold the reputation album off of Spotify (notwithstanding reports of Spotify’s recent agreement to accept windowing as a condition of closing its Universal license).  Variety reports:

Taylor Swift’s decision to keep her new album “Reputation” off streaming services like Spotify will drive people back to piracy, said Spotify’s global head of creator services Troy Carter at the Internet Association’s Virtuous Circle Summit Monday morning. [The Internet Association is antagonistic to artists as a general proposition.]  “A lot of it is going to be pirated,” he said. “It kind of sets the industry back a little bit.”

However, Carter also said that he understood Swift’s decision: “Taylor is super smart. We are not mad at her for the decision she made,” he said. Swift and Adele, who sold millions of copies of her “25” album while waiting seven months to release it to streaming services, are among the few artists who can withhold an album from such platforms without significantly impairing its exposure.  [Emphasis mine–note the “among the few” rationalization of the “streaming is inevitable” narrative.  If you shame everyone away from windowing, how will you ever know that it’s a “few”?]

Carter, who managed artists including Lady Gaga and Meghan Trainor before joining Spotify in 2016, was also critical about the music industry’s past business model. “We screwed over consumers for years,” he said, arguing that consumers were forced to buy highly priced albums for years that only included one or two songs they wanted. Carter drew a direct line from this attitude to exclusives on streaming services.

So we have Mr. Carter trotting out several myths at once here–although it must be said that Mr. Carter’s former employer from 2007-2013 is herself not without experience in the rarified air of the First Week Million Club–Lady Gaga herself has one record in that group with her 2011 release, Born This Way.  Of course, with its May 23, 2011 release, Lady Gaga did not have to address the Spotify new release windowing issue as the service had not yet launched in the US at that time.

Even though Mr. Carter was clearly wide of the mark with his advice to Taylor Swift, his messaging was a vast improvement over Daniel Ek’s mansplaining to Taylor on 1989 which was one of the more bizarre public encounters between an artist and a retailer in history.  Can you imagine Tower Records chief Ross Solomon saying any of these things in public?

I still hold the view that the windowing issue changes depending on whether the artist concerned has a fan base that wants their physical record.  If they do, then streaming services become like record clubs.  Nobody ever wanted the clubs to get their record until they’d had at least a 90 day holdback, more frequently 6 months or even a year.  So it is with streaming services, including Spotify.

The bigger questions are what effect windowing has on the ability to sell physical at all.  I’m still waiting to see the consumer research suggesting one drives the other, and based on industry revenues over time, it seems far more likely that streaming cannibalizes physical.  Another question is how much elasticity is there in the subscription price?  If we are expected to welcome low margin streaming as a replacement for higher margin physical and downloads, please don’t tell me that the answer is we’ll make it up on volume, t-shirts or touring.

For now, we have to acknowledge that for artists who anticipate large sales of physical and permanent downloads, singles-only streaming releases combined with physical sales is probably the principal way their distributor can afford to breach the value gap and send enough DMCA notices to keep the album off of YouTube.

 

 

 

Good News: Big Machine TV

January 19, 2017 Comments off

MTP readers know I take a dim view of the music business (and the larger entertainment industry) falling over themselves to drive traffic to YouTube.  Big Machine is taking a major step in the right direction to protect their artists’ brands from being used to hand Google negotiation leverage on a silver platter.  This trend won’t reverse itself overnight, but Big Machine is to be applauded for having the foresight (per usual, frankly) to set the right strategy for the industry.

Here’s the press release:

Big Machine Label Group will soon launch a proprietary digital video platform that gives fans direct access to content featuring the label’s superstar roster of talent.  Big Machine TV (www.BigMachineTV.com) will offer music videos and behind-the-scenes content when it goes live in February, later hosting exclusive interviews, announcements, contests and more. All of the label’s artists, including superstars Taylor Swift, Tim McGraw, Reba, Florida Georgia Line, Rascal Flatts and Thomas Rhett, will have individual channels on the platform that allow viewers to seamlessly search for desired content for an immersive online fan experience.

The development of Big Machine TV comes just as Nielsen Music’s recent 2016 U.S. Year-End Report shows that music video streaming is up 8% year over year, reaching nearly 180 billion streams last year. Video viewership on the new BMLG platform will count towards Nielsen’s consumption charts.

“Big Machine has always pushed the envelope, and we found ourselves asking, ‘is there a better way’ when it comes to syndicating our online content, pushing it onto social media, protecting it and ultimately monetizing it at the highest rate possible to benefit our artists,” said BMLG President and CEO Scott Borchetta. “And the answer was ‘yes’. The Big Machine TV platform is an incredible tool to better serve our artists and their fans by delivering content when and how we want, all the while making sure the creators are compensated fairly.”

Big Machine Label Group has repeatedly been known for making groundbreaking moves among the music industry and in 2016 was named by Fast Company magazine as one of the “Most Innovative Companies” in America. In 2012, in an unprecedented deal, BMLG made history by working with Clear Channel, the largest owner of U.S. radio stations, to secure sound-recording performance royalties to the label and its artists. This became the first time in history that artists would get paid of their recordings on terrestrial radio stations.

Bit Torrent Logic: How Spotify Brought on Their Own @TaylorSwift13 Problems

November 6, 2014 3 comments

Is he mad? Anyway, there’s something on his mind, as sure as there must be something on a deck when it cracks.

Moby Dick, by Herman Melville

When you look at all the sanctimony that Spotify has ginned up about Taylor Swift’s withdrawal from the service, only the erudite Ben Sisario has put his finger on the real reason:

In the past, Ms. Swift has employed a “windowing” strategy for streaming services, withholding new material for a while to spur CD and download sales; Adele, Coldplay and Beyoncé have done the same. With “1989,” however, Ms. Swift and her label, Big Machine, went further, removing her entire catalog from Spotify and putting the streaming service on the defensive.

The dispute with Spotify — whose pitch to subscribers is largely based on its ability to deliver the music people want to hear — appeared to have arisen from a disagreement over how her music would be offered there. Spotify has both free and paid tiers, and Ms. Swift and her label wanted access to her music restricted to its paid version, which provides higher royalty rates.

Spotify denied this request, so last week, Big Machine asked to have her entire catalog taken down, according to three people with knowledge of the discussions who were granted anonymity because the talks were private. In a statement this week, Spotify defended its business model and said that Ms. Swift was welcome to return….

Other streaming outlets like Rhapsody, Beats Music and Google Play Music All Access have kept Ms. Swift’s catalog, because they agreed to keep her music out of free tiers, or offer only paid versions. (emphasis mine)

Naturally this issue was clearly disclosed in Spotify’s first blog post on the subject, right?  No, actually not a word.

On Taylor Swift’s Decision To Remove Her Music from Spotify

We love Taylor Swift, and our more than 40 million users love her even more – nearly 16 million of them have played her songs in the last 30 days, and she’s on over 19 million playlists.

We hope she’ll change her mind and join us in building a new music economy that works for everyone. We believe fans should be able to listen to music wherever and whenever they want, and that artists have an absolute right to be paid for their work and protected from piracy. That’s why we pay nearly 70% of our revenue back to the music community.

PS – Taylor, we were both young when we first saw you, but now there’s more than 40 million of us who want you to stay, stay, stay. It’s a love story, baby, just say, Yes.

No, Spotify pushed out squid ink about “building a new music economy.”  Not by converting ad supported users to subscriptions as it turns out.  No, the “new music economy” that Spotify has in mind is the free service.  Because that’s why Spotify blew the deal.  And it is this obsession that is going to be Spotify’s downfall.  Well, call me Ishmael.

daniel-ek-spotify-ceo-2012BilloardSPOOF 2

So let’s get this straight.  When it first started, Spotify induced artists to take an extraordinarily bad, non-transparent and unsustainable royalty deal on the free service with a promise–Spotify will move users to the premium service quickly because the the free service pays those horribly low royalties with no minimums.

How might you get users of the free service to take the premium service?  Here’s an idea.  Give them something they want that they can only get on the premium service.

You know, like a hot new album.  You know, like, oh, I don’t know.  Taylor Swift comes to mind.

That approach certainly made sense to all of Spotify’s competitors, but not to the Cult of Spotify.  No, the Cult of Spotify wanted it their way or the highway, and they were so sleazy about it that they would not respect the artist’s wishes when she said no.  Then they were REALLY sleazy by launching a PR campaign against her without disclosing to their buddies in the press that the problem that Spotify has with Taylor Swift is one of Spotify’s own making.  

So why would Spotify do this if..the..point..is…to…drive…up…premium subscriptions?    Wouldn’t you think that Spotify would want to take the same deal that all their competitors took?  If that the point was paying higher royalties on the premium service?  I mean, selling subscriptions?

What would make it worth the risk of attacking an artist in public because she wouldn’t take the hillbilly deal?

I have no idea what the brain trust at Spotify came up with to justify this cult-like public shaming on a level we haven’t seen since Napster (with the possible exception of Bob Lefsetz’ attacks on Lily Allen).  But if I were going to play “Name that Fear” for Spotify, here’s one that seems to fit.

What if they all did it?

And by “they” I mean all the big releases?  That would be logical, right?  People at labels will say, “I want more of that” because their jobs depend on actually selling stuff.  They have to justify marketing campaigns for the new releases.  And what drives users to streaming services is the marketing campaigns behind the records that the artists record and market.  And that marketing spend is justified by sales.  It will never be justified by royalties from the free service at Spotify (or Pandora for that matter).

If Spotify can’t convert those users to premium subscribers fast enough to justify the marketing spend on the records that Spotify needs to compete, then remember this:  Nobody owes Spotify a living.  The other services seem to be able to cope with this situation just fine, maybe because they understand the basic rule:  They need hits, and hits don’t need them.

So if artists begin thinking that they want to do what Taylor did and just release their titles in the premium services, then the labels will begin to have an artist relations problem, which is always a good reason to not do something.  Particularly if the thing you’re not doing is economically stupid in the first place and the artists–your partners–are correct.

The next logical step after pulling all new releases from the ad supported services is to pull all releases from the ad supported services.  And if I had to guess, that’s what’s driving Spotify’s orchestrated attack on Taylor Swift (and why Google would be happy to use Spotify as a stalking horse, but that’s another story).

We can be glad that there are actual..whatchamacallit…journalists, that’s right.  That there are actual journalists like Ben Sisario who actually get the story and don’t just write the press release.

It is also not to be forgotten that Big Machine did an excellent job of working the take down notices which essentially made piracy more manageable on the “1989” title.  So if the reason that Spotify gives for even having the free service is largely managed, then why use the free service at all.

For anything.

And if Spotify doesn’t like where this is heading, then they need to find a new gear on that premium service conversion problem.

This experience also raises an issue for another “exposure” enthusiast, Pandora.  More about that later, but one would think that the CRB would be interested in knowing what happens in the market when an artist doesn’t take the hillbilly deal.

So the Cult of Spotify has now created yet another problem for themselves after the string of artist relations debacles on what was to have been a charm offensive tour in New York, Nashville and Los Angeles.  Who would want to do business with some tech company that attacks artists when the company doesn’t get its way?  Sounds like Bit Torrent logic to me.

PS After posting this, I found a great piece by Stuart Dredge on Music Ally that also correctly identifies the issue.

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