Generating meaningful profit is a game the recording industry and streaming companies have struggled with in an era where libraries of songs are no longer stored on a user’s device but are instead broadcast over data plans. Money doesn’t circulate as easily, or even in the same directions, as it did in the years when buying songs for a buck on iTunes was the rage.
Spotify—streaming’s reigning king—has over 55 million users under its ad-supported model, and another 20 million users under one of its subscription plans. But the company’s hopes of converting a majority of their free accounts into paid ones might be nothing more than a pipe dream. Critics point out that those 55 million Spotify users are essentially getting free music, and while the freemium business model has worked in areas like mobile gaming, when it comes to streaming music and the amount of people who need a cut of the royalties—record companies, singers, songwriters, musicians, and more—relying on advertising isn’t the best business model. The existence of the free tier famously prompted Taylor Swift to remove her music from Spotify altogether last November. “Valuable things should be paid for. It’s my opinion that music should not be free,” she wrote in a letter in the Wall Street Journal.
Swift’s recent beef with Apple over a proposed deal that would give consumers a free three-month trial of Apple Music but wouldn’t have given a dime during that time to anyone involved in making the music made the $700 billion company change its tune. Swift wasn’t the only voice to express troubles with Apple’s streaming contract. Some indie labels considered not signing the contract, instead opting to wait until three months after Apple Music’s launch (when the trial period would have expired for Apple Music’s thousands of early adopters). It was the tag-team of indie labels’ reluctance to sign up, coupled with Swift’s widely shared blog post, that likely pushed Apple’s change of stance on their trial contracts.
In doing so, Apple Music became the only streaming service to carry Swift's coveted multi-platinum 1989 album. Though her departure wasn’t a nail in Spotify's coffin, Swift’s decision to ditch Spotify because of its free tier, but leaving her music up on streaming services where “free” isn’t an option, is a glimpse of how streaming companies are going to distinguish themselves in the coming years—with exclusive content and how much they bundle within their pricing tiers, not unlike what’s happened in the streaming movie industry. Tidal has been the most aggressive at promoting its exclusive content, thanks in part to its star-studded cast of celebrity co-owners, but even landing Rihanna’s "Bitch Better Have My Money" and "American Oxygen" before other services hasn’t attracted users in numbers that would worry competitors. Oh, and both tracks eventually showed up on Spotify.
Tidal, Apple Music, Spotify, Google Music, and Rhapsody all offer subscriptions at $9.99 a month (reports say that Apple wanted to set its base subscription tier at $5, but record companies weren’t down with a price that low), and with tens of millions of songs at their disposal, it’s going to become a battle of what music is available where, and for how long. Companies may not even have complete control over what stays exclusive, regardless of whether competitors make moves to obtain that music. Take, for example, Lil Wayne dropping the Free Weezy Album late last week. It stayed Tidal-exclusive for about as long as it took Internet users to find a way to get it through less-than-legal means. Poof—there went Tidal’s ace in the hole. Hey, Tidal still has Prince, but then again, Google Play has him, too.
While one album might be easy enough to rip, the key for services might be in locking-in entire catalogs of music, which would be more laborious to download. Of course, money talks, and Apple has the most resources to make exclusive deals happen with labels—they’re the most valuable company on the planet. (It was rumored that Apple wanted to pay Drake $19 million to join its team.) Yet, where Spotify has the advantage is that, considering its massive active user base, paying users may want to keep their money with Spotify if only because they’ve built dozens of playlists already (god knows I have plenty). So, don’t expect any streaming services to make transferring your data to a competitor as easy as taking your Safari bookmarks over to Chrome. (Leave that to third-party apps.)
MUSIC EXCLUSIVITY MAY BE THE FEATURE THAT MAKES OR BREAKS A SERVICE.
Until these types of deals start appearing, there won’t be a lot of room to gain leverage over competition outside of exclusive features like blog posts from artists, curated playlists, and other features that might entice a certain amount of users who want more than just music. But overall, it’s about what service can give you what you want when you want it. At some point, none of these services may be able to do that. It’ll be like hoping you can get Game of Thrones on the same service you get Orange Is the New Black. Ready to dish out for two services a month? Didn’t think so.
Right now, Google Play Music offers one major feature that Spotify and Apple Music haven’t even hinted at including: It lets you upload 50,000 of your own songs to the cloud for $10 a month, in addition to the 30 million songs up for streaming. For some reason, this killer feature hasn’t caused as much as a stir as Swift not being on Spotify. Music exclusivity may be the feature that makes or breaks a service.
One of the reasons streaming took off, and the industry initially embraced its arrival, is because it helped combat piracy. According to reports, there’s a link between streaming’s rise in popularity and a decline in music piracy, but it remains a nagging problem for the industry. If streaming, in turn, becomes a nagging problem for users thanks to deals that break up artists from service to service, will consumers pirate whole catalogs of their favorite artists as they did during the rise of Napster? The climate has changed, so not necessarily.
If you signed up for Spotify in 2011 when it first arrived in the U.S., you’re probably not as dependent on your home music library today as you were four years ago. Part of the appeal of having music (or any type of data, for that matter) in the cloud is that it’s convenient, and unless you’re using Google Play to upload your songs, the bulk of your home library is staying right where it is unless you can squeeze it into your phone. Yet as data hungry as we are, we’re just as thirsty for space on our hard drives (more room for selfies), and part of the attraction of streaming is that it saves space on our devices. The iPod is dying out thanks to smartphone data plans.
Say you feel like listening to Prince, but you subscribe to Spotify, where he’s no where to be found. You’ll have to turn to piracy, right? Not exactly. Think about this: the most popular “music service” on the planet comes in a neat little package called YouTube. How many times in the past month has a song popped in your head, and you pulled it up on YouTube if it wasn’t where you initially searched? You listen to the song, replay the video a few times, and that urge to pirate disappears faster than it took you to hit skip on that Budweiser ad. Pirating music is easy—and people will do it—but streaming is just easier, and more satisfying, for many of us.
Critics may be right that a “free” option isn’t one that will work for the benefit of all the players involved, and it’s changed not only the way we consume music, but the way we (the customer) value music. People I talked to recently—friends, dates, family members—said they didn’t feel like paying even the $10 Spotify base price for streaming music when a free option is available. The consensus was, so what if there are ads? It’s not like anyone over the age of 20 didn’t spend years listening to them on the radio. Looking at Spotify’s user numbers, they’re not alone in this thinking. For better or worse, I’m one of them. “Free” is just too appealing when you already have a handful of bills a month. If Spotify’s free option disappeared tomorrow, I might change my mind. But as long as that option is available and my favorite artists are on board, I’m not losing sleep over it.
While piracy is still a formidable problem (some reports list the music industry’s losses due to piracy each year at $12.5 billion), it's not likely that illegal downloading will return to its mid-2000 numbers, when 20-percent of the U.S. Internet population downloaded music illegally (it’s since dropped about 10-percent). As streaming services continue to battle over content—and artists end up here, or there—those who still pirate won’t have much of an incentive to sign up. And streamers will be left in a digital Goldilocks and the Three Bears-style choice between services—this one’s too hot, this one’s too cold—before they end up picking a service they’re content with, but not entirely happy with.
Until artists, labels, and the industry as a whole are happy with the direction streaming is going (or until they strip away Spotify’s dominance and its free tier along with it), we may be stuck with a watered down version of what the streaming revolution could have been.
Jason Hahn is a writer living in L.A. Follow him @jasonduaine.