Tidal Is Really Just a Ripple in a Larger Ocean

Posted on March 31, 2015 by adammarx13

The Basic Background

Yesterday, Jay Z and company relaunched Tidal, the new music streaming company that they’re convinced is “the future of music.” After a $50+M purchase of Tidal (in the form of Aspiro) last year, Jay Z has been bending our ears with how the rerelease of the new service will be the best thing ever for artists, revolutionize the music industry, provide the best listening experience…blah, blah, blah. Only it likely won’t do any of those things.

Not the First Anything

In order to understand why Tidal likely won’t make good on any of the things Jay Z and his companions have promised, one needs to understand how the music industry works. First, let’s get something out of the way that’s been bugging me since I heard it during the launch party last night: “Tidal is the first ever artist-owned music service.”

No it’s not. NoiseTrade has been around since 2006, and was founded by singer/songwriter (that means artist) Derek Webb. So already it’s clear that the Tidal team needs to do a better job of researching their claims before making them.

No, It’s Really Not “Artist-Owned”

Next, the phrase “artist-owned service” is nice and poetic, but it’s frankly wholly untrue in this respect. Let’s examine the laundry list of artists now attached to the Tidal moniker and company:

Jay Z – Signed to Roc Nation (which he owns, and which had distribution deals with Sony Music (2009-2013) and Universal Music (2013-present)
Rihanna – Signed to Roc Nation (see above)
Beyoncé – Signed to Columbia (which is owned by Sony Music)
Alicia Keys – Signed to RCA (which is owned by Universal Music Group)
Daft Punk – Signed to Columbia (which is owned by Sony Music)
Madonna – Signed to Interscope (which is owned by Universal Music Group)
Kanye West – Signed to Def Jam (which is owned by Universal Music Group)

I could go on, but you get the point. This is not the “first ever artist-owned music service.” Frankly, it’s not really even “artist-owned;” it’s “label-owned by extension.” Let’s call it how it is, and pretending that these major label artists are independent operators is to fabricate an ideal (but false) reality. While it looks as if these artists belong to a whole slew of different labels, as my previous post on major label monopolies shows, this is a misleading thought process as they are more or less all owned by the Big Three. If anyone thinks that any of these artists will have the power to do things outside the interests of the three major record labels, they’re dreaming.

(click photo for larger preview)

The Big Three Major Labels and Their Subjects

Basically the Same Layout

Next, let’s talk about why the business model of Tidal is fanciful and unrealistic. TechCrunch reported earlier some details demonstrating that Tidal’s layout and functionality are basically a ripoff of Spotify’s layout. From what I’ve heard, Tidal basically copped Spotify’s layout, changed the colors, and added a few tweaks—but it’s not really all that different.

Married to An Obsolete Business Model

In terms of business model, what seems to make Tidal the most different is its decision not to offer a free tier (as Spotify and most other music services do). Rather, they will offer a high-quality lossless music experience for $20/month, and a downgraded, “premium” lower quality experience for the same $10/month that Spotify and other services charge (which, by the way, is an obsolete business model anyway). Jay Z and others at Tidal are banking on the hope that the rabid music fans out there will want to pay more money for higher quality music, in addition to more exclusive content on the Tidal service first. While some music fans may in fact do this, it’s not a scalable hope because those fans are not the majority of music listeners.

Also, note that I said “more exclusive content on the Tidal service first“—which means it will definitely be available on other services too, just maybe a week or two later. And why not? Do you really think that the major labels who work with these artists are going to forego any revenue stream, just to keep Tidal more exclusive than the rest?? I don’t.

Tidal logo

So basically Tidal is going to offer the same major label music that is available everywhere else (including on non-music centered services like YouTube), but they’re going to nix the free tier (where most of Spotify’s conversions come from anyway) altogether and double the going rate for a monthly subscription. All the while, they will be aiming their service at a more niche market while providing non-niche music. Here’s my reality based on my experience in the music industry: high-fi, low-fi, it really doesn’t matter if your business model is outdated and your marketing strategy is insufficient for an overcrowded market. But yeah, this will definitely end well.

An Unscalable Model and Too Many Cooks in the Kitchen

Let’s move on, and I can’t believe no one has really focused in on this, especially those within the tech community (though it was mentioned a bit in the TechCrunch report): Jay Z has enticed these other major label names into becoming a part of this service not by offering them money up front, but by actually giving them equity percentages of the company. As reports that the equity numbers hover somewhere around 3%, this is an admirable shot by Jay Z. He’s trying to tie those artists’ respective loyalties to Tidal by making the service’s benefits their benefits. If Tidal does well and goes up in value, so do their stakes.

There are only two problems with this: 1) it’s not scalable, and 2) too many cooks in the kitchen. In an industry (tech startups) where founders are always told to limit the number of cofounders (the “too many cooks in the kitchen” nightmare”), Jay Z has amazingly disregarded the whole thought process and it seems no one has really noticed. What’s more, conducting company decisions in a “town hall” style is going to spell disaster for Tidal; you just can’t run a company like that. There needs to be one captain at the helm of a ship; any more and the ship will capsize. Also, keep in mind many of these artists don’t even work well with others in the studio—now they’re all going to run a company together? Right.

So to recap: unscalable business model and too many cooks in the kitchen.

More Dedicated to the Needs of Which Artists?

While I admire the desire by Jay Z and others to create a service that is more dedicated to “the needs and rights of artists,” let’s also be clear which artists those people are. They are not the artists the world-over who are coming up and trying to find their fanbases; they are the artists who already have legions of fans all over the world. We’re not talking about the girl from Minnesota who wants to be an R&B singer, or the punk band from Toronto who want to find their core fanbase. We are talking about (mostly) pop, rap, hip-hop, R&B, pop-rock, and other well-known stars who want to extend their control beyond their music to dip their toes in the music-tech industry.

I’m only critical because these are exactly the kinds of artists who really don’t need help right now. They have enough money, and even if they hop from label to label, their fans will follow. They have already found their fanbases and core listeners. It doesn’t matter which label or service they’re on, those fans will still find them and listen to their new albums and go see them on tour. So basically this is yet another rehashing of the same major label music that we’re already drowning in anyway. And while I’m a fan of some of these artists myself, I nonetheless am critical of what appears to be another desperate money grab. As the following screenshots demonstrate, though Jay Z and others may not see it that way, the point is that most of their fans will ( and do):

(click photos for larger previews)

Comment from BuzzFeed coverage of the Tidal release, number 1

Comment from BuzzFeed coverage of the Tidal release, number 2

Comment from BuzzFeed coverage of the Tidal release, number 3

Comment from BuzzFeed coverage of the Tidal release, number 4

Comment from BuzzFeed coverage of the Tidal release, number 5

If these artists really wanted to distance themselves from the major labels and the current music business dynamic, they would look for ways to explore other paradigms, rather than look for ways to make an obsolete system work.

In the End

In the end, I commend these artists for taking a step into a new arena, but I question their motives and the realities surrounding Tidal as a company. Personally, I think Jay Z way overpaid for Aspiro, and is seeking to build a service that really only artists (and that is to say a select kind of artist) will really appreciate and use. I don’t think that Tidal sets itself apart enough to really take over the demographics targeted by either Spotify, Apple Beats, or even SoundCloud. I think it’s a lot of bluster, but without any real solid business prospects. Only time will tell, but I think that Tidal is going to have a very tough time right out of the gate. We’ll see if Tidal is part of a rising tide, or simply another ankle-slapper service.

Four Music Industry Posts Refocused

Posted on March 28, 2015 by adammarx13

This week I threw a lot of notions and facts about the music industry out there, so I thought I would take a moment today to help refocus on them. Rather than write another post and add to the pile of important things to understand, I thought it better to simply restructure this past week’s posts in an easier, more digestible way of reading them. Here’s a short list for a few posts that went up this week, with a short description of each.

1. Two Stories of Sexism in the Music Industry – Two stories of my own experience that illustrate the sexism and gender inequality in the music industry that needs to be rooted out and eliminated. As with the tech industry, the music business has refocused and taken aim at gender discrimination, but these two short examples prove how things need to be better.

The sexism problem that needs to be solved

2. The Lie of “Live Won’t Save Music” – The wonderful adage of “Live won’t save music”—and why it’s a flat-out lie. The dynamics of the “live” factor in the music business (including the economic realities), and why “Live won’t save music” only applies to those artists and music professionals still grasping at the old, obsolete business model. An examination on how people need to restructure their thoughts on the music business if they want to be able to create a new, more lucrative business model.

3. Why Isn’t the Music Business Fully Crowdfunded? – Inspired by some things which I heard VC Fred Wilson postulate during the LAUNCH festival earlier this month. Discussions of the freedom that crowdfunding has allowed artists, and why it’s contributing to a trend towards staying independent. More than that, though, an examination of how artists can leverage the dynamic of crowdfunding for a better return in their own pockets.

4. Tell Me Again How There’s No Monopoly in the Music Industry – A simple chart that shows the incredibly monopolistic spiderweb of the major record labels and their subjects. With SONY in blue, Universal Music Group in green, and Warner Music Group in red, it’s not hard to see how three CEO’s (of these respective companies) essentially control all the music in the mainstream. If that’s not a monopoly, I really don’t know what is.

(Click for larger preview)

The Big Three Major Labels and Their Subjects

New articles coming next week. There’s a lot more in the music industry to uncover, and definitely a lot more than needs to be changed.

The Lie of “Live Won’t Save Music”

Posted on March 25, 2015 by adammarx13

The Introduction

Yesterday, I posted my second article inspired by Fred Wilson’s comments to Jason Calacanis during LAUNCH, wherein I focused on his comments about Kickstarter regarding the music and movie industries. The post itself became too long to explain the economics of the paradigm (of the music industry, at least), so I figured it would be better to do so here in a more focused post. So let’s jump in.

The Lie

In the music business, there’s a well-known adage: “Live won’t save music.” This is the argument that many within the established major label machine use to fend off the assertion that free distribution of music would actually help the music industry in the new digital era. The argument is that artists can’t make enough on a live performance to offset losses they would see by distributing their music for free. And in some cases this is true; income from live shows may not be able to offset those losses…for the major label artists, who have huge stage crews, large arena shows, and a long list of people to pay back (not least of which is their record label).

The Secret

What industry professionals don’t tell you is that live shows are where artists have historically always made most of the money that goes into their pocket. Money from album sales most often gets paid back to the record label and company, whose “signing” of the artist was simply a monetary advance in the first place. In 1993, well-known artist/producer Steve Albini took aim at the expenses squeezed from artists in his essay “The Problem With Music.” Excerpts from the essay clearly detail how the real economics worked behind the scenes.

The Simple Economics

This simple economic reality means two things: 1) That it’s true that major label artists like Beyoncé and Robin Thicke may very well have a hard time making any real money from live shows and will possibly need to continue to rely on the age-old system’s business practices, and 2) That newer, increasingly independent artists can leverage this new business dynamic to their advantage. Whereas their major label peers are essentially tied to the old system (and streams) of revenue, newer artists who are either fully independent, or have contracts with smaller indie labels which afford them more control, don’t need to sell 150,000 albums or fill an arena tour to make a profit. In fact, they will have an easier time of it, precisely because their “stage crew” many times may only consist of a friend from high school watching the merch table.

And this is where Wilson’s comment comes into play, and is exactly right; crowdfunding platforms like Kickstarter and Indiegogo provide a way for artists (both inside and outside the music sphere) to secure funding for that next tour without being on the hook for ~$400,000 in album distribution and tour expenses.

In fact, there are many artists now exploring the possibilities of free precisely as a way to use their music as a means of marketing to jack up the money they’re able to raise on sites like Kickstarter. By using their music as a “free sample” of their brand, artists are able to explore the dynamic of giving their prospective fans a reason to come out and see them live, buy a shirt, bring a friend—all things that are better for them than the money for one album sale anyway. Music is increasingly being used by these artists as major means of marketing and branding, rather than solely as an end commodity for sale.

You can’t argue with math, and here’s reality: How many times are you compelled to and/or do you buy a song or album? Just once. Why would you buy it again unless you had to? But if you examine the same dynamic with respect to going to a show, or buying a t-shirt, suddenly the answer is “as many times as you want.” It becomes a self-feeding cycle, wherein new possibilities are presented by the power of crowdfunding, and not having to go to a major label for the financing. It boils down to simple arithmetic.

The Album You Had to Buy Over and Over Again

It’s worth noting, also, that the established music industry got used to people buying the same album(s) over and over again because they had to. With each subsequent technological change, that Led Zeppelin album you loved so much became obsolete, and thus you needed to shell out more money for something you already had. Buying music on ’45’s became buying the same music again on LP’s, then again on cassettes, again on CD’s, and then again as basic mp3 files (usually off iTunes).

But something happened during that last transformation: music became distilled down to only the information, sans any physical product, and with the power and reach of the internet, distribution costs dropped to zero. Suddenly, the ability to reproduce and distribute music became the cost of 10 minutes of your time, and didn’t even require the kind of distribution networks that record labels had spent decades building, growing and protecting.

And who was it who lost out the most? The demographic that gleaned most of their revenue from physical album unit sales—the major record labels. But the artists now had a new reality in front of them: mass distribution, but without having to indenture themselves to the “physical CD sales-dynamic.” They were (and are) free to make money where they always have: in the live sphere with grass-roots ticket sales and merchandise sales. Thus it becomes clear that the statement “Live won’t save music” is inherently a biased lie. Live won’t save the old music industry, but those within the industry who are adapting to the new terrain are doing just fine exploring the new possibilities before them.

The New Free/Live Dynamic

Those are the people I would place my bets on. They have no stake in the old paradigm, and are happy to push it aside to see what the new free/live dynamic can do for them. This is where the real money in the music industry will be in the next decade. Not grasping with frail fingers at a business model quickly fading away, but exploring with wide-open eyes the opportunities that “free/live” afford both those in the music trenches, and their prospective fans. Don’t be fooled; there’s still a ton of money and opportunity in the music industry. You just need to know where to look.

Why Isn’t the Music Business Fully Crowdfunded?

Posted on March 24, 2015 by adammarx13

Last week, I posted an article detailing VC Fred Wilson’s thoughts on investing, in which I drew on a few things he’d stated during his interview with Jason Calacanis at LAUNCH. This time around I want to explore another statement Wilson made during his time on stage which I thought received way too little attention at the time. In fact, I’m quite shocked that more people haven’t really latched onto this sooner.

At one point during the conversation, Wilson mused, “I don’t understand why the music business isn’t fully on Kickstarter,” to which there was some murmuring (I heard sitting in the audience), but no real discussion thereafter of that particular comment. While I was just as interested in the next point that Wilson discussed with Calacanis (the subject of my previous post), I couldn’t (still can’t) get my arms around how something so stark to many people seems to fly under the radar. But before I get too incoherent, let me back up and explain my exasperation.

The wonderful thing about Kickstarter (or any of the other crowdfunding platforms) is the freedom that they give to artists. In the case of the music industry, the freedom I’m referring to is the ability to not have to sign to a major record label in order to have money to finance an album, tour, video, etc. Instead, artists can go directly to their own fanbases and raise the required capital from them, thereby side-stepping the very real consequence of having to sign away some amount of creative control (ever hear of master tapes?) to the major label. As a result of this, artists consequently side-step the dynamic of accruing a similar sort of debt with the label itself. (I will explain the deeper economics at play here in a later post).

The dynamic of crowdfunding has changed the entire paradigm of the music industry. Wilson’s comments struck me so much because of how true they really are. He doesn’t need to be a guitarist in a band to understand that the freedom that services like Kickstarter give content-producing artists is invaluable (clearly the reason he invested in Kickstarter in the first place). His own “I don’t understand why” comment exhibits his understanding of the services that used to be out of reach of artists, which are now readily available thanks to crowdfunding dynamics.

Of course, crowdfunding alone can’t and won’t control an entire vertical like, say, the music industry. It’s one part of a larger mechanism. But it’s nonetheless a shift in the paradigm of music production, distribution and consumption that was previously unavailable. Where crowdfunding really comes into play is when it totally disrupts the age-old adage “live won’t save music” (but that’s an argument for a later post).

Here’s the real point: Fred Wilson is an investor, not a guitarist or aspiring singer. Yet he sees the value of crowdfunding so much (investment interest aside) that he doesn’t understand why any artist would forgo the opportunities presented by these new services. And I’m inclined to agree with him (and I’ve been in the music industry now for years). So here’s the real question: if he gets it, and I get it, don’t you think that all the new artists out there get it too?

It just might be a very short time until the music business is fully (or mostly) crowdfunded.

Navigating Swift Currents

Posted on December 26, 2014 by adammarx13

As we come to the end of 2014, things seem quiet in the music-tech arena—at least for now. Yet it wasn’t too long ago that things were blowing up between Spotify and a number of artists over royalty rates and compensation practices. No doubt the most famous of these disputes (this year) was between the streaming service and popstar Taylor Swift. In what has come to be known by some in the tech and music communities as SwiftGate, Taylor Swift abruptly pulled her entire catalogue from Spotify just around the same time that she released her new album 1989. The response was nearly biblical.

All I saw for weeks on end was a back-and-forth exchange of words, accusations, arguments, and media coverage between Swift and Spotify. Even the service’s CEO Daniel Ek took time to release a public statement responding to Swift’s qualms with the service. This was definitely a story with legs—it just didn’t seem to die down.

Yet what struck me the most were not the statements made by either side, or even the statistics each used to bolster their respective cases. I was more focused on the amazingly divided response that Swift’s actions and statements generated from her fans. Personally, I’m ambivalent—I enjoy some of Swift’s music, though not all, and would not call myself either a major fan or a hater. When Swift wrote her op-ed piece in the Wall Street Journal earlier this year, though, there were immediately a couple of things I didn’t agree with. Perhaps the most presumptuous statement I thought, though, was:

“Music is art, and art is important and rare. Important, rare things are valuable. Valuable things should be paid for. It’s my opinion that music should not be free, and my prediction is that individual artists and their labels will someday decide what an album’s price point is. I hope they don’t underestimate themselves or undervalue their art.”

This statement, though most likely made with the best of intentions, comes across to many within the music community as narrow-minded and out of touch. First, I readily agree with Swift that music is indeed art; art is subjective and highly personal to each person who experiences it. But art is not inherently rare. Nor should it be. This is an outdated concept that smacks more of a stuffy art-history academic than a modern musician. Art as a commodity, or even simply as a means of expression, should derive value from its inherent existence and experience; economic value is secondary to the very nature of what art is. In stating that art requires qualities of rarity and economic value in order to be valuable as art, Swift thus demonstrates a misunderstanding of what art functions as at its core. The concept of music as free is a notion that I will tackle in a later post (probably more than one), but what I will say with regard to Swift’s analysis is to point out how narrow its definition is. There are a great many artists who distribute their music for free, either online or as free giveaways at shows. By insinuating that these artists are devaluing their own art by making the decision to freely distribute, Swift does two things: 1) she demonstrates a worldview that is essentially narrow in its scope, and 2) she effectively succeeds in insulting these artists, more or less stating that they’re not smart enough to “know better.” It’s been a while since I performed as an artist in my own right, but even I still take offense to the above insinuations. Am I really to believe that Swift never played a pass-the-hat acoustic set at a Starbucks or diner somewhere when she was just starting out? [1]

But back to the response to Swift’s sparring with Spotify. If the goal was to generate a media response, then such a goal was certainly achieved. The responses from Swift’s fans in the general music community were far more diverse than even I would have thought. They ranged from those championing her decision and statements to those swearing they will never buy another Swift album from here on out (of course, the latter of those is hardly a statistic that can be confirmed at present). Yet what I focused on through this whole maelstrom of attention and biting back-and-forth comments was the way it could very conceivably (and most likely did) affect Swift’s fans on a psychological and emotional level.

Music, as stated, is emotional and highly personal. There’s a certain identification that one feels when one identifies with a particular artist, song or album. The psychology of wearing a shirt with an artist’s moniker on it effectively marks one as flying a flag for that artist—they become an extension of oneself—an extension of us. We use an artist’s music as a way to expand our sense of expression to the world. That makes our identification with that music highly volatile. Snap decisions like Swift’s have the opportunity to aggressively backfire (depending on one’s point of view, I suppose). Thus I question the long-term effect of Swift’s actions and statements. Yes, the immediate effect was fantastic for her: sales of her new album 1989 blew through the roof upon it’s release on Oct. 27, 2014. It opened at number one on the Billboard 200 and sold over 1 million copies. But I can’t help but focus on the gripes of those fans who felt personally betrayed by Swift’s removal of her catalogue from and subsequent sparring with Spotify. Are those fans going to go see her on tour? Buy a shirt? Tell their friends about her new album? Probably not. The way I see it, Swift has effectively traded long-term benefits for short-term gains. One thing I know about music and artist-loyalty is that it can be a fickle beast. The possible (probable?) effect of dividing her fanbase I think will constitute a major challenge for Swift to overcome in the future. She will have to spend time, energy, patience (and most likely money) trying to reconnect with those fans she might have alienated or even lost.

While it’s possible that the short-term gains may have been worth it to Swift and crew, I think the next currents will prove more difficult to navigate in the coming months. I think Swift has a lot of work ahead of her, and a lot of damage-control to partake in (ironically, not unlike the damage-control that Metallica faced in the wake of the whole Napster controversy). [2] I suppose only time will tell. We’ll reassess in the new year.

Thanks to Alyssa Shaffer, Charles Jo, Mom, and Dad for reading drafts of this. (And to Paul Graham for reminding me that thanks are as much in order for assistance as much as publication of the final product).

Notes

[1] Within the music community, the term “pass-the-hat” most readily refers to a (usually) acoustic set where no cover charge is required, and the artist relies mostly on the generosity of the audience to throw a few dollars in a hat or the guitar case to show their appreciation for and enjoyment of the performance.

[2] As many may remember, when Metallica waded into the thick of the Napster controversy in 2000 (most visibly driven by drummer Lars Ulrich), their rabid fanbase subsequently split into those who supported Metallica’s decision and those who vehemently opposed it. The alienation of a portion of their fanbase proved a challenge that took Metallica a number of years to surmount (and arguably one they are still surmounting). It affected both their sales of merchandise/tickets and their reputation within the music community.

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