Apple Disconnects

Originally published on Marx Rand on June 18, 2015.

Sidenotes in the Independent Consciousness

Apple either refuses to, or simply can’t, understand the mentality of a huge growing customer base, that of the independent artist. This is going to present significant challenges going forward, since now that the Internet of Things is beginning to take connective shape, a new sort of revolution is getting underfoot—but without Apple’s involvement being required or wanted. Power breeds knowledge and knowledge breeds power: with the help of the world’s largest value network, the internet, the independents are beginning to have both.

Last week, Apple announced the release of its latest music platform, Apple Music Connect. [1] The product comes on the back of Apple’s shady dealing with independent artists: never mind the fact that the artist which Apple spotlit during the keynote was a manufactured act, it turns out they won’t get any of the precious royalties from Apple for the next three months anyway. [2]  While just 9% of college students say they are willing to shell out for Apple’s new music service, all these things are ultimately sidenotes in the grand picture of the independent consciousness anyway.


 

Simply an Attempt to Mollify

Apple made headlines recently with the release of its new music service Apple Music during Apple’s Worldwide Developers Conference (WWDC). While the presentation was panned by many for numerous reasons, there was one feature that stoked a range of discussions: Apple Connect.

Connect sat amongst a whole slew of cool new things that Apple announced it was releasing that day. (New, remember, does not carry the same weight in the post-Jobs era as it once did, when it used to be a synonym at Apple product launches for unprecedented).

Connect nonetheless seems like an attempt to mollify artists who have become increasingly disgruntled (which is exactly what I predicted before).

Low streaming royalty rates and complexities with the service in general have become a hot-button issue in the music industry lately, so everyone is presently searching in the dark for the magic potion to lead the blind to the place of worship. (Naturally, in such an environment, most preach what they claim is a slightly more purified version of the same stuff as their competitors have concocted already).

What is amazing is how few people are focusing on how irrelevant Connect will end up being as a tool for independent artists.

 

“Even unsigned artists” = “You’re still a secondary priority”

“Apple Music will be great for all artists,” the Cupertino, CA.-based one-time music industry disruptor claimed at the launch. Unfortunately, that’s not quite what independent artists heard Apple say.

“Even unsigned artists [will benefit],” was how Eddy Cue,  the senior vice president of Internet Software and Services for Apple, addressed the possibility for independent artists to use Connect. In other words, they were spoken to like second-class customers. Yet again. Cue might as well have intoned:

“You’re irrelevant and pretty much a second priority for us right now while we continue to fight the bigger media war that’s a lot more profitable with the major record labels on that other platform—the one we can’t seem to get off now that’s called iTunes!”

Try and put this in perspective for a minute: these artists are not in a perpetual minority anymore. They are now a rapidly growing segment of the music universe, and are actively looking for a place to creatively collaborate and build to their strengths, despite being ‘left of the dial’. And yet the words coming through the Connect presentation are basically reinforcing this “You’re nothing but an afterthought!” mentality.

 

The Great Irony

The result of all this is, ironically, that over the long term Apple will come out most shaken of all.

It’s barely days into the product launch of Apple Connect, and there are signs that this is the case already. The technology into which multi-millions of dollars were invested in the form of R&D and product sales and marketing, presently is sitting out there on the high seas, flapping like a half-full galleon with a split in the side of its sail, and no navigational map. The very people that Connect was built to serve Apple is locking out at the first port of entry.

iTunes is a great music library, but what is far too often taken for granted these days is the notion that because Apple disrupted the industry once, it will succeed in doing so again. The reality is that the concept of paying for music is now more elastic and ambiguous than it ever was before, and Apple needs to find a way to adapt. In that sense, the company appears more like Sony did in 1998 than it does any brainchild child of Steve Jobs right now.

Alienating a rapidly growing market segment worldwide is definitely not going to help Apple sail back into the balmy seas of yesteryear.

 

The New Apple Music Q&A Page

If you go to Apple Music’s information page and read through the questions and answers, two of them immediately stick out. The first of those two questions is:

“How do I get my music on Apple Music?”

Apple’s response is flat and corporate: “you can go through either your label/distributor or one of our approved aggregators.”

Screen Shot 2015-06-12 at 1.11.12 PM

Wow. Let’s take a moment to let that sink in.

Basically what Apple is telling the independent artists––who in a rising number of incidents have professed openly to rejecting major label offers voluntarily––is that they need to be a part of the established label/distributor paradigm in order to even have their music played on Connect.

Then there is the question of users having to submit through Apple’s “approved aggregators.” Apple seems reluctant to admit that increasing numbers of musicians are deliberately foregoing the major record label route (or even any label at all), and it looks here like they are trying to cover their bases a bit thinly by aggregating specific unsigned artists in what will be of a halfway house solution.

But what Apple misses is that when it comes to aggregation, the net result is the same for the artist: less creative control over the product, and more control for the gatekeeper. Anyway, even if there was a way to harmonize this risk, the question still lingers: who are going to be the appointed aggregators? Guys at Apple? Guys at major record labels? Now we’re back to square one.

The second question smacks of exactly this sort of highly-selective, industry buttoned-down approach:

“How can I get access to Apple Music Connect?”

Apple responds by providing a link to a Google News-style verification gate.

Screen Shot 2015-06-12 at 1.11.34 PM

Guess who’s in charge of the admission policy? Ostensibly it’s Apple of course, but it’s not a stretch of the imagination to think that major label brass might have a say in the outcome of who gets picked for Connect and who gets the door slammed in their face.

Now I know that many will say that verification is the only way to keep a service from falling to trolls or being overrun by artists who aren’t really serious. But the reality of it all is that trolls and non-serious artists will get through anyway—that’s just the nature of this business. (For a great example of this, look at all the marketing and spam that gets through Google News’ aggregator every day.)

 

The Upshot and the Bigger Picture

Apple is clueless about how independents will—or won’t—react to different innovations. They will wonder why they need to be verified, what “verified” even means, and who gets to decide. And why shouldn’t they wonder? They’ve pretty much spent their entire existence in the independent sphere marginalized and pushed aside by the major label dynamic.

The upshot is that if I’m an independent artist, Connect will essentially be the same to me as all the other services out there. What people need to understand is that the established music field of the music industry moves with a different rhythm and flow than the independent universe. Dynamics that are taken as gospel for the former do not necessarily apply to the latter. Independents have their own rules, and you can’t play their game without learning how they work.

But when it comes to Apple, the company is not even trying to do that.

 

Notes:

[1] The time articles in the piece reflect the original publication date of June 18, 2015.

[2] This policy has since been changed by Apple, while it stood true at the time of the article’s original date of publication.

 

Thanks to Alyssa Shaffer and Shelley Marx for reading early drafts of this.

YouTube Plays Out of Key

Originally published on Marx Rand on June 11, 2015.

Since being embarrassed after some of the more litigious contracts it makes with independent artists using its platform were made public recently, YouTube is in damage-control mode. The media platform provider has  understandably taken a lot of heat as a result. Right now especially the video streaming service, which was purchased by Google nearly a decade ago for $1.65 billion, is in the process of trying to make nice with the artist community as it braces itself for the onslaught of Apple’s new music service release, Apple Music.

YouTube Has Music, But Isn’t About Music

It’s easy to see why YouTube is concerned about Apple Music. After all, the very same (music) community that in significant measure helped YouTube top $1 billion in revenue last year is just as likely, if not more so, to gravitate towards Apple’s serving of the pie as it is to hang out lapping up mainstream internet TV dinners.

For artists– and especially independent artists – YouTube could be quite a useful tool. At least, what the service is capable of offering should be something that sets YouTube apart from its competitors in the music arena, certainly.

But YouTube is still going to struggle to win in the artist arena for one reason: while YouTube has music, it isn’t about music. For YouTube, despite its cool analytics and humongous user base, is still not a music-centered service. This matters because, at the end of the day, artists are a focus, but not the focus.

With the online music landscape heating up, the services that are able to pay more attention to artists as a principle priority will be able to carve out a significant niche for themselves. In the face of such competition, no one else stands a chance. It’s that simple.

The Percentage Points

A big part of YouTube’s problem when it comes to appealing to independent artists is that it’s a victim of its own success. At the end of the day, YouTube has an overwhelming user-base of consumers (and not just of music, but of all sorts of media) that it needs to keep on satisfying – at last count, there were 23 million subscribers to all the various channels on the service. And that’s only the regular users.

Naturally, it makes sense for YouTube to see that its existing customers are well-catered for, but the reality is that such an approach falls far short of what’s acceptable when it comes to satisfying independent music makers and promoters. They can increasingly afford to be much more selective about what they desire and require from the digital distribution channels that they work with.

To compound YouTube’s difficulties with attracting the independents, YouTube still has in place the same tenuous clauses in the contract that upset the artists just recently. The fact that there are a large portion of artists who are currently unaware of this fact only makes the problem worse over the long run too, for the risk that another public embarrassment for YouTube looms large over the shiny brand image that parent Google has cultivated over the years.

There’s a more fundamental problem than any of this, however, and that’s the following: unlike the teenage makeup artists and tween clothing models that have made gazillions from leading their fans to new cosmetics brands eager to pay top dollar for all the eyeballs, the realistic revenue generated from YouTube for music artists is pretty much zilch when you do the math.

Information Is Beautiful, an analytics service based in the United Kingdom, recently published a breakdown of online revenues obtained by artists across a series of music platforms, namely Bandcamp, CDBaby, iTunes, Spotify, Deezer, and—you guessed it—YouTube. The analytics provider concluded that the percentage of independents able to eek out a minimum wage living on YouTube revenue streams was just 0.07%. Here are the screenshots of the YouTube portion:

Image courtesy of InformationIsBeautiful.com; with edits

Image courtesy of InformationIsBeautiful.com; with edits

Here are the pathetic revenue stream earnings for the signed major label artists:

Image courtesy of InformationIsBeautiful.com; with edits

Image courtesy of InformationIsBeautiful.com; with edits

And now, the revenue stream earnings for the independent artists:

Image courtesy of InformationIsBeautiful.com; with edits

Image courtesy of InformationIsBeautiful.com; with edits

That’s amazing – it’s a seventh of a basis point! In other words, it’s even lower than the cheapest commission charged on an online stock trading platform.

And remember, this is not 0.07% of all one billion dollars of YouTube users, or even 0.07% of all 20-something million YouTube subscribers we are talking about here; it is 0.07% of just all the unsigned artists who receive revenue from YouTube streams! It’s likely you can count that number on the fingers of your left hand while clicking over to the next song with your right.

The Discovery Dynamic

The overriding concern here is that the audience consuming the music of these independent artists is incredibly small. But before you leap to your feet and splutter out the old argument that this is because the music created by independents artists simply “isn’t good enough” or “needs to be curated,” step back and think about the fact that these independents are trying to compete on a platform which is essentially not constructed for them.

Though the dynamic of discovery is big on YouTube, it’s not specified to discovery of new independent artists at all (though it’s great for makeup and clothing brands, which adopts an entirely different sort of discovery process through media). As a result, artists end up competing with an amalgamation of other media – most of which is not music-related – and the poor comparative result they are left with ultimately diminishes any chance that there might have been left over of being properly appreciated or even recognized.

All of this adds up to one very simple reality: inasmuch as YouTube is trying to repair its relationships with artists (and independents among them), it is, at the end of the day, very far from being the be-all, end-all for independent artists that the platform is for other genres of media and entertainment. The fact that less than a tenth of a basis point of artists can eek out a minimum wage using the damn thing – while many other professionals in different walks of life make a lot more than that from five minutes of video stream – attests to this fact.

Thus, for all the potential scale and analytical sophistication that YouTube’s platform offers artists, it is still an ecosystem that is fundamentally unsuitable for them and for displaying what they create. And many of them know it now, too.

Independent Music Is Still  Wild West

The independent music market is very much a wild west, and the introduction of a new tool or a new feature isn’t going to win anyone over. To do that, you need to win the trust and confidence of the independent artists, the way Etsy did with hand-crafters, or even the way that Amazon has managed to do with its dominant share of literary readers and authors alike.

This process is not one in which you can achieve ubiquity by striking a deal with a major corporation which fundamentally only offers enhanced distribution such as a major record label. It’s one in which you need to go straight to the product source – in this case, the artists and their fans – and persuade each of them that what you are providing is somewhere they can interact on a creative level and where the music uncompromisingly always comes first. It should not and cannot be a place where their product looks and feels like an afterthought in the ravenous race to profitability.

The upshot – and the sad irony – of all this is that it’s yet another example of a situation in which one of the very same companies that is so adept at spinning creative mainstream entertainment out into the marketplace proves hopeless in creating a fresh and appealing approach to the rising independent music scene.

As Queen so eloquently put it, “another one gone, and another one gone … and another one bites the dust.”

Spotify’s Sony Contract: What It Means for Everyone

With the leak of Spotify’s contract with Sony last week, there’s a lot of attention on the streaming service right now. I’ll be taking a closer look at that contract over the next week, but for now I’ll focus on the fallout over the last week. In particular there seems to be a lot of renewed interest on the music space, more so than I’ve seen in a while. I think, though, that this has to do with a lot more than simply one contract between two companies; for the first time perhaps, the general public (including music producers, artists, and general music listeners) is aware of the kind of deals being struck behind the scenes.

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Even as Spotify soars in newer valuations that have the company somewhere in the $8B range, yesterday’s leak shows that such a valuation may in fact be misleading—Spotify has to cough up around $43M just for licensing from Sony alone. How much do you think they need to cough up for the other two majors, Warner and Universal? Even if we snip off the extra $3-4M, and assume an upfront licensing fee of $40M from Sony—and then simply assume similar prices for Warner and Universal—then Spotify has already spent $120M of investor money. And that’s just for the privilege of having access to the major labels’ stable of artists.

Also, don’t forget that’s before royalties and any other metrics that Spotify has to hit. Therefore it’s more like $43M upfront for the privilege to pay more later on; it’s not a one-and-done purchase. And most unfortunate for Spotify, this latter number is also predicated on how an artist performs in popularity, something they have essentially no control over.

I’m not going to rewrite Micah Singleton‘s article, but I will draw on a number of points he highlighted and what they mean in reality. There are numerous points of importance, but these are the ones I think the general public really needs to be apprised of. Though the contract has since been removed, we got the basic gist:

  1. Written by Sony—First let’s just take a moment to note that the contract was written by Sony. Of course this is their prerogative, but when considering the fact that Sony holds the rights to much of the content that Spotify wants to license, it clearly illustrates who is subject to whom. Frankly, since Sony holds the content rights, they (and the other major labels) essentially hold Spotify’s lifeblood in their hands—that’s not an opinion, it’s a fact. Realistically Spotify is not built around an independent and free model, so they need to play ball with Sony and the other labels, or they won’t play at all. Period.Screen Shot 2015-05-21 at 8.01.23 AM
  2. Advances—Spotify paid Sony $42.5M just for the right to license the music. That’s an upfront fee just to get in the door. This means that anyone looking to compete head to head with Spotify or Rdio needs to magically have about $130M lying around or in funding before they even get their feet wet (projecting the combined upfront licensing fees of the Big Three major labels). One of the reasons that Spotify has to raise such massive funding rounds is because these advances are somewhat annual, and thus need to be renegotiated all the time. And as the major labels continue to get squeezed in their wallets, these numbers are only going to rise for services looking to use major label content.
  3. Screen Shot 2015-05-21 at 2.36.33 PMDivided How and Among Whom?—As Singleton points out, Sony can essentially do whatever they want with that money; there’s no stipulation that it has to be divided in any particular way, or that any of it has to go to artists or songwriters. According to multiple sources, that money usually stays with the label and is generally not shared with artists. This particular point has raised such criticism that its prompted both a response from the EU, which is now looking into Spotify’s contracts, and virtually obliged Sony to come out with a public statement on the matter. Screen Shot 2015-05-21 at 2.36.56 PM
  4. Most Favored Nation Clause—Essentially a clause that guarantees that Spotify’s balls remain in Sony’s vicegrip. The clause guarantees Sony the right to amend  any portion of the contract if it perceives that any other label has a better deal than it does. This means that Sony is essentially never bound to Spotify in any way; it can decide—based on its own perception—that another label has a better deal (which it may or may not) and rework the entire deal for its own benefit. And Spotify has to swallow everything.
    Screen Shot 2015-05-21 at 2.41.24 PMScreen Shot 2015-05-21 at 2.42.20 PMWhere this really kills Spotify is when used in conjunction with the clause dictating payment based on market share. Thus, if another label has a better deal in that regard—perhaps double what Sony is getting monetarily—then Spotify has to cough up and pay Sony the difference.
  5. Spotify’s 15%—Basically exactly what it sounds like. Spotify takes 15% of the revenues from third-party advertising right off the top. What they do with this money is unknown, though it’s quite plausible that they’re not redistributing it to the artists, and are probably giving third-party advertisers a raw-ish deal. Next time Spotify releases a statement saying that they don’t have the funds to pay the artists more money, let’s all remember this little financial tidbit.Screen Shot 2015-05-21 at 2.47.16 PM Screen Shot 2015-05-21 at 2.48.28 PM
  6. Sony’s Ad Spots—This one’s pretty easy to understand: essentially Spotify is obligated to give Sony a certain amount of free ad space on its service. The ad space—which is clearly worth a fair amount of money—is given to Sony at a massive discount.Screen Shot 2015-05-21 at 2.53.33 PMScreen Shot 2015-05-21 at 2.54.09 PMBut that’s not all; Sony retains the right to sell the credited ad space to whomever they want, whenever they want. Again, Spotify gets squeezed.Screen Shot 2015-05-21 at 2.54.41 PM
  7. User Metrics—Spotify essentially has goals it needs to hit in terms of its user metrics (on both payment tiers), and if it misses those, it could be penalized. Conversely, if it exceeds expectations in either of the tier metrics, it recalculates that number so that Sony gets paid more. In English, what this means is that the better Spotify does, the more money Sony is entitled to, but doesn’t necessarily mean that it all works out for the streaming service.Screen Shot 2015-05-21 at 3.07.40 PM Screen Shot 2015-05-21 at 3.07.51 PMIt’s important to remember that Sony isn’t in the business of making sure that it backs up Spotify. It—like the other major labels—is licensing its music to numerous services, so its only real loyalty is to its bottom line. How that affects Spotify is essentially irrelevant to the major label.
  8. The Royalty Distribution (Forget About the Artists)—Without going too deeply into it (Singleton’s initial analysis and infographics are worth consulting), it basically boils down to this: the royalties per stream are so miniscule that you need to be getting millions of streams in order to make any real money (and by real, I mean anything more than $10.00). We all know that independent artists are never going to get to that level trying to compete on an unfair playing field, so let’s just put that point to bed right now. One thing that is worth noting now, though, is that not even every artist has a contract entitling them to royalties. So for all the bluster about royalty payments, many of the artists signed to major labels aren’t even entitled to fair cuts from the streaming.Screen Shot 2015-05-28 at 6.33.02 PMBut even more so, the way in which streaming royalties are calculated is so incredibly convoluted you almost need a degree in economics just to understand it. That’s not how it should be. For independent artists—and even mainstream artists who simply want to understand the financial dynamics—this is yet another way of keeping them in the dark. No one in any other industry would accept some sort of voodoo economics principle when it came to calculating their earnings, so why should music artists—mainstream or independent—have to settle for that? That’s the point, they shouldn’t.

There are numerous other points worth discussing, but these are some of the major ones that discussions of the music industry revolve around. Though arguably a major embarrassment for Sony and Spotify, the leaking of the contract between the two really shines a bright light on what goes on behind the scenes. It clarifies that what happens behind the curtain affects every type of artist, and underscores why more transparency and reform is needed in the music industry. And it highlights something else: the music industry is not dead and foregone. We’re now right on the precipice of a whole new type of music industry that’s taking shape every day. Those who accept and embrace the new dynamics will be the ones who benefit most from them when they inevitably come.

 

Thanks to Shelley Marx for reading early drafts of this.

Tidal Is Losing More Lifeboats by the Day

Yesterday, TechCrunch ran a piece from Kelli Richards postulating the viability of Tidal as a service, and its likely outcome in the streaming wars. The article was essentially an overview of what’s been going on with Tidal lately, with Richards doing a good job of zeroing in on a couple of things I’ve discussed and underscored in my own mind as the real deal-breakers.

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Before getting into the two main things of her article, I think it’s important to note a very shortbut important—sentence in Richards’ piece: “…the prospects of Tidal upending Spotify in the near future are slim…” This falls right in line with something that I wrote earlier concerning SoundCloud, namely that trying to out-Spotify Spotify is a losing battle and a very poor battle-plan. Going head-to-head with Spotify and playing their game their way (that is, general popular music streaming) is such a poor decision because it means you’re starting way behind the starting line. And in Tidal’s case, this goes double for any sort of exclusive content which might be your main attraction.

Now, Richards’ two main points, and my takeaway from each:

1. Premium/Exclusive Content—Firstly, I’ll be the one to say it: “exclusive content” as one’s main gameplay is a very tough sell. It’s a tough sell because it’s a drastically diminished niche of a larger market, which is basically popular music. That means you’re trying to play on two different levels with two completely different mindsets.

The “exclusive content” play is difficult because it requires your customer base to desire those exclusives almost as much as (or more than) the original content. This isn’t anywhere near the same thing as looking at an independent market, since those content producers are increasingly giving away their material for free (including “exclusives” like remixes, acoustic sets, etc.), and making money elsewhere. For a service like Tidal though, they need to first out-Spotify Spotify to gain the market share of the original popular music demographic, then they need to persuade those people to convert to “exclusive” consumers and pay a whole lot more for something they could just as easily get on YouTube if they wait a couple weeks or a month. This is one of the major flaws in Tidal’s plan in my eyes.

Also under the first point is a small comment included by Richards made by Tidal’s CEO Peter Tonstad, which basically asserts that the industry is moving away from the freemium model, and that “it’s going to be the content richness” which listeners begin to look and pay for. This is bold, but false.

First, the sorts of audiences which Tidal is looking to court—general consumers of popular music—are not about to leave the freemium paradigm anytime soon. Secondly—and funnily enough in my opinion—the rabid, content-rich focus which Tonstad identifies as Tidal’s silver bullet doesn’t really apply to popular consumer audiences on a general level anyway. Ask anyone listening to Spotify if they’d pay double (or anything) for higher quality which they can’t even discern anyway, and I’d be surprised if large numbers converted over. Ironically enough, the rabid thought process which Tonstad is alluding to is alive and well—in the independent music industry—where free plays a much bigger part than it clearly does with Tidal.

2. Celebrity Backers—This point made by Richards is a lot easy to wrap one’s head around; people simply don’t feel so bad when Jay-Z and Kanye West start lecturing about needing more money because, well, they’re rich. And not like “we perceive them as rich but they’re really not;” they actually are rich. Being lectured about money from people like that, then, is not only not welcomed, but it’s really irritating. There’s really no way you can look at that celebrity-backed list of Tidal promoters and take them seriously.

Even more so, though, it really alienates artists who are not rich—you know, like everyone else. For the singer-songwriter playing in dingy clubs, or the band on the road and sleeping in their van, Jay-Z might as well be speaking an alien language. Their thought process is almost indignant (and why shouldn’t it be?); they’re thinking “dude, you have all this money and influence, why the hell do you need any more?” And frankly, if I was still an artist, I’d be thinking the exact same thing. Celebrity-backed things like this are rarely ever a good idea, especially when it alienates others within the same industry.

Richards notes that Tidal has someone who Spotify doesn’t—Taylor Swift—but as I explained here months ago, here’s why Taylor Swift is on the same level as Jay-Z in terms of “not getting it.” She’s so engrossed in the major label paradigm and its trappings that she doesn’t see what life is like for normal artists anymore. And, just like Jay-Z, her disparaging remarks about artists “devaluing their music” strikes a sour and indignant chord in a lot of musicians who think she takes her good fortune for granted.

But if one needs any more convincing of why it’s going to be a very tough road ahead for Tidal, you can read about:

  1. Jay-Z’s hissy-fit onstage
  2. Their firing of their previous CEO, Andy Chen
  3. Criticism from producer Steve Albini
  4. Criticism from other mainstream artists
  5. Their highly criticized and misleading relaunch

The storm isn’t about to end anytime soon, and it seems the lifeboats have left the ship.

SoundCloud’s Failed Highwire Balancing Act: The Sony-SoundCloud Breakup

Trying (and Failing) to Balance Two Completely Different Paradigms

The SoundCloud-Sony Breakup

The Sony-SoundCloud Breakup

It’s been a tough week for Sony between its leaked contract with Spotify and criticism over its moves with SoundCloud. And yet, inasmuch as the former is embarrassing and will certainly come back to bite the two companies, the latter is arguably more problematic because it’s not simply between Sony and SoundCloud; it’s between Sony, SoundCloud and the independent artists and fans. That last little caveat is something that Sony can afford to ignore—but it’s going to become an increasingly difficult reality for SoundCloud.

SoundCloud, now a platform for major labels and advertisers

SoundCloud, now a platform for major labels and advertisers

News broke over the last couple of weeks that Sony has started pulling their artists’ music from SoundCloud—regardless of what the artists want. To Sony, SoundCloud isn’t a viable option since it doesn’t presently have a strong monetization plan (as if services like Spotify and Rdio do), and until the label and streaming service can come to terms, it seems that any and all Sony-controlled material will be stripped from SoundCloud.

This has put SoundCloud in quite a precarious position. On the one hand, it doesn’t want to alienate its initial die-hard independent fanbase, but on the other it’s been actively seeking out a deal with Sony, as well as with the other two major labels, Warner and Universal (already having one in place with Warner). SoundCloud is trying to balance two completely different bases and paradigms that are moving in opposite directions: 1) the major label paradigm which is still predicated on an obsolete business model, and 2) the independent paradigm which is increasingly embracing “free” as a big part of the future.

What the major label industry really looks like; The Big Three

What the major label industry really looks like; The Big Three

What I Said a Month Ago

On April 9th, SoundCloud signed a deal with Zefr—that same day, I wrote a post on why independents should very soon kiss SoundCloud goodbye; why the Zefr deal was essentially irrelevant for them. It seems I wasn’t the only one who’d identified SoundCloud’s prospective problems, as a day later on April 10th, PandoDaily writer David Holmes came to the same conclusion and published a piece with a similar premise. Holmes’ post validated many of my points, and cleverly brought up a few others, all to conclude, as I had, that the Zefr deal was a band-aid for a bullet wound. And now the bullet wounds are really beginning to gush blood.

This week, electronic artist Madeon released a heavily critical statement regarding he Sony-SoundCloud breakup, noting: “Thank you SoundCloud for being such a great discovery platform over the past five years. Well done Sony for holding your own artists hostage.”

Ouch. Snap. Burn.

Clearly Madeon (along with droves of other EDM artists who’ve gained significant followings on SoundCloud) isn’t pleased with Sony’s “money first” thought process and strategy. And while Sony has the legal right to pull music which it holds the rights to, in the grand scheme, it’s not exactly a play which will endear it either to the fans it seeks, or the artists it works with. Actually, it has the complete opposite effect.

Who’s the First Priority?

But what lies beneath the surface of this very public breakup is not simply an issue for Sony, but a major issue for SoundCloud. People expect Sony to act like a major label—because that’s what it is. But increasingly, SoundCloud has been chasing the major label content which it thinks could help it become more competitive with Spotify, Rdio and Apple. In the process, it’s spitting in the faces of the people who loved SoundCloud for what it was before: free discovery.

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Excerpt from my original April 9th article

And as SoundCloud moves closer to the major label paradigm, it becomes increasingly irrelevant for independent artists, regardless of genre. Independents are where SoundCloud cut its teeth, so now, moving away from the free-model will leave them somewhat toothless. Case in point: SoundCloud’s new NMPA deal, which, again, is irrelevant for independent artists.

The thing about the independents is that, unlike major label artists who are tied to the major label business model, they’re not tied to anybody. Their loyalty can and will be to whoever gives them the best service as a first priority, not an afterthought. This means the best service for the independents, not the best they can do after the major labels have had their fill. SoundCloud is trying to perform a balancing act on a razor-thin highwire and it’s 600lbs overweight. It’s trying to straddle two completely different business paradigms, and managing to piss everyone off in the process.

Free Is Here to Stay—Live With It

The free paradigm which the labels are beginning to get fed up with isn’t going away—something which Peter Kafka seized on in his article on Spotify. Free is a way of life now, and as independent artists continue to explore the benefits that free affords them, they will increasingly detach themselves from the obligations of the major label paradigm. Services like SoundCloud will eventually have to choose a side—something that’s going to be exceedingly difficult for SoundCloud now that they already have a deal with Warner and are chasing deals with the other two major labels.

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Excerpt from my original April 9th article

It seems that they’ve already made their choice, and it won’t be too long before droves of independents notice. They don’t have to and won’t settle for being second-tier priorities, and will look for alternative options. In the meantime, Sony and SoundCloud will duke it out until the former signs the latter to a major label-style contract.

I said it before and I’ll say it again: if you’re an independent, kiss SoundCloud goodbye.

Jay-Z’s Tidal “Freestyle” Was Basically a Hissy-Fit

A couple of days ago, during one of his Tidal concerts, Jay-Z went on a rant, and basically laundry-listed a bunch of people whom he felt have been wronging artists in the music industry. He called it a freestyle, but that’s not really what it was. To anyone who’s not a Jay-Z fan (and probably to many who are), it came off as a hissy-fit.

Jay-Z at one of his TIDAL concerts

Jay-Z at one of his TIDAL concerts

It’s not surprise that Jay-Z and company have been having a hard time of it with their new Tidal streaming service. I posted about their launch here, and then followed up with posts on criticism of Tidal from folk band Mumford & Sons, famed producer Steve Albini, and the sudden removal of their (now former) CEO Andy Chen. It’s been a tough couple of months for Tidal, yet instead of putting his head down and working to find a solution to differentiate his music service, Jay-Z thinks it’s a better tactic to antagonize the competition. Though it might make him feel better in the moment, it comes off as petty and juvenile. He looks like a kid throwing a fit for not getting his way.

In his “freestyle,” Jay-Z attacked not only other music services (Google, YouTube, Apple), but called out a few people by name (Jimmy Iovine). Jay-Z asserts that he came into the music game as an independent…which may be true, but that was more than a decade ago, and the musical landscape has changed a hell of a lot since then. The same rich people he’s insulting are his peers—I don’t think he goes home at the end of the night wondering if he’ll make enough money to tour next month.

Frankly, watching him play the victim is getting tiresome. Jay-Z needs to accept the fact that running a music streaming service may in fact be more difficult than he had originally thought. So stop whining about it, put your head down, and work out the problem until you have a solution. That’s how everyone else does it. Getting up on stage and attacking your competitors doesn’t make you a good business person. It make you appear socially and strategically tone-deaf.

Here’s the (mainly) full text from Jay-Z’s rant:

“…So I’m the bad guy now I hear,

because I don’t go with the flow

Don’t ever go with the flow, be the flow…

Pharrell even told me go with the safest bet
Jimmy Iovine on for the safety net
Google dig around a crazy cheque

I feel like YouTube is the biggest culprit
Them niggers pay you a tenth of what you supposed to get

You know niggers die for equal pay right?!?
You know when I work I ain’t your slave right?
You know I ain’t shucking and jiving and high-fiving, and you know this ain’t back in the days right?

…You know I came in this game independent, right?

TIDAL, my own lane, same difference

Oh niggers is skeptical about they own shit
You bought nine iPhones and Steve Jobs is rich…”

SoundCloud’s New NMPA Deal Is Irrelevant for Independents

News broke today that SoundCloud has reached a deal with the National Music Publishers’ Association (NMPA) to secure publishing rights for the artists who use the service as a content publishing site. In the byline of the piece is the notation that as a result of the deal, independent publishers will now be able to receive royalties from their content one the service. Yet while the news sounds groundbreaking as a headline, it nonetheless fails to address the problem that I identified earlier—namely, that SoundCloud is fast becoming an obsolete option for independents.

The NMPA and SoundCloud logos

The NMPA and SoundCloud logos

As the streaming service has worked hard to monetize in the last few years, it has begun a move away from the independent arena in which it started. On the heels of a licensing deal with Warner Music Group (attained last November), SC has been attempting to lock up similar deals with Universal and Sony as the major labels try (but fail) to reestablish their dominance in the musical landscape. Yet despite the fact that only Warner has signed on for now (not really a good sign for SoundCloud’s major label ambitions), it’s still clear that SC’s priorities are shifting in favor of a major label paradigm.

Major Label Percentage Ownerships of (some) Streaming Services

Major Label Percentage Ownerships of (some) Streaming Services

As a result, the news of SoundCloud’s deal with the NMPA today is essentially irrelevant for independents because it doesn’t address the real problem of independent artists: the problem of competition and exposure. Inasmuch as the deal sounds good for independent publishers, it’s unlikely that it will give them any edge over their major label counterparts. Actually that’s a misleading statement—the major label publishes already have a massive edge over the independents, so what this deal will really fail to do is make the two equal.

NMPA CEO David Israelite is quoted as saying, “This agreement ensures that when SoundCloud succeeds financially, so do the songwriters whose content draws [users to the site].” However, I feel that though Israelite’s intentions are good, his notions of the dynamics below the surface are misguided. The royalties that independent artists and publishers will supposedly earn exist essentially in theory, and this doesn’t even take into account the minuscule amounts of each royalty payment.

What the major label industry really looks like; The Big Three

What the major label industry really looks like; The Big Three

In the end, the royalties “earned by the independent publishers” are essentially nondescript because in order for any real money to be made through royalties, the artist is required to have a massively large and engaged fanbase to drive those royalty-dyanmics. Independents by nature rarely (but not never) have these sorts of powers behind them. Thus the resultant playing field is still the same: the major label artists (and labels) more or less control the spotlight while the independents are left in the large swaths of shadow. This is a good publicity piece for SoundCloud; but for the independent artists and publishers, it’s more or less irrelevant in the grand scheme.

The Major Labels Are Not Reestablishing Their Dominance

The Misleading Statement

A couple weeks ago, Forbes ran an article detailing how the major record labels were taking their “revenge” on the current landscape by making “strategic partnerships” with music services to reestablish their dominance. This was a very bold statement. Here’s why it’s misleading, and essentially false.

The major record labels (the Big Three, Warner Music Group, Universal Music Group, and Sony) are indeed striking deals with music services like Spotify, Rdio, and SoundCloud, but these deals don’t signal what the article asserts that they do. The reality is that the majority of the label-service partnerships revolve around licensing rights and royalty payments, an already broken system that will continue to feel squeezing pressure as we move further into the digital age.

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What the major label industry really looks like; The Big Three

What the major label industry really looks like; The Big Three

The article focused on the labels’ calculated move to reassert their control as gatekeepers by using their access to artist content as a leveraging technique. This is true, and is completely expected; the labels are doing what they can to hold onto what power they have left. But the reality of the situation is that this isn’t a new move; it’s a rehashing of the same dynamics that the labels have relied on for years. This is exactly why they’re not “taking revenge” on anything or anyone.

The Ironic Voodoo of Ignoring the Middle

As much as they would like to believe they still hold the power they once did, the major labels need to acknowledge that their ability to deem music as “good” or “sellable” is essentially irrelevant in the grand scheme now. It’s lost a certain sheen of relevance because they’re no longer the only deciding force out there to dictate the music the gets made or played. Now, the power of choice and reach comes to and from anyone with an internet hookup and a laptop. Ergo, though they may try to deny it, the major labels are gatekeepers no more.

So here’s where the ironic voodoo comes in: major music streaming services like Spotify and Rdio sign licensing deals with the major labels because they think that’s the only way to survive in the music landscape, and the major labels license their music because they essentially see no alternatives at the moment. Simultaneously though, both sides ignore those artists who fall in the middle: the independents (who, by the way, make up a massively growing market). Thus they are dismissing today’s independent artists who might be major underground sensations tomorrow. SoundCloud used to be a happy place for the independents. Then even that changed when they signed a deal with Warner and began seeking out deals with the other major labels.

The Punch: The Percentage Dynamics People Ignore

I wrote here why independent artists will eventually begin to move away from SoundCloud. What I didn’t focus on at the time, and precisely what the Forbes article glazed over, are the percentages of these streaming companies that are owned by the major labels. Beyond my argument regarding SC and Warner, the Forbes article noted that Warner owns 5% of SoundCloud, which it acquired in the streaming service’s latest funding round (and also which it acquired at about a 50% discount from what other investors paid).

That’s not all though; all of the Big Three collectively own about 10-20% of other streaming services, such as Spotify and Rdio, as well, and Universal jumped on a 13% stake in Beats before Apple snapped them up. (And this doesn’t take into account all the “360 deals” that are taking place).

Thus, we have the major labels, who control the licensing that these streaming services depend on, owning parts of the streaming services themselves. Essentially they can bully the services into driving towards what’s best for their artists with the power to pull their licensing from said services if they don’t comply, thereby draining them of their lifeblood. Doesn’t sound like a pyramid scheme to me at all… Oh wait, yes it does.

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Major Label Percentage Ownerships of (some) Streaming Services

Major Label Percentage Ownerships of (some) Streaming Services

Here’s what it means in the bigger picture: the major labels are gobbling up these stakes to preserve their roles as the gatekeepers of the musical landscape, and to possibly make a grab at the distribution arm for their music. Despite the fact that this is working for them for the moment, it most certainly does not mean that they’re reestablishing their dominance over the music landscape. This matters for two main reasons:

  1. It underscores the reality that the labels aren’t really coming up with any new tricks; they’re just rehashing the same ones again.
  2. It proves that assertions of “equal opportunity” for independent artists on streaming services like Spotify and SoundCloud are basically false.

Why Warner Now Holds Leverage Over SoundCloud

With its 5% stake in SoundCloud, Warner will clearly attempt to steer the service’s vision and attention towards the the artists it represents, and whose interests it has at heart. Why would it not? That’s exactly what I would do. It’s not personal for Warner, it’s just business. But what it means for independent artists on SC is something much bigger: that they will no longer be the focus of the service, and again will need to contend themselves with scraps of attention after the major label(s) is (are) done feeding.

Look at it from the point of view of Warner: why would they contribute to SoundCloud’s latest round, snapping up 5% (even at a 50% discount) if they weren’t going to leverage that to their advantage? The point is they wouldn’t because they’re going to do exactly that.

soundcloud_logo

SoundCloud logo

Now that Warner has control (to some extent) over the new distribution channel, SoundCloud, as well as the music that SC wants to license (i.e. the lifeblood of any music service), it holds all the leverage in the relationship. Essentially if SC doesn’t steer its model towards what would benefit Warner’s artists, Warner can decide not to renew its licensing agreement with the service, thereby cutting out SoundCloud’s feet from under it. And the same is true with the other labels and streaming services. The labels are worming their way into controlling not only of the material for distribution (the music), but the distribution channels as well. As a result, we end up with the same concentrated power dynamics and gatekeeper power-plays as we had before.

Squeezing Models of the Past

Yet, easy though it may be for the major labels to dig into their deep pockets and purchase stakes in these streaming services hoping to once again gatekeep the music landscape, it is nonetheless not the same game they are used to playing. It’s now much easier for any music startup to get into the streaming or downloading service—and thus become a new source of distribution for artists. This means that the probability for the major labels to bottleneck and control the distribution channels is actually much smaller, particularly when it comes to artists and services that don’t focus on major label content, but rather independent dynamics.

For all their “strategic partnerships” and licensing/royalty practices, the major labels are not taking revenge or “reestablishing their dominance” over anyone. They’re still playing catch-up, and will continue to do so as long as their business model revolves around the obsolete (and completely unfair) royalty paradigm. Realistically speaking, the majors are playing a losing game: they’re no longer essential for artists to find fanbases or have exposure—the internet’s taken care of that. Independents can now crowdfund themselves, as well as make their own way in the live arena sans any “360 deals” with labels.

Perhaps the most telling part of the Forbes article came in the last sentence. One phrase pretty much summed it all up: “By looking forward, while squeezing the models of the past…” The rest is irrelevant. Even Forbes knows that the major labels’ models are outdated and like squeezing water from a stone. That begs the question: if they know, and we know, why don’t the major labels seem to get it?

Blogging: One Month In—A Retrospective

Today marks one month since I started blogging every day, and man has it been a long month. Though long doesn’t necessarily mean bad, and in the last few weeks I’ve found myself able to talk about a number of topics that might not have occurred to me otherwise. True, a lot of my posts have been on topics like music and tech that I continually follow, but the desire to write every day has enabled me to streamline my thoughts into a more digestible format.

In the last month, I’ve discussed numerous things in the music and tech space, including:

Yet I’ve found myself able to write about things that otherwise would seem unimportant, had I not had a goal to write every day. I’m not sure writing posts on writer’s block, on singing, art, and on concepts of passion would ever have occurred to me without the goal to produce new material:

Perhaps the most intriguing thing that’s happened though is how my desire to write has only become more engrained in me. I’ve always been a writer—essays, journalism, poetry, and research papers always came fairly easily to me, and even provided a sense of enjoyment most times. But now my writing has taken on a whole new dynamic in my life.

In fact, it mirrors what artists tell me when I ask why they choose the tough path of day jobs and long nights on the road: “I do it because just like I wake up every morning and need to breathe, I need to play music.” And that’s how writing is to me now. I wake up ever morning and need to breathe, and then I need to write.

The Typhoon Keeps Coming for Tidal

It’s not been an easy couple of weeks for new music service Tidal. A slew of bad press and criticism during and immediately after the service’s launch is continuing to be a thorn in the side of the company’s leadership. So much so that a major restructuring was just announced; things aren’t about to get easier any time soon.

I was first a little skeptical of Tidal during its much-hyped launch, then again when it enjoyed a spate of criticism from mainstream band Mumford & Sons, and most recently when producer Steve Albini piled on to the already bruised service. Things have just been really bad for Tidal since it emerged in the last few weeks. Now it seems that the service itself is intent on rubbing salt in its own wounds.

Business Insider broke the news today (as did other sources like Digital Music News) that Tidal was being strongly shaken up; 25+ people on the Tidal team were being fired to make room for a new direction. Of these, the name that surely drew the most attention was And Chen, the now-former CEO of the service. Maybe it’s just me, but firing your CEO just a couple weeks after your very public launch seems to say a lot about a company’s fortunes, at least in the short-term.

Former Tidal CEO, Andy Chen

Former Tidal CEO, Andy Chen

Chen’s removal will make room for Tidal’s former CEO Peter Tonstad (who was the former CEO of Tidal’s parent company Aspiro Group). In an statement to BI, Tidal commented on the impending change:

TIDAL’s new interim [sic] CEO is Peter Tonstad—a former CEO of parent company Aspiro Group. He has a better understanding of the industry and a clear vision for how the company is looking to change the status quo.

Correct me if I’m wrong, but did Tidal just admit that their now-former CEO—Chen—was basically unqualified for the job? Because that’s essentially what I heard. After all the fanfare that Tidal inundated the press with around its launch, I thought for sure that they at least had a concrete plan to try and accomplish their goals. As critical as I was at the time, I at last figured that their leadership had sufficient experience and vision to make the Tidal brand somewhat competitive for a little while. Clearly that’s not the case.

I was critical of Tidal before because I thought (still think) that they’re attempting to sell a product (service) that essentially is very expensive and not wanted by enough people to offset the expenses to provide it. I was critical because the artists who I saw standing up on stage during the launch don’t need any more money in their pockets, and it came across to me as greed.

Now I’m critical of them because changing your CEO and firing 25+ employees ~20 days after your very public launch is not a good way to start the spring. It shows both a lack of preparation for your business market, and frankly a lack of appreciation for your prospective audience and their thoughts. Actually, you come off as socially tone-deaf.

We’ll see how this progresses, but I must say, I am really not impressed with Tidal’s handling of this entire situation. This is not the way to build trust in an industry that is basically overrun with distrust, and filled with people who are used to getting taken advantage of. This is not a good start; not a good start at all.