By Jerell Tongson
In a post-Napster world, we all know the barrier of access to music has been shattered. Any savvy consumer with an Internet connection and a creative Google search can find quite literally anything their heart desires. Online marketplaces like iTunes and Amazon have taken the place of brick-and-mortar record stores and your Sam Goody-types at the mall, effectively shutting down the widespread profitability on physical record sales the industry enjoyed in the 90’s. Those margins aren’t there like they used to be, and music companies have been desperately trying to reclaim those glory days while adapting to entirely new marketplace.
Music services today seem to be converging on the mobile market; seeing that as the most direct way to reach their customers. Much like we saw the rise in popularity of mobile gaming and the shift away from more grounded, traditional console gaming; the music industry seems to be turning that corner as well. It’s only natural to capitalize on the smart phones held in consumers’ hands today; more and more people count on them as vital lifelines to the rest of their lives.
photo via Spotify Blog
Streaming services like Spotify and Pandora have been the most recognizable faces of this recent movement in the past couple of years, figuring out how to efficiently deliver their libraries to these web-enabled phones and devices. However, in both companies, they are operating at sub-optimal levels, operations wise. Although Spotify doubled their revenues to €435 million in 2012 ($577 million), they posted a net loss of €58.7 million, in comparison to a loss of €45.4 million in 2011. Recent data suggests that there are over 20 million active users, but only a quarter of them (5 million) are paying subscribers. To borrow a football analogy, it’s like they’re getting the ball into the redzone but they’re only kicking field goals and punting to the opponent at the 5 yard line.
Less specific numbers on profitability are known about Pandora, but they are definitely trying to up their revenue through selling more ads on mobile platforms and a more continuously dedicated push towards their paid subscription services. They are working with over 71 million active users and total listening hours are up to 3.88 million in Q2 Fiscal 2014, which is up 18% from 3.28 million the same time last year.
Newer entrants into the ring of different shapes and sizes have had to think outside of the box on how to get their music to people on their phones. Phone companies have begun partnering with artists like Jay Z to increase their profile. He pre-sold a million copies of his most recent album, Magna Carta Holy Grail, to users who had certain models of the Galaxy phones. To what degree the execution was successful at is semi irrelevant; Despite problems, Jay Z got his money and Samsung got their promotion as everyone had their names on their lips in the weeks of run-up to the album.
Service providers have also begun to offer special exclusivity to music services as well. Last week, Sprint started to push out exclusive models of the HTC One with NextRadio served up as their golden egg. As opposed to the more battery draining services of a Spotify or a Pandora, NextRadio is a FM radio app that utilizes three times less battery power when playing music due to its utilization of the FM tuner inside the phone as opposed to the Internet. Sprint is banking on NextRadio to be a hit, eventually planning a rollout across all of the phones in their service, despite the fact that some smartphones don’t have FM tuners. Time will tell how far this plan really goes.
On the flipside, AT&T seems to be overloading on their bets, on the heels of a proposed $1.2 billion purchase of Leap Wireless International and their successful music service Muve. Muve has 1.7 million paying users, putting it immediately in the discussion with your Spotifys and Rhaposodies of the world. This is particularly interesting news because AT&T, the 2nd leading carrier in the nation, has also engaged in talks with Beats Music, which is expected to launch within the next year. What form Beats Music will take is unknown at the time; they are currently looking for new investors into the company and hiring a “curation team” across the music business (from former editors of Pitchfork and digital content directors from XXL, to ex-radio music directors and A&R’s and country music writers). Alex Pham of Billboard seems to think that Muve will be “marketed to less affluent, prepaid subscribers, while Beats Music would target customers willing to pay a premium for their phone package.”
The other plan of attack for these companies is to not wait around for anyone else, but to create a new in-house service for their pre-existing technologies they already have on the market. iTunes radio was a big service that was announced a couple months ago in June at the WWDC. Apple plans to launch their Pandora-like service as an addition to iTunes in the new iOS 7. It would be a free online streaming radio, with an option of a $29.99 per year fee that would be called iTunes match. This would remove all the ads, audio and visual, from the experience. All of this would be available across all Apple products, including the Apple TV.
Microsoft is continuing to roll out functionality and expand on their Xbox Music marketplace, offering music services on all their Windows phones. They offer a monthly and a yearly price point, offering unilateral streaming on not just mobile devices and the desktop, but also the Xbox. They’ve continued their permeation by partnering with Shazam, offering direct linkage to their marketplace to purchase songs when they are identified using the Shazam app through the music or television audio around them. They are just trying to get their name out there as much as possible and make a dent in the Apple / iTunes dominated marketplace.
At the risk of editorializing, the answer to the question of what the future holds and who will emerge bloodied and victorious is… I don’t know. The mass consumer’s tastes and mind can change like the Ohio weather. This has been the code the music industry has been trying to crack for the past ten to fifteen years. Looks like, for now, the key will be found in mobile.
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