Streaming Services (yet again).

Just after I posted my “Streaming Services” article, we heard the news that one of our competitors, ST Holdings, had withdrawn their entire catalogue from all the major streaming services. A number of our distributed labels have asked us for our thoughts on this development.

Just to be clear, we take a neutral approach to digital services. We don’t specifically favour one business model over another. Our belief is that the wider choice the consumer has of legitimate services at prices the consumer is willing to pay, the more likely we are to ensure artists and composers are fairly paid for the music they make.

I have nothing but the greatest respect for ST Holdings. They have been through much the same as we have. Both of our companies have survived the cull which wiped out most of the other independent distributors. They have a great reputation, distribute some amazing labels, and have been instrumental in bringing Dubstep to a wider audience.

I don’t know for sure, but I would imagine we are companies of a similar size.

If my experience of streaming were the same as theirs, I might also question whether we should encourage our labels to stick with it. However, our experience has been dramatically different..

Streaming Turnover

Our current Spotify quarterly turnover is, BY A VERY LARGE FACTOR more than the £2,500 quoted as ST’s quarterly Spotify revenue  in the linked Digital Music News article. 

Now, I am pretty sure that our overall company turnover is no greater than ST’s, so why this enormous disparity?

I suspect the key here is that we have been supplying Spotify since the service opened.  We (and our labels) have seen turnover grow exponentially over the past three years.

Streaming services are very “long tail”. It takes time for consumers to discover your music, add it to playlists, favourite it, and share it with friends. The longer a label is on a streaming platform, the more established they become, and the more time users will have had to discover their music. Users need to dig deep and it also helps if labels market their playlists. If a label is sceptical about streaming and is concerned about cannibalisation, they are not going to actively promote their music on streaming services, so stream rates remain flat. Catch 22.

Currently, Spotify is our number two digital account in most of the territories where it exists in terms of actual turnover. In Scandinavian countries it is our number one source of income (physical or digital).  This morning, MusicAly published some Swedish stats which make interesting reading.

Cannibalisation
This is a more difficult question to answer as we have no benchmark. When we started with Spotify their turnover was negligible so there was certainly no issue with cannibalisation. What has happened as time has gone by? The argument could be that we are like a lobster, slowly getting boiled to death as the temperature rises.

I really don’t think this is the case.

Our A la Carte turnover has been pretty solid over the last couple of years. We have certainly seen no significant drop. It rises and falls by a few percentage points depending on the quality and exposure of releases during the sales period in question.

If I ask myself, “if we left streaming services now, would we see our a la carte sales rise by 24%” ? My answer would be a very emphatic no.

Income “per consumption”
Looking at “per stream” income for streaming isn’t particularly helpful.  You need to focus on overall turnover.

There are two developments that will eventually make a big difference in per stream income. One is conversions to premium, the other is bundling.

Spotify’s conversion rates in Europe are running at over 10%, but this was before they started limiting their free version, and also before Facebook integration. I would anticipate this rising very considerably over a reasonably short time. Mobile use is also key to encouraging conversion. People want to take their music with them, which they can only do with a premium subscription.  Incidentally, we have already seen very significant improvements in our per stream rates.

The other big factor is bundling. As more items (phones, TVs, cable contracts, cars) get bundled with streaming services included we will start to see “gym membership economics” kick in. This is where consumers get streaming as an add on, but don’t make a lot of use of the service. Their contribution adds to the royalty pool, inflating the “per stream” income.

Of course, (as was the key theme of yesterday’s post) people will only upgrade if the service is top notch, with good depth of catalogue and with new releases fully represented.

Transparency and Equality
Our accounting from the streaming services mentioned is completely transparent. We can see exactly what we earn per stream, per service, per territory. Nothing fudgy or grey. By the nature of these services, there is a lot of data for us to process each month, but it is all very clear. (I wish I could say the same for some of the other services !)

There also seems to be a running theme that indie content is not being equally remunerated. In the case of RDIO, Spotify, Simfy and Deezer, all these deals were, for us at least, negotiated through Merlin. Charles and his team do a tremendous job ensuring we, as independents, are treated equitably, and that our content is valued appropriately. It is worth noting that Spotify were quick to engage with the independent community right from that start, and were fully licensed at launch. This is more than can be said for many services.

Kudos Take Downs
Since we started dealing with streaming services, (initially with Napster and Rhapsody, now joined by Spotify, MOG, RDIO, Deezer, Simfy, WE7 and a bunch of others), we have had a total of 3 labels ask us to remove or stop content supply. This is almost an exact inversion of ST’s experience. This is partly down to the influence a distributor has with their labels.  I also think it is because Kudos labels are beginning to see considerable income from streaming services which they don’t want to lose.

Artist Compensation

As the debate has raged over the past few days, I have seen quite a few statistics that have puzzled me, with artists publishing what they have earned individually for streaming.  When I query further, I discover that the artist in question is on a points deal with his record label,  in which he earns less than 10% of digital income.  This is an argument the artist needs to have with his label, not with streaming services.

Conclusion
Kudos will continue to support all services who we believe have viable business models. We currently consider subscription streaming a viable model, and “Freemium” a valid marketing tactic to sell subscriptions. Our labels are, of course, free to pick and choose which services they supply, but we would encourage them to stay on board. Without a pragmatic approach, the failure of streaming services could become a self fulfilling prophecy, which we believe would not be in our industries, or our labels best interest.

Danny @ Kudos

See also

https://www.kudosdistribution.co.uk/streaming-services-again-2/

https://www.kudosdistribution.co.uk/spotify-and-other-streaming-services/