November 18, 2011

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Just after I posted my “Streaming Services” article, we heard the news that one of our competitors, ST Holdings, had withdrawn their entire catalogue from all the major streaming services.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

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

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

November 11, 2011

Streaming Services (again).

So the debate about streaming services continues. Last week we had Coldplay hold their new releases back from Spotify, while this morning, we have an opinion piece in Digital Music News suggesting a digital distribution strategy where streaming services are relegated to cater only for deep back catalogue.

Context

Estimates vary, but I think it’s pretty safe to say that 95% of music consumption is unlicensed, and earns the performer and composer nothing. I say “at least” because most statistics take little account of non internet sharing. I’m sure there are whole school classes where all the pupils have identical MP3 collections, sourced on torrent sites and propagated on portable drives. The same is probably true in many workplaces. We (the recorded music industry) are scavenging around in 5% of consumption, so any conversation on an industry strategy needs to be seen in this context. This statistic opens up the possibility of significant growth from harvested from the “95%” without, at least initially cannibalising the “5%”.

The allegiance of Technology
I’m sure at some point significant sales will migrate from a la carte to streaming. I would however hazard a guess that once migration starts denting Itune’s turnover, Cupertino will release a very beautiful and incredibly slick streaming service. With their current market share it simply makes no sense for them to change their business model at this stage, but you can bet they are watching with interest.

In this blog post from a year or so go, I made the point that cannibalisation is pretty much an irrelevant point in any case as we have lost the ability to determine which business models will succeed.. Consumers will eventually get the services they want, as long as there is the technology available to deliver it.  Our goal has to be to ensure that the content creators, the artists and songwriters, are the ultimate beneficiaries of that winning supply chain.

Who spends what on music.
Here are some more statistics, this time from the BPI year book. In 2010 only 52.8% of the UK population spent anything on music. Of that 52.8%, the average annual spend was £42.83 per annum. With subscription rates running at £120 per annum we have the potential of immediately growing that annual spend from music buyers three fold, while also monetising much of the 47.2% who currently don’t engage with us at all, This could be achieved through bundling streaming services with ISPs, and Mobile Contracts.

A Service worth Paying for ?
However, consumers will only upgrade to and maintain premium Spotify, Rhapsody, MOG and RDIO subscriptions if the content is top quality, and new releases are fully represented.

• Premium services are simply not attractive as “catalogue only”, No one is going to pay a monthly fee for old music.
• Free tiers have been shown to be necessary to gain market traction, but are not viable as anything other than a gateway to premium services.

It would be interesting to know how those Coldplay fans with streaming subscriptions dealt with this missing content. While some headed to Itunes, I’m quite sure there were many who reached straight for Bit Torrent and Rapidshare.  Some will now be considering whether their monthly subscription actually represents value for money.

Crossroads
We are at an important juncture in the evolution of digital music. We have a variety of services that can successfully compete with free by offering greater convenience and enhanced social functionality. Spotify’s conversion rates testify to this. There is also now tremendous service diversity both in terms of business models (a la carte –v- subscription) and functionality.  I have been fortunate enough lately to have had the opportunity to try out MOG and RDIO, both of which I found really compelling services, genuinely enriching my listening experience.  Exciting Times… potentially.

We, as an industry, can either fully engage with and support these new innovative services which genuinely appeal to consumers, or we can dick about for another decade, artificially crippling services and trying to dictate to our customers how they consume music.  If we take a fragmented, confused and arrogant approach we will still be splashing around in our 5% puddle for decades to come.

This is worth watching.  It’s a bit long, so if you are in a hurry skip forward to about 17mins in.

http://www.youtube.com/watch?feature=player_embedded&v=LbAT9Ap9EVs#!

- Danny at Kudos

November 9, 2011

Kudos welcomes Affine, Earnest Endeavours and Lil Pitch!

We at Kudos are very pleased to announce that Affine, Earnest Endeavours and Lil Pitch have joined our loving distribution roster.

Affine, the Vienna-based electronica label, feature the likes of Dorian Concept, Ogris Debris and The Clonious. Their latest album, from Zanshin, is out physically on 14 November and is out digitally right now.

Earnest Endeavours have just dropped their debut release from B. Bravo, the ‘Kiss ‘n’ Tell EP’. The London-based music and art collective are already a big name on the party circuit and will be looking to take things to the next level with the inception of their new label.

New Italian electronic imprint, Lil Pitch, will release their first 12-inch on 21 November featuring a remix from the mighty Pinch. Digital to follow.