So, how good is the new Lady Gaga track ‘Born This Way’? Released on Friday for the first time…
In the world of promotion, hype, crazed fandom and eggcentric Grammy performances it is well nigh impossible to strip away the noise and simply focus on Lady Gaga’s music - ie what’s ‘in the groove’.
Until now. Check out how “Born This Way” rates when you remove Lady Gaga from the equation in this report.
It’s a big day for music, with Apple’s massively anticipated announcement due. In other news there’s also a whole lot of noise about Facebook’s ‘not’ email. In both cases the noise is worthwhile, both Apple and Facebook are leaders in their fields. Will Apple’s announcement make more of an impact than Ping did, probably, will facebook mail change our lives, I’m not sure. Anyway, we at Slicethepie have been developing a number of services for the music industry over the past months, and today is the official launch of our partnership with leading independent publisher Bucks Music Group. So back to the original point, today is a big day for music…
The partnership will see Bucks administering tracks that have been indexed through SoundOut using SoundOut’s semantic search technology at bucks.soundoutsearch.com. Tracks processed by SoundOut get wrapped with 1000s of descriptive and emotional words as well as ranked and positioned within their genre. This means that they can be instantly matched to either a music brief or a similar artist, or another artist/track that has been processed through SoundOut. We’d go as far to say as there’s nothing else like this in music search. Whilst this is a milestone for Slicethepie and for artists who can now access these commercial opportunities (we also recently partnered with Fontana), it’s just the first roll out of the technology, and along with SoundOut research a great leap forward for us.
The full press release about our bucks partnership can be found here.
And now like the rest of you, I’m going to sit (clutching my iPhone) and wait for the big Apple announcement…
So it seems last night we saw the death bell toll for another iconic British company. It now seems inevitable that EMI has but months to live. Guy Hands has rolled his last dice on the deal that, from the music industry’s perspective, looked doomed from the start. In an industry where failure of your peers is often celebrated as much as success of yourself the demise of EMI will mean we are left with just 3 ‘majors’, but on this occasion none of them can take much comfort as all are locked in their own fights for survival.
EMI has already passed executive control of the group to its publishing execs so it seems logical that publishing will now be sold and the recorded music side shut down. It will be probably be bought by Warner or BMG and EMI will become a pure rights management machine with new signings evaluated on their long term rights potential than the ability to look cool and deliver top 10 hits.
Meanwhile, the industry continues to try to understand and navigate the new digital landscape that continues to be completely obscured by the over-financed slew of VC backed music streaming companies that mean commercial clarity is still a year or two away. Mogg seems to be losing traction, Sky Songs feels like a distant memory, Rdio has been discounted by serious commentators and the Rhapsody subscriber base continues to shrink. Meanwhile, by my calculations Spotify must currently be in frantic fundraising mode – first because they almost certainly have no cash left (filing of their UK accounts are a couple of months overdue) and second because the US labels are reputedly requesting around $100m to issue Spotify with a Green Card. However great a service Spotify is, its beginning to look like money invested there is about as secure as with EMI owner Terra Firma.
There is however one trend that is becoming clear – broadly speaking radio is doing just fine. RAJAR figures last week confirmed that listener numbers are higher than ever before and it remains a truism that other than The X Factor (go Wagner!) radio remains the only viable place to break a new song and a new artist. Its the only mass market music medium left. It is only a matter of time before radio realises that they control the music industry, not the other way round. Perhaps then the airwaves will fill with genuinely good music/talent than the bland, middle of the road, lowest common denominator product peddled out by the labels of today…after all, people still want to listen to great music - they just don’t want/need to buy it anymore. Radio thrives on listeners not sales, a distinction that will ultimately fracture the cosy label/radio relationship.
So MySpace notched up losses of around $500,000,000 over the past year (about the same as it was sold for in 2005). Quite an achievement for a website that once dominated the social networking world. Is there a route to profitability? History suggests not, when users move on from social networks they rarely return – look at Friendster, Friends Reunited, Bebo etc etc. Social networkers are fickle and they leave in a social swarm as quickly as they arrived. Compound that with the move to more efficient centralised social networking and MySpace hasn’t a hope.
So if all the users are jumping ship is MySpace left with anything? – and here there could be a glimmer of hope: it is the world’s biggest repository of unsigned music – I’d estimate at 50-100 million tracks. The problem is that there is no quality control and no ability to search for music, this means that this catalogue of the world’s music is currently almost worthless. If it were organised, quality controlled and fully searchable it would offer immense value to consumers and commercial users alike.
Last week we launched SoundOut Search – a unique semantic search technology for music. At the moment its targeted at catalogue owners – but just imagine what it could do in a consumer environment…check out the demo at www.soundoutsearch.com . The press release is here.
PS: Speaking of music company losses, some new Spotify figures are emerging – in 2009 they raised $53m at a valuation of $250m and in February of 2010 they raised a further $15m at a valuation of $300m. So why the further raise?… well although they had $25m cash in the bank in January it seems they also had liabilities of around $23m – meaning that they were effectively out of cash (or would be at some point this year). Staff costs alone were pushing $1m a month by year end.
Looking at the cash situation, Spotify started 2009 with $10m cash in the bank, add to that the $52m they raised from investors and the $12.7m sales in 2009 and you get to $75m. By the end of the year this was $25m. Voila: $50m cash burn last year…about $1m a week…
Extend this into 2010 – $25m in the bank plus $15m raised in February, total of $40m – assume a conservative cash burn of $5m/month and that would suggest they are about to run out of cash again – expect another funding round soon. It costs a lot to provide free music…
It’s almost 10 years since iTunes launched and almost 5 years into the mainstream social networking revolution. But something odd is happening – if the future is all about mass personalization and the decline of one-to-many mass broadcast, how come terrestrial radio is in rude health and right now is attracting more listeners than ever before?
A lot of column inches are wasted on analyzing the on-demand streaming sector and the revolution that the likes of Spotify, Rdio, We7, Mog, Sky Songs etc etc etc are delivering to the way we access and consume music. But whilst on demand streaming services may still be growing, the rate of growth is declining; meanwhile the market is being saturated by an ever increasing number of new entrants (at this rate there could be more services than customers). It’s inevitable that there is going to be (a lot of) blood on the floor within 12 months as the nosebleedingly high costs of running these services empty the VC money pit faster than you can say ‘freemium’.
But there is an elephant in the room (indeed he’s been there all along) and he’s called RADIO. UK radio is responsible for a staggering 82% of all audio listened to in the UK (and that includes ipods, streaming services, YouTube etc etc). It boasts 46 million weekly listeners (more than ever before – 91% of the population of over 15s – RAJAR) listening for an average of 16 hours each – that’s around 500 billion track listens a year, which compares with around 2m UK users for the fledgling Spotify which I estimate to be serving around 5 billion listens per annum in the UK. Furthermore a UK radio station will typically have a playlist of just 300-600 tracks compared to Spotify’s 8 million. So the concentration of promotion on radio is many thousands of times more powerful that on demand streaming – combine this with Radio’s ability to push new tracks (rather than relying on user request) and its obvious why Radio is by far the dominant medium to deliver exposure, influence consumer choice and control the charts.
For the vast majority of consumers, music is background, and that is what radio provides, ‘good enough’ at playing what you can live with. If Spotify is for people passionate about music, radio is for the masses. The vast majority of people just cannot be bothered (and are not motivated) to spend time programming the soundtrack to their lives. OK is just fine. Another example of this is Pandora, the wonderful radioesque music service no longer available in the UK (many thanks PRS); now profitable, it boasts an astonishing 50m users in the US alone (that’s 1 in 6 of the population) and its now finding its way into cars, phones and just about everywhere else. And why has Pandora done so well? Because its essentially personalized radio – give it one track or artist you like and it’ll play you good, similar music all day, every day. Its supercharged music discovery for musical coach potatoes – its like radio but without the DJ, news, weather and other interruptions.
In the medium term music subscription services appear to plateau on a subscriber basis pretty swiftly (Rhapsody, a leading US player, has just 700,000 users, less than 0.5% of US radio reach). But the fact remains that radio remains dominant if you want to break new tracks. How about this for a statistic: in the UK alone Lady Gaga’s Bad Romance, Cheryl Cole’s Fight for this Love and Alexandra Burke’s Bad Boys have each had over 1 billion radio listens– UK radio DJ’s have played each of these tracks almost 100,000 times (source RadioMonitor). A single play of Bad Romance on Radio 2 (simultaneous exposure to millions of consumers) will deliver PRS royalties of around £50. Contrast this with the furor around Lady Gaga receiving just $167 from 1 million plays on Spotify and you can begin to get a sense of perspective – she received 1,000 times more plays on UK Radio alone than on Spotify. Royalty rates are tiny and at present it’s only Radio that has the audience size to make the royalty cheque worthwhile for the artist (this is a little simplistic as royalty rates are different in the respective mediums, but you get the idea).
So where is this post leading? The fact is that although radio may be the dominant promotional tool and no 1 chart driver, it’s not very good at picking the right songs to play. This is because playlists are almost entirely driven by whatever the major label pluggers are hawking, combined with the gut instinct of hundreds of local programme directors. These programme directors are all fishing from a very limited pond (major label releases – approx 20-30 per week) and are all desperate to be progressive but at the same time terrified of alienating their core audience. In radio it’s all about audience share, and if you play the same as your competitors you are unlikely to lose market share, try something a little different and either you will win big, or lose big. RAJAR audience figures are published every quarter which leaves little time for experimentation from one bonus cheque to the next so everyone plays it safe.
And we can prove it. We’ve done some research in respect of 50 recent releases. The chart below plots single sales per 1,000 listens (i.e. conversion rate, the higher the conversion the better) against total number of radio listens (i.e. how much radio exposure the track has had).
Sales Vs Listens
As you can see, there is little correlation between the two, you can see that the Sugababes track received over 400,000 listens but sold a meager 1 copy for every 5,000 listens, contrast this with Shakira, who had only a third as may listens but sold almost 10 copies for every 5,000 listens:
By way of comparison, here is another graph that plots Sales per 1,000 listens against these tracks’ SoundOut rating (each track was passed through SoundOut, our online insight and analytics service, pre release):
Sales Vs SoundOut Score
As you can see The Sugababes track rated badly (around 5.7) whilst Shakira enjoyed a very strong rating of over 7.5. There is no smoke and mirrors here, all this is saying is that genuinely good tracks do better than bad ones and because radio producers have little or no predictive tools to guide their decision making they fall back onto:
1. ‘Research’ being peddled by the record labels ‘proving’ why a track should be played more;
2. What their competitors are playing; and
3. The Charts, which funnily enough are almost entirely driven by radio play…
Charts and New Music
…it’s all rather circular.
At the end of the day a decent predictive tool like SoundOut will help appropriate track selection and play frequency, this increases both audience retention and acquisition leading to higher advertising income and an even better listener experience. It’s also much fairer to the artists.
The bottom line is that radio is not going to decline any time soon, indeed as radio stations increasingly adopt SoundOut as a predictive insight tool, it’s about to get even better…
Next time we’ll do some further radio analysis and examine how much the identity of an artist influences the commercial success of a track. For instance, does a well known artist do well because they automatically get more airplay, and would an unsigned band do just as well with a similar quality track if given the same exposure…we have the data…
We’ve looked at the stricken economics of the streaming sector and the challenges of the artist services sector, now it’s time to take a look at the evolving industry from a new perspective. A lot of effort is going into trying to recreate the old music industry online when perhaps we should look at how other sectors have been transformed forever by the Internet and look at it from a Web, rather than a music perspective.
‘The Music Industry’ is no longer limited to record labels and other related corporate music institutions. They still (and will continue to) exist but they have been joined by millions of artists – effectively sole traders empowered (although not quite yet enabled) by the Web to build their own career, and distribute and profit from their music, without the necessity to partner with a label.
There are 7m odd tracks available from the 4 majors and this is the catalogue that, broadly speaking, every consumer facing music site licences and seeks to monetise. But in addition to these there are well over 10 million artists and 100m other tracks lying around on sites such as MySpace. So why do retail/search/recommendation services almost exclusively revolve around the 7m catalogue? The whole point of the Web is that consumers can almost instantaneously find exactly what they are looking for. It works for books (Amazon), retail (eBay) and travel (Expedia) – these sites don’t just list products from 4 major suppliers, they list everything from everybody and you can search for it. So why not music? Have you ever sat in front of a Spotify screen and thought ‘7 m tracks, there must be amazing things in here, but how do I find them?’ Better still, in front of 100m tracks on MySpace and wondered how great it would be if you could be taken to your perfect track every time? At the moment, it’s like going onto eBay and only being able to select a category but not being able to enter a specific search.
It’s all about search. On Amazon you type what you are looking for and, after you have found it, there are recommendations on what else you might like. In music you just get the recommendations (and pretty average ones at that) – the fact is that other than artist name and track name, there is no search in music.
Fast Forward to Nirvana (the place, not the band), how should music search work? – well either you should be able to describe the type of music you are looking for (in free text) or, alternatively (and I prefer this one) use a reference track to search for all other tracks that were very similar, regardless of artist. For many people, the emotional connection with the artist is an important ingredient, but for the vast majority (over 95%) it’s just about finding great music on a consistent basis, regardless of who wrote/performed/released it. Emotion follows great music, not the other way round.
So why is there no music search? The nub of the problem is that the thing you are looking for must have data attached to it that is of relevance to the search being carried out. On eBay we know what the item is, its age, description, the quality of the seller and a good idea of what others think of its worth. It’s a magic blend of factual description, quality control and crowd wisdom. In music the name of the artist and the track name tell you next to nothing about the listening experience of the track itself (or its quality), but for most of those 100m+ tracks this is all we have. And for most of us it’s not about the artist it’s about the track, which is why most recommendation engines fall short, because they stick on artist and cannot go more granular.
Pandora are perhaps the current leaders in music search – and the way they have managed this – by manually wrapping data (up to 400 manually applied attributes per track + recommendation) around millions of tracks and then using the data around one track to map it to other similar tracks. Does it work? 50m users (that’s 1 in 6 people in the US) and the only profitable personalised streaming business in the world is the result, so I think that’s a yes. Pandora realised almost a decade ago that the secret behind music recommendation was data, unless a track is wrapped in data it is almost impossible to clump it with other similar tracks.
So where is this going…if you are an artist in the 7m catalogue you have some visibility because a small percentage of these tracks are played often enough to get you high enough in the recommendation engine to acquire new fans. But if you are outside the 7m, however good you are as an artist, the consumer will not be able to find you, even if your song is the one they have been waiting for all their life. Accept it. And the consumer is mind-bendingly lazy, they do not have the time, inclination or energy to look for you, and even if they did there is almost no chance of them finding you. It’s like a monkey on a typewriter, there is a tiny chance something good will emerge…but the odds are against you.
So, as an artist, what do you do? Most still strive for a record deal, and although a record deal is potentially a ticket to exposure, nowadays the financial returns for a relatively successful artist are pitiful. Alternatively there are numerous digital silo services you can use to try and promote yourself. You can pay to get on iTunes, you can pay to have your tracks fired at listeners on internet radio who like vaguely similar stuff and you yearn for radio play in the hope that someone randomly listening will connect with your music and track you down. It’s a disjointed digital ecosystem because its new and there is no integration, no logical progression. Its like a production line where all the machines are working but they are all out of order. All you want (and need) is fans (and their email addresses), fans that will love your music, a sales channel that you can feed with great new music. Fans that you can build a career around.
There is lots of data around consumers, what tracks they like, how much they like them. Pandora enables you to put in an artist/track and stream similar music – this is only possible because all the tracks are wrapped in data. If this could be turned on its head there would be a service for artists that enabled them wrap their track with data and then map their track to the wider market. This would tell them where they fit in the music universe and precisely target the consumers most likely to love their music, a sort of permission marketing. In the world of the long tail, this is the tail wagging the dog.
If this were possible then all digital services fall into place, relevance would direct promotion and opportunity and the world becomes one of mass personalisation. Artists can find their fans, publishers their customers, consumers music they love and record labels the next signing.
So how would this work in practice? An artist lays down a track on a Monday, gets it datawrapped on Tuesday, uses this data to map themselves to the wider established market, (and by extension who and where the most passionate audience are) on a Wednesday and fire their track at that precise audience on a one to one basis on a Thursday. By Friday they have enough new fans to start packaging music/merch/live bundles and offering this to the fans most likely to buy. Weekend off/writing…and repeat…
It’s a little simplistic, but you get the idea.
Think its fantasy – well it’s on its way, consumers have neither the time or patience to find the artists, but the Internet enables the artist to find their audience, on a one to one basis. This is the new music industry, one to many is yesterday, one to one is the new paradigm and the ecosystem to make this happen is already coalescing.
Music search is a universal solution for industry, publishers, consumers and artists – indeed anyone who wants to find or wants to be found. In the same way as a niche supplier can be the top of a list in a Google search, the smallest artist will be able to do the same in a music search. It’s all about rewarding relevance with prominence.
It’s been a couple of years since launch, but we’ve finally decided to start a modest blog, its likely to be pretty random with a number of STP bods contributing from time to time, but we hope you’ll find time to drop by occasionally.
Swimming around as we do in the digital music world we have our own ideas of what’s going on, who’s flying, who’s dying and what may happen tomorrow. It’s not about Slicethepie or SoundOut its more of an observational platform.
As a kick off we’re going to give you our economic take on our view of the industry in 3 instalments (1 today, 2 others to follow…). First we’ll look at the exploding streaming sector, next the artist services sector and some pretty strong trends/evolution happening there and finally our personal view of where this is all headed and where you’ll need to be standing when the tide goes out.
The last mile … and free supermarkets
There’s been a mass of commentary about streaming services, all pretty disproportionate to their eventual economic impact on the broader industry. All these deliver the last mile of connectivity to the consumer and all sell/stream the same few million tracks from the same suppliers (labels). On the one hand this is pretty limited as it only represents around 2% of music actually available, but on the other, as discovery technology is currently so nascent, it doesn’t matter right now.
As a result there is almost no tangible differentiation between any of these services , plus any that does exist is rapidly being eroded – and in any event when Apple, with their 70% digital market share, device dominance and Lala tech, switches on, its game over for the rest of the sector.
Imagine a free supermarket chain. Always open and offering free goods to anyone who wandered through the door – the whole concept financed by advertising billboards on the walls splitting advertising dollars with the suppliers. Plus for just $10 a month you could also enjoy the home delivery service. From a consumer perspective this would be compelling and would grab market share in no time at all. Until that is the suppliers went bust or you ran out of money. You’d need some VC backing of course and/or a neat way of not having to pay suppliers (steal the goods). Broadly speaking this is the business model of many of the streaming businesses. I’m not distinguishing between legal and pirate sites as the economic model is very similar – except in one case artists are being robbed, and in the other its VCs (plus the artists who inadvertently also find their feet in the same bath). For the time being the labels are benefiting as the net effect is a cash transfer from VCs to them, a game they continue to play well. From a consumer perspective it’s a similar experience – it’s all free music.
Some operators have been and gone (Spiral Frog, Imeem, Napster (V1), Pirate Bay) some splutter along (Q Trax, Rhapsody, Napster (V2)) others continue and on the user number line they appear to flourish…but if you look at the underlying economics it’s pretty scary….
Take Pandora, who you’ll remember are in personalised radio rather than on demand streaming and enjoy licence costs that are a tenth of the on demand guys (0.1p per stream v 1p per stream), they’ve now got around 40 million users but are only just at break even. Others have not aged so well – Imeem torched $35 million before collapsing into Mr Murdochs arms, Spiral Frog burnt $15m and Ruckus drank $41m of the VC cool aid before passing out. Bottom line is that it’s not easy making money in music retail/streaming. Even the mighty Apple who sold over a billion tracks last year could only manage break even for iTunes.
If music is going to be ‘free’ to the consumer it does not follow that the guy shifting the most free music becomes the winner, it’s going to be a phyric victory without some dramatic extra economic ingredient.
Those at the forefront of this ‘revolution’ continue to feed at the VC trough but the numbers ain’t pretty. Take Spotify, the Waitrose of the free supermarket sector. I, along with 7 million others, think the service is brilliant but does that make it a great business? Right now their numbers appear downright scary: They state they need 12% of users to pay £10 ($16) a month to break even (I’m assuming this is on top of ad income) and that they are on about 3.5% conversion at the moment equating to £2.5 million/month. So they are taking £2.5m from subscriptions a month but need £7.5m – indicating a current monthly loss of £5m ($8m). Ouch. At this rate the $50m they collected last August will soon be exhausted. No wonder they’ve gone invite only and the US is on hold. It’s not a scalability issue either plus even if they have a sweetheart deal with the majors at the moment this is not going to last forever. Cracking product though…
In a commodity market (which is what its now become) the defining metric is price – which in case you hadn’t noticed is now settling at around $5 a month (We7, Sky Songs, Vodafone, Mog etc) – so this would translate into a lofty 25% conversion rate for the likes of Spotify & Co to hit breakeven.
So it’s unlikely many fortunes will be made in music sales or distribution, and the last man standing may simply be the one with the deepest pockets who can take the odd billion dollar hit with a parallel business model that is able to profit from its market position. Hang on a minute; forget the iPad, the big Apple launch this year is still to come…and 125m credit card details and a wifi enabled iPod would be quite a head start.
I know the above is a simplification, but if the foundations are shot, the paint colour doesn’t matter. So where does that leave us? If there is little money in music retail/streaming anymore we’re going to have to look elsewhere for that pot of gold at the end of the musical rainbow. It does exist, it’s just that right now most people are looking in the wrong place. It’s not only about lots of music, it’s more about deeply personalised music on both a consumer and commercial usage basis. Plus if there is a personalised filter the signed/unsigned distinction blurs and the volume of music explodes… Tune in for part 2…..
