Today, the music industry is at a crossroads. The Faustian deal that the music industry made with the late Steve Jobs — make every music track available for $1 on iTunes — isn’t working. Physical record sales continue to decline, as they have every year for nearly a decade. But now digital track sales are declining, too — iTunes music sales are down by more than 10 percent this year — and the recorded music industry is scrambling for a solution.
The hot question of the moment is whether streaming on-demand music services are the answer to arrest the recorded music industry’s decline, or whether the industry is about to enter another protracted downward spiral. The flash point for this has been Taylor Swift’s decision to remove all of her music from the free streaming service Spotify. Other artistes have followed suit in recent days with their latest albums, including Jason Aldean, Justin Moore and Brantley Gilbert.
As a pioneer in streaming music — in 2002, Rhapsody was the first music service to offer streaming music from all the major labels — being big believers in streaming as a key part of the answer for both consumers and the recorded music industry. Indeed, earlier this year Rhapsody crossed two million paid subscribers, making them the No. 2 on-demand music service in the U.S., and one of the top two in many countries around the world.
Before Swift’s decision to pull her catalog from Spotify, most people didn’t understand the difference between free streaming services and paid ones. There is actually a big difference. On Rhapsody, everyone who has full access to the more than 30 million songs in its catalog is a paying subscriber, either directly or indirectly (for instance, through their mobile phone service plan). Although Spotify’s services are free, they have been able to generate revenue through ads, which they offer artistes a certain percentage.
There’s certainly a role for free ad-supported services — radio has been around for over 75 years, and the popularity of Pandora clearly demonstrates how robust this model is. But we have long thought that the industry going all the way to free on-demand music is throwing the baby out with the bathwater. It’s heartening to see the industry figure this out and take action.
Windowing is clearly one way to differentiate free versus paid access. The fact that Swift is the first artiste this year to sell more than one million copies of a new album — which she did in just one week — demonstrates that the model can work.
We already know that consumers are fine with windowing in other parts of the media world. The most common example of windowing is movies, which almost always open in movie theaters before moving to home video and television.Television also has this model — hit shows premiere on the network that owns or underwrites them, then they move to other distribution places later. Based on how durable box office revenues are, and how much consumers love shows like “Game of Thrones” and “House of Cards,” it is clear that consumers are perfectly willing to embrace windowing.
The key to making consumers happy is consistency and exchanging value for value. If 90 percent of new releases from established artistes were only available at launch on paid services — whether by purchase, or as part of premium subscription services, such as Rhapsody, or through some new model — then consumers would quickly come to understand that premium services are the way to get access to all the latest music.
The result would be a win-win for everyone — more artistes would get paid reasonable rates for their music, aggregate industry revenues would rise and consumers would get excellent, virus-free experiences, and would know what they were paying for.
Windowing is but one of a number of ways that the music industry can embrace the innovative possibilities that digital distribution offers. Rhapsody unRadio, which was launched earlier this year, is an example of innovation that being recently brought to the market.
Streaming if done right can be part of a future where recorded music is again a vibrant and growing industry. We look forward to continuing to work with the music industry to deliver compelling services that both consumers and artists will embrace and that keep the music industry vibrant and vital.
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