It seems music is the last frontier that technology hasn’t yet transformed completely, though it’s well on its way. Recently we’ve had a number of new entrants into music streaming, most notably TIDAL and Apple Music. I was going to do an article focused on suggesting for TIDAL (transparency on artists benefits/pay, focus on streaming concerts, indie artists, etc.), but it’s since been made clear that there’s a lack of leadership capable of making the big decisions necessary for a dramatic pivot for that service. Along with the lack of anything meaningful coming out of Apple’s announcement (Apple Music’s Family Plans & Radio 1) that addresses opportunities in the market for music consumers, indie artists and record labels; I decided to expand the focus of the article to provide a solution to their unprofitability problem while also answering the question for them of music consumers want.

The first thing everyone who’s now in the streaming market or may be eyeing the market needs to admit to themselves is that Spotify is the leader when it comes the big acts and the major labels. They have become the leader due to the capital they’ve been able to raise (Spotify Raises $526 Million In An Answer To Apple’s Music Service Launch) and invest in their service, their superior user experience, their relationship with the labels (This Was Sony Music’s Contract With Spotify), and their acceleration of features for their premium service (which costs only $9.99 a month excluding the family plan). Whenever there’s a mainstream album release, all music consumers can safely assume that Spotify will have it and they’ll be able listen to the material. For music consumers, this is as close to Napster as a legal streaming service can get. Regardless of who enters the streaming business next or how many millions are spent on marketing and development, Spotify’s position as the leader of this business is secured, unless they lose a major label, because very few users who pay for the perineum service are going to be willing to migrate to a different service and those who are using the free version are likely to subscribe to Spotify than an competing service.

The reason why switching streaming services is difficult is because, after months of using a service, you learn the features and functions of the service (such as how to save music for offline play, playlists, share music with your friends/social networks, how to get notified by the service about new releases from your favorite artists, etc.) and the fact that many of your friends and family may also be subscribers to the same service makes it even easier to share and discuss music and thus harder to switch. A few months back I migrated to Spotify from Xbox Music and I still have trouble coping with the loss of features and the interface and integration Xbox Music had with my Windows Phone and desktop OS, but Spotify makes up it with better content, facebook integration, and the fact a number of my friends also uses the service. You can’t underestimate the lock-in power of a familiar interface and functionality. This is a big hurdle to overcome even if you’re a multiple billion company such as Apple.

This leaves people who have never subscribed to a streaming service, whose numbers are rapidly declining, as the primary source of customers for any new streaming music competitor. In order to secure these new users, who are likely not as tech savvy as those who are already paying and experiencing a premium streaming services, they’re going to need licensing from all the major labels (which TIDAL, for one, does not have) and a user experience that’s equal, if not superior, to Spotify. Failure to have these basic elements in place will lead to those new to music streaming discovering, via conservations with friends and family, that their service is subpar and will likely result in this new subscriber switching to Spotify just for the peace of mind that they’re paying for a quality service. This is an expensive and challenging undertaken for anyone not just Tidal.

The Streaming Music Business Unprofitable

Another challenge for companies entering the music streaming business is the fact that none of these music subscription services are profitable (Spotify Hits 10 Million Paid Users. Now Can It Make Money?) due to the payouts to copyright holders. I think the digital music business was strategically setup to be unprofitable by both the record labels and Apple. When you think about how iTunes was setup and how Apple was actually making money from it initially, selling Apple hardware that played the digital music from iTunes(As iPods Fade Out, Apple’s ITunes Turns Up The Volume), when it launched. Also remember that ITunes at the time was an iOS/Apple platform only service. In hindsight this fact, in my opinion, allowed Apple to negotiate a financially bad deal with the record labels that allowed them to sell all records at $0.99. I speculate that their profit from the hardware sells offset any losses they incurred from the music download business. Where this becomes a problem for everyone else is that agreement set the framework by which the record industry structured their streaming contracts with all the other streaming services; The streaming only service don’t have any other way to offset losses besides increasing their ad revenue or subscriber numbers in hope that they eventually break even or turn a profit. You would be forgiven for mistaking this business model for a Ponzi scheme.

With all these hurdles to overcome, how can a streaming service not only compete but be profitable and attractive to music consumers to the point where they are willing to either switch from their current streaming service or subscribe to an additional one? For those highly engaged music consumers, offer a service that cover all the basics while offering something totally unique and desirable. I believe the solution is a focus on indie labels and artist, transparency on royalty payments, experimentation, rejection of exclusivity, and the reintroduction of the in-app buy buttons.

What Music Consumers Want

As an engaged music consumer, Spotify is more than sufficient for my needs when it comes to mainstream music releases but falls short when it comes to discovery and exposure to new artists and genres. I think this is a huge opportunity that no one seems to have nailed In an era where some of the most talented artists are being discovered on YouTube (10 Artists You Didn’t Know Were Discovered On YouTube) , it makes you wonder why there’s no major streaming service focused on addressing this when it’s the unsigned and independent artists that are the solution to their profitability issue. The streaming services could become a platform for indie or unsigned artists of all kinds, in exchange for exposure instead of paying 70% of revenue out to the major label the streaming service could flip the radio and keep 70% of revenues and distribute 30% to the indie artists and labels. You may be wondering why an artists would agree to such terms? Because, in the music business, exposure is priceless and, compared to the deals that the major labels offer, this would be very lucrative compared to the other options they have The agreement could simply just cover the digital distribution of the artists music and work via the service; the artists would maintain the rights to their tracks, keep 100% of any direct revenue generating by them via live performances, merchandise and any direct digital music sales from their website. This is win-win for everyone. One critical aspect will be quality assurance, using data and human resources to ensure that the artists and labels music is up to pair, once they have passed this process allowing them to submit their music free and almost instantaneously directly to the service. Don’t create roadblocks to your own profitability, someone should be laser focused on making this a reality.

Making this financially successful for both the streaming service and the artist will require serious effort primarily from the streaming service, the service will need to strongly push their independent catalog, similar to how Netflix push their originals, using vehicles such as human curated playlists (Beats Music/Apple Music), homepage and/genre section placement, Radio stations, recommendation engines, email suggestions . The streaming service will need to market and promote their indie service to artists and their subscribers as if their existence depended on it; because it does. Financially, this will make the difference between whether they run another unprofitable subscription service or a profitable one. This will, no doubt, upset the major labels who are financial leeches to the subscription services; but, I’m willing to bet they’re not in a good position to cut off a free source of capital based on how the industry trends are going.

Transparency on Royalties Payments

The next area of improvement would be in transparency of royalty payments made to the copyright holders; they could start with their indie catalog. When TIDAL launched, we heard a lot of talk about how it was better for the artists. While the industry thinks music consumers don’t care about the compensation of artists, they couldn’t be more wrong. There are many artists and genres that don’t get the support nor promotion they deserve which hurts not only the artists and genre but the music consumers as well. There are talented artists who may not stream or move hundreds of thousands of units in a week but have a passionate and dedicated fan base, who don’t make music as often or even have retired due to the economics not working out as needed. Instead they travel around the country doing live mini concerts on a catalog that’s decades old. There’s a number of artists who decide not to pursue music professionally because they’re unable to get signed or self-fund due to the investment necessary not being able to genre a profit. Improving the economic model for both established and indie artists is good for all stake holders. Since we know the major labels are not prone to change, we need to start with the indie and show the major labels that this actually work. We started by being transparent on pay with everyone. I would love to listen to Spotify and play a song or an album from my favorite artists and at the end of the listening session I can see how much money was earned by the copyright holders. Disclosing this information in an open and transparent way instead of us having to listen to the rhetoric from both sides, show us the money. In-app show us how much money has been paid to the copyright holder that week, month or year so that when we stream it’s apparent that we’re support the artist. Music consumers shouldn’t feel guilty for streaming music they should be enjoying the work that the artists has made and the artists should be enjoying the fruits of their labor. While the major label’s legal agreements may not allow this information to be disclosed, the streaming service could start off this transparency effort with the indie catalog and perfect it and drag the major labels to adopting royalty disclosures kicking and screaming.

Experimentation with New Features

Experimentation is necessary in all businesses and the music industry is badly in need of it, a decently sized indie catalog that is leveraged and promoted correctly would also enable a music streaming service to experiment with different features that could later be incorporated into the entire service, if the major labels are willing, that currently are impossible due to the innovation stifling and unimaginative licensing contracts the major labels cook up and the streaming services sign at near gun point. Every so often we hear from a disgruntled technology executive that complains that they were unable to introduce a new feature or service due to the major labels not being willing to sign on. This experimentation and innovation would be good not only for the streaming service but everyone. If the experimentation leads to more music consumption, concert ticket sells, merchandise a stronger relationship between the artists and their fans everyone benefits.

Finally, restore the ability to purchase music via the buy button. During my time with Xbox Music I loved the fact that I could streaming music, download it for offline use, and purchase it as well. Now that music consumption can happen instantly it has totally changed the way music is purchased. Before, music consumers developed an intent to buy an album, kept up with the date of release, and drove to their favorite store to purchase the album even; if it was so that they could repeatedly listen to a single track. Now music is an impulse purchase and acknowledging this fact and restoring the prominence of a buy button is important to artists and music consumers. When a music consumer hear a song that brightens their mood or is a track that they can relate to making it easy for them to impulsively buy that record at that exact moment is golden. There’s a trend of digital music purchasing is declining while streaming is increasing, however, the attachment a consumer will have to a single or album they purchase compared to one that they stream will be stronger. Indie artists are most likely to benefit from the digital purchase then the mainstream one whose payout is determined by their recording contract. It’s interesting how for ecommerce all the social networks are introducing buy buttons but all the music streaming services are taking them away it could be one of the strongest indicators of what a type of music or artists a subscribe likes.

A streaming service that harnesses recognizes, respect and supports the creativity and opportunities that indie labels and artists offer will not only reap the rewards that comes from a successful execution of such a strategy, but will also be the catalysts that remakes the music industry by not only streaming music a sustainable profitable business but also changing the economics of the industry so that it supports and compensates all artists and genres attracting the next Adeal, Rhianna or Whitney Houston and enable an environment where mature talented artists no longer go to Vegas but instead hit the studio to continue making timeless music.

Post Originally published at | Editing By: Kel of