Speaking of VAN, a few weeks ago I wrote an addendum to my previous piece on streaming and piracy, covering some things I had to trim at the time for the sake of space and pace.
Then I got married, and forgot to post it. For the sake of completion, it’s below:
I’ve written before1 that it’s in the interests of the big record labels to have their entire catalogues, or as much of them as possible, on the major streaming services. By sharing their vast libraries, the labels are more or less guaranteed to make their money back. All they need is a couple of hit artists, and they can afford to lose the bets they’ve made on everybody else (or at least break even). In that way, the big labels are like investment bankers: invest in as wide a variety of stocks as possible, and enough of them will provide a return.
It’d be nice if the labels instead saw their musicians as people, but that’s not likely to happen in a hurry.
This is why small labels are unlikely to receive the same benefits from streaming as big ones: not because they’ll never have a hit, but because the big labels they’re in competition with are almost guaranteed to have a constant stream of them.
Netflix is probably the business that seems closest to the streaming music model in many people’s eyes. In some ways it seems apt. Both services provide access to a large catalogue in exchange for a fee, and pay the majority of their revenue to content providers. But they’re different in a couple of important ways.2
Firstly, as I’ve covered before, Spotify (to take for example the most prominent streaming music service) pays a per-play fee for each item on its catalogue, so a song that gets ten times more plays than another makes ten times the revenue. Netflix, like traditional TV channels, pays for its content upfront. While the result is similar, with bigger earners getting bigger payouts, the fact that Netflix’s payments are made upfront means that all of the content creators get paid, and get to decide whether the payment is worthwhile. If you sell your movie to Netflix, and nobody watches it, Netflix lost the bet. They may not buy your movie again, but at least some of the effort that went into making it is recompensed.
On Spotify, if nobody listens to your music, you get nothing. And if one person listens to it instead of buying it, you’re out the sale of a CD.
Secondly, and as a consequence of this, Netflix’s catalogue relative to the number of films and TV shows released is quite small. Spotify is aiming to have every musician on Spotify, whereas Netflix can only afford a limited (admittedly high) number of shows and movies. This means that among shows and movies featured on Netflix, there is less competition for viewers. On Netflix, you’re up against everything Netflix can afford; on Spotify, you’re up against everything.
The main reason for the distinction, I think, is that Netflix is in direct competition with its providers. Streaming services work with the support of labels—especially the big labels for the reasons outlined above. But the big TV and movie companies have their own networks, and the more time people spend on Netflix, the less they spend on the Disney channel. How long this can last is an open question, since the more subscribers Netflix gets, the more content it can afford, and the more content it has, the more subscribers it can get. But I don’t think Netflix will ever have everything the way that Spotify has everything. There’s too much content being made.
Whatever the reason, the result is clear: Spotify’s business model is a worse deal for artists than Netflix’s, and makes it harder than Netflix does for artists to make a living.
News publishers today are facing a dilemma: give their work away for free, and support it through advertising, or hide it behind a paywall and risk piracy.
Only the biggest news sites in the world are able to demand advertising rates sufficient to cover their costs, and more and more those advertisements are going to Facebook instead. On Facebook, people care about the news they get, but they don’t care about who’s published it; they just click the link. But if publishers don’t publish to Facebook, they miss out on enormous potential readership. So big news sites are having to settle for Facebook’s terms or face a massive drop in readers. Elsewhere online, small sites are springing up that tend to fall into one of two revenue categories: paid memberships and sponsored posts. The sites have this in common: they are focussed on a narrow range of topics and interests, and attract people who share those interests.
Readers are willing to pay for the content, firstly because they have a passionate interest in the topic, and secondly because, in a lot of cases, they’re supporting a writer who they like. And piracy, while still a danger, is less of a risk because the audience tends to be both small and loyal. In the case of sponsorship-supported blogs, a similar system is at play: a site focussed on a specific interest will have an audience with particular tastes, and advertisers, particularly if they’re making niche products, are interested in that.
The big labels may do well to look at the publishing industry, as they have to compete harder and harder with all sorts of audio content. It may happen that big news sites that produce good work, but not enough of it to keep the lights on, are taken over by other big news sites until only two or three remain. Just imagine if that were to happen with music.
Specifically, I wrote:
So who wins in the Spotify ecosystem? Well, Spotify do well for themselves, obviously. As do the big record labels, those who have a wide enough variety of popular artists that chances are something they’ve released is being streamed right now.
- Kirk McElhearn also wrote on the differences between these services while I was away. ↩