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The final quarter of 2014 has brought another tumultuous episode in the ongoing streaming saga, with forecasts of growth and optimism clashing against protests from big name acts such as Taylor Swift. With all this raging, we ask Clive Gardiner, one of the UK pioneers of digital music licensing, to look behind the headlines and give us his perspective.
How has the streaming world changed since Tesco bought We7 in 2012?
There’s much more scale, as seen by the user numbers Spotify and Deezer are reaching and the new territories Spotify has expanded into. I think digital has a much bigger status in the industry now too. 7Digital’s Senior Vice President Raoul Chatterjee is Chairman of the Entertainment Retailers Association, which represents a significant step forward. Streaming is now included in chart calculations, which would’ve been inconceivable just a few years ago. But what hasn’t changed is the challenge of the streaming business model and the need to maintain the value of music.
Can you explain more about these challenges?
I think all challenges are invariably related to how much money comes back, and what the fair price is. I think the substitution and cannibalisation arguments – which suggest streaming harms physical and download sales – should have moved on but haven’t. Also, because so much of the streaming model is covered by non-disclosure agreements, it’s really hard for an individual artist or writer to understand the value chain. The model works best if you have a big catalogue. From a label perspective, your job is to create assets that you can exploit over the term of their copyright. Streaming is a very good use of assets you’ve already made available digitally. But if you’re an individual artist or writer, it’s really difficult for you to see any benefits.
What about the opportunity for growth?
It really depends where your market is. Spotify can say that 80 percent of its subscribers started off as free users – well of course they did, that’s the freemium business model! But the further you go into the mainstream market, the less the propensity to upgrade. You’ll tend to find that Spotify will always cite a 20 percent conversion rate among users. But that’s impossible to maintain the wider into the mainstream you go.
What are the biggest misnomers in the current streaming debate?
I think there’s a limit to mass market streaming services. It’s a myth to think you’re going to get more and more people automatically moving over to digital. Actually, the stats don’t tell you that. In the UK, there are nearly 10 million people who aren’t online today and who have no intention of being online. Many of those may be over 50 but a lot are people who have dabbled and just aren’t interested. There is an inbuilt assumption in the music world that people will migrate from physical to digital, when actually the bigger issue underlying this should be: ‘what if people don’t migrate over?’ Mark Mulligan recently blogged that 5.1 million people in the UK stopped buying music between 2008 and 2011 rather than switching to digital. If you look at digital downloads, we are already seeing that business has plateaued at the same time that many people haven’t even embraced it yet. The same could happen with streaming.
Overall I think the biggest flaw in the current streaming model is the myth that when these large services get to scale everything will be ok because the total market worth will be bigger. That might be true if you own a massive share of catalogue or have shares in the particular service but it won’t figure for an individual artist or writer.
How about growth in potential royalties?
The subscriber pot is currently fixed at £9.99. After deductions for VAT, you can work out your pie chart from that. Let’s say I’m major label A, and I get 35 percent of all the plays - I still get the same revenue whether my share is a hundred or a thousand plays. If I’m now an individual artist on that label, I will get a much smaller amount per-play for my portion of a thousand plays than for my portion of a hundred plays. So, at that level, what you want is paying subscribers who don’t play much, which is the opposite of most subscribers who are heavy engagers. So that model can’t work for individual benefit - because the more plays, the less the person gets.
Then on the advertising revenue side, it’s completely variable. Most people in the music industry won’t understand a scenario where their total number of plays goes up but their per-play royalty rate goes down as it seems counter intuitive. That’s to do with seasonality of advertising, which is complex and varies month on month. We’re ingrained in the music industry to think, ‘The better I sell, the better I’ll do’ – but those rules don’t apply here.
Do you think that songwriters will ever be able to make a living from the streaming model?
It’s very difficult on an individual level. For writers, the micropayments per play are even smaller than for artists whose share of an already tiny sum is dictated by their label agreement royalty rate. Songwriters and composers have always been screwed by deals and not valued enough.
https://twitter.com/clive_gardiner
Clive was responsible for driving the Peter Gabriel-backed streaming start-up We7 from its formation in 2007 to 2012, when it was acquired by Tesco to form BlinkBox. A songwriter in his own right, Clive was signed to various indie labels in the eighties, before spending nine years working for BMG Music Asia Pacific. He now runs his own digital strategy consultancy Headstretch. In 2013, Clive joined RNIB, where he looks after a variety of media services including a national radio station, 20 recording studios and a music education programme.
How has the streaming world changed since Tesco bought We7 in 2012?
There’s much more scale, as seen by the user numbers Spotify and Deezer are reaching and the new territories Spotify has expanded into. I think digital has a much bigger status in the industry now too. 7Digital’s Senior Vice President Raoul Chatterjee is Chairman of the Entertainment Retailers Association, which represents a significant step forward. Streaming is now included in chart calculations, which would’ve been inconceivable just a few years ago. But what hasn’t changed is the challenge of the streaming business model and the need to maintain the value of music.
Can you explain more about these challenges?
I think all challenges are invariably related to how much money comes back, and what the fair price is. I think the substitution and cannibalisation arguments – which suggest streaming harms physical and download sales – should have moved on but haven’t. Also, because so much of the streaming model is covered by non-disclosure agreements, it’s really hard for an individual artist or writer to understand the value chain. The model works best if you have a big catalogue. From a label perspective, your job is to create assets that you can exploit over the term of their copyright. Streaming is a very good use of assets you’ve already made available digitally. But if you’re an individual artist or writer, it’s really difficult for you to see any benefits.
What about the opportunity for growth?
It really depends where your market is. Spotify can say that 80 percent of its subscribers started off as free users – well of course they did, that’s the freemium business model! But the further you go into the mainstream market, the less the propensity to upgrade. You’ll tend to find that Spotify will always cite a 20 percent conversion rate among users. But that’s impossible to maintain the wider into the mainstream you go.
What are the biggest misnomers in the current streaming debate?
I think there’s a limit to mass market streaming services. It’s a myth to think you’re going to get more and more people automatically moving over to digital. Actually, the stats don’t tell you that. In the UK, there are nearly 10 million people who aren’t online today and who have no intention of being online. Many of those may be over 50 but a lot are people who have dabbled and just aren’t interested. There is an inbuilt assumption in the music world that people will migrate from physical to digital, when actually the bigger issue underlying this should be: ‘what if people don’t migrate over?’ Mark Mulligan recently blogged that 5.1 million people in the UK stopped buying music between 2008 and 2011 rather than switching to digital. If you look at digital downloads, we are already seeing that business has plateaued at the same time that many people haven’t even embraced it yet. The same could happen with streaming.
Overall I think the biggest flaw in the current streaming model is the myth that when these large services get to scale everything will be ok because the total market worth will be bigger. That might be true if you own a massive share of catalogue or have shares in the particular service but it won’t figure for an individual artist or writer.
How about growth in potential royalties?
The subscriber pot is currently fixed at £9.99. After deductions for VAT, you can work out your pie chart from that. Let’s say I’m major label A, and I get 35 percent of all the plays - I still get the same revenue whether my share is a hundred or a thousand plays. If I’m now an individual artist on that label, I will get a much smaller amount per-play for my portion of a thousand plays than for my portion of a hundred plays. So, at that level, what you want is paying subscribers who don’t play much, which is the opposite of most subscribers who are heavy engagers. So that model can’t work for individual benefit - because the more plays, the less the person gets.
Then on the advertising revenue side, it’s completely variable. Most people in the music industry won’t understand a scenario where their total number of plays goes up but their per-play royalty rate goes down as it seems counter intuitive. That’s to do with seasonality of advertising, which is complex and varies month on month. We’re ingrained in the music industry to think, ‘The better I sell, the better I’ll do’ – but those rules don’t apply here.
Do you think that songwriters will ever be able to make a living from the streaming model?
It’s very difficult on an individual level. For writers, the micropayments per play are even smaller than for artists whose share of an already tiny sum is dictated by their label agreement royalty rate. Songwriters and composers have always been screwed by deals and not valued enough.
https://twitter.com/clive_gardiner
Clive was responsible for driving the Peter Gabriel-backed streaming start-up We7 from its formation in 2007 to 2012, when it was acquired by Tesco to form BlinkBox. A songwriter in his own right, Clive was signed to various indie labels in the eighties, before spending nine years working for BMG Music Asia Pacific. He now runs his own digital strategy consultancy Headstretch. In 2013, Clive joined RNIB, where he looks after a variety of media services including a national radio station, 20 recording studios and a music education programme.
