An industry analyst explained why the industry is still reeling from the rise of streaming music. And the National Football League considered a pay-to-play Super Bowl halftime show. Also, the Netflix-Comcast battle revealed the potential impact of net neutrality.
Streaming Music Still Blindsiding the Music Industry
Streaming music continues to overtake digital downloads, with 37 million people expected to pay for premium streaming by the end of the year. But industry analyst Mark Mulligan pointed out that music executives are still experiencing “panicked flapping about at technological shifts” when it comes to the fast-paced streaming music boom, even though it was predicted nearly a decade ago.
In Part 1 of a two-part interview with The Guardian, Mulligan discussed the fears musicians, executives and others are still having about the streaming revolution. He has been tracking shifts as an analyst at Jupiter Research and more recently with his own company Midia Research, where he consults labels, telecommunications companies and music startups. Mulligan’s latest report, “The Streaming Effect: Assessing the Impact of Streaming Music Behaviour” was co-authored by Alun Simpson and talks about the transition from track and album sales to track and album streams.
According to the report, 210 million will be using free, ad-supported music services, whereas 37 million will be using paid versions. And 45% of people who buy downloads are also currently streaming music, even though 15% of streamers have signed up for a trial of paid services thus far.
Mulligan explained why people are still feeling baffled by streaming services: “Anything that requires consumers to adopt new technology always takes a while to happen. It’s very easy to over-estimate the near-term impact of a new technology, and under-estimate the long-term impact. We’re somewhere between those two points with music.”
He added, “Every new generation of music service steals from the last generation’s customers. Apple stole Amazon’s best CD buyers, and Spotify has now stolen those same customers from Apple – or at least the same sorts of people.”
And, as he reminded, “You’re seeing the most valuable music customers, who were happily buying bucketloads of downloads from iTunes, now finding they can get even more value by spending $9.99 a month … downloads were always a transition technology.”
Mulligan pointed to two factors that may make digital music really thrive: how many people are ready to pay for music; the price they are willing to pay for it and how the music industry can meet that demand.
But, there are challenges attached to getting more people to pay for music: “Five years ago, we were talking about peer-to-peer piracy, and now we’re talking about YouTube. Free music is ubiquitously available, and there will always be more of a preponderance of people not paying … It doesn’t matter how easy you make it for people to pay, however much more you pack into the paid offering, there will still be a majority of people who will not pay because they do not need to.”
Spotify has managed to lure 25% of its 40 million active users into its $9.99-per-month paid service, which Mulligan said is about as good as anyone can expect. He also said, “Spotify and its rivals have done a great job reaching those people, but the price thing is absolutely crucial to go further: we need to be in a position where there are $4-$5 price points much more.”
He said he would like to see more companies trying cheaper, more distilled streaming services in order to get mainstream music fans on board: “It’s the only way you can do it: the only way labels are going to go near anything at that price. They are terrified of cannibalizing the top table, and stealing a load of Spotify customers … We need more in the way of mid-market pricing, but the US and UK digital guys at the major labels are the ones that are most cautious and have most to lose.”
National Football League Weighing Pay-to-Play Halftime Show
The National Football League made known that it would like the 2015 Super Bowl halftime show to be a pay-to-play event for an artist. And Rocco Pendola of The Street stated he feels this further shows Pandora and other streaming music service’s effect on the larger industry.
He said, “To a considerable extent, Pandora has managed to popularize — or at least normalize — the notion that artists should accept exposure in lieu of meaningful amounts of cash. And, of course, the NFL, which provides exposure via more than 100 million viewers during its halftime, is more than happy to the embrace the concept.”
Even Rolling Stone pointed to this deal as a fair one for everyone involved:
“When reaching out to artists, league representatives asked some acts if they would exchange a headlining slot for a portion of their post-Super Bowl tour earnings, or make another type of financial contribution to the NFL … Considering the Halftime Show has only grown more popular in recent years – this year’s performance with Bruno Mars and the Red Hot Chili Peppers drew 115.3 million viewers, compared to the 112.2 million who watched the game – it makes sense they’d want a piece of the pie.”
Pendola noted that this “cash grab” may make sense for the NFL, but it does not necessarily help artists whose superstar status is potentially more helpful to the league than the Halftime Show is helpful to their careers. He said that this phenomenon is just another illustration of the notion of “exposure” in lieu of an actual paycheck.
He concluded, “The exposure argument loses its luster — especially when it’s being used to try to get megastars for free — when you consider the marketing power of music …Without music, the NFL doesn’t have a halftime show. At least not one that would pull in more viewers than the game. Of course, it could conceive of something (like maybe playing all of the broadcast’s commercials in succession at halftime), but, as far as I know, it has nothing ready to roll to match the power of music if music went away.”
The Consequences of Net Neutrality
The on-going battle between Netflix and Comcast shows the potential pitfalls of network neutrality on entertainment, according to Billboard. The idea that all Internet data should be treated equally has thus far just been a “hypothetical” concept. But the FCC’s recent decision to start a debate on official rules of net neutrality plus Netflix’s struggles with Internet providers has shown just how far-reaching net neutrality could be if put into practice.
Netflix’s vice president of content delivery Ken Florance and the company’s Petition to Deny, filed with the Federal Communications Commission on August 25 both give insight into its issues with Comcast. Netflix is opposing the merger of Time-Warner Cable and Comcast.
Netflix’s issues began when Comcast deliberately slowed customers’ connections to the streaming video service so that it actually became unusable for some subscribers. Customers called Netflix to complain about the slow streaming rate and “some of them actually canceled their Netflix subscription on the spot,” wrote Florance.
Netflix struck a deal with Comcast in February for paid access to its broadband customers, and streaming quality mysteriously “shot back up to HD-quality levels” within a week, added Florance. Netflix has had to make similar agreements with Time-Warner Cable, AT&T and Verizon to get access to the best service for its customers.
As Billboard pointed out, if Netflix can be a victim of this, so can streaming music services. While streaming music services are currently less popular than Netflix and less “data-intensive,” they are likely to grow.
An ISP could potentially ask for payment from a digital music service. And music companies could pay a toll-road-like fee to provide premium services to paying subscribers. Some Internet providers could also forge exclusive deals with their preferred streaming services and leave others in the dust.
Indie labels and musicians in particular have been worried for months about the effect net neutrality could have on their businesses and careers. On May 5, the A2IM filed a complaint with the FCC that warned “a new set of gatekeepers” could prevent its own members from “unfettered, speedy direct access” to its artists’ fans: “For our members, whose livelihoods depend on the ability to invest in and create music and distribute and license copyrights in a free market, it is essential to have government partners helping to advance a worldwide enforceable regime to allow equal Internet access to all creators of Intellectual Property.”
Still, the principles of net neutrality can protect consumers. Many companies and advocacy groups have pointed out that Internet providers have a history of treating their customers unfairly. Public Knowledge formally complained in early August: “If the FCC’s transparency rules mean anything, they must require carriers to let subscribers know why, when, and to what speed their connections might be throttled.”
FCC chairman Tom Wheeler assured the public in May, “We are dedicated to protecting and preserving an open Internet.” But there are not at present methods for the FCC to stop Internet providers to limit access for some of their customers.