CMU Trends Digital

Trends: Can the music industry deliver a Tidal wave of exclusives?

By | Published on Wednesday 15 April 2015

Tidal Wave

Jay-Z’s recent acquisition of Tidal put the streaming service high up in the headlines, it having been primarily known in the past simply as the Nordic streaming platform that wasn’t Spotify. Though to be fair, WiMP – as it was then known – was also the first streaming service to experiment with offering high quality audio at twice the price, a strategy since adopted by Deezer as well.

Indeed, given that WiMP first launched HD in October 2013, rolling it into the UK and the US under the Tidal brand last October, it was impressive that so much of the mainstream media coverage of Jay-Z’s new business venture ran with the spin that the higher quality sound thing was a massive innovation.

The main thing that was new was the rapper’s involvement, and the fact that that had made CD-quality-for-double-the-money headline news. The secondary spin that double-the-money meant double the royalties for rights owners and artists was also an old story, given that most streaming services are licensed on a revenue share basis.

The more interesting messaging around the big Tidal relaunch was the promise of exclusive content. And the implication that Jay-Z and his team at Roc Nation are banking on those exclusives pulling people into their service.

Which is important given that – unlike Spotify and Deezer – there’s no freemium option on Tidal via which people can be hooked in, nor even a free personalised radio level like Rdio. Shunning freemium was more “artist-friendly”, the spinners said, alluding to rising concerns about Spotify’s free level amongst some in the music community (mainly A-listers and the majors).

Last year when Dan Le Sac surveyed the UK artist community about the digital sector for CMU, he expressed the personal opinion that content exclusives would be inevitable as the streaming market matured. Such exclusives might be used to persuade consumers to start paying for access, though more likely they’ll come about as a result of the key streaming platforms seeking a competitive edge over their rivals, given that the sector’s incredibly tight margins make a long term price war almost impossible.

Spotify has scored a few exclusives over the years, but in the main to date the streaming platforms have primarily competed with their discovery tools, “we help you navigate our massive music libraries better than they do”. Though everyone is expecting Apple to rely heavily on exclusives when it relaunches Beats Music under the iTunes brand later this year. And now Jay-Z’s Tidal seems set to steal some of Apple’s thunder, by entering the full-on exclusives game first.

And it’s because of that strategy that the long line of top popstars, from across the genres, who were wheeled out for the big relaunch party and introduced as not just ambassadors for but shareholders in the new Tidal are a whole lot more important to the venture than just providing a glamorous launch night (which is just as well given the launch turned out to be a pretty cringe worthy experience).

It’s safe to assume that the shareholding artists will be encouraged and possibly obligated to provide Tidal with a regular stream of exclusive content. Indeed we’ve already seen Beyonce and Rihanna exclusives appear on the platform and a Jay-Z album seemingly disappear from the Spotify catalogue in the US.

And, of course, Jay-Z’s Roc Nation is a subsidiary of Live Nation, which – while better known for its venue and tour promotion business – is also one of the biggest players in artist management. So Team Tidal have a direct line to a bunch of other big name artists too, the kind of artists who will likely have a veto when it comes to where they place their recordings, even if they are still signed to a record company under a conventional contract where the copyright goes to the label.

So Tidal clearly has better access to big name artists than most of its competitors, even maybe Apple, despite the iTunes owner recruiting Dr Dre and record industry veteran Jimmy Iovine to its team via the Beats acquisition last year. However, Tidal, like everyone else, is going to quickly discover that there are challenges to cross when it comes to artists providing content exclusively to one player in the streaming space.

But first, it is perhaps worth considering the different ways in which artists and labels can provide streaming services with exclusives.

Windowing of new content
Some A-list artists have already started ‘windowing’ their new releases, that is to say making it available to one service, or one kind of service, before everyone else.

Such an approach actually existed in the CD domain too, though for many years an artist providing a new album exclusively to one retailer would cause controversy in the wider sector, and could lead to a boycott of the record by other retail chains.

Online a common form of windowing has been to make new releases available to download stores before streaming services, and especially freemium streaming services. The window may be a week, but it can be months. Some artists have gone further in giving one download store the exclusive window, most commonly iTunes, which to date has been the leader when it comes to such exclusivity deals.

Special Tracks
Another option is to give any one service a track or handful of tracks on an exclusive basis. These will most likely be different versions of songs available elsewhere, so maybe an acoustic version, a live version, a remix, or so on.

This has been a common tactic when labels have provided media with exclusives in order to secure some guaranteed coverage and build some hype around a new release. It means that you’re not giving away the tracks you are actually trying to sell, and you have multiple exclusives to place, extending the number of media with which you can command coverage.

Entire Catalogue
A braver move would be for an artist to provide significant past albums or even their entire catalogue to just one service for the foreseeable future. A deal that The Beatles basically did with the iTunes download store.

Of course, the removal of Jay-Z’s first album from Spotify in the US has led to speculation that the rapper might be plotting this approach. Though it would be a bold plan, for various reasons that we will discuss later.

We all know that Taylor Swift pulled her entire catalogue from both Spotify and Deezer last year, though this wasn’t the result of any exclusivity deal with one of their competitors, it was a protest over the freemium element of the two streaming platforms. Swift’s people have said that if Spotify or Deezer allowed artists to only place their music on their premium levels, her catalogue would return.

Other Content
Another approach to exclusives is – rather than giving one service or another exclusive access to certain tracks – artists create other content exclusively for a specific streaming platform.

The creation of this content could be led by either the artist or the digital service provider (DSP), and could be a one-off or a series of interesting audio tracks or videos pumped out through a specific channel.

The challenge here is what sort of content this could be, how much content can you make, and will it be sufficient to make fans choose one service over another, especially if they are expected to pay?

OK, so there are plenty of options to choose from when planning artist exclusives. But what are the challenges?

The fan relationship
Exclusives in the streaming domain are very different to exclusivity deals between artists and record shops or download stores, in that they make a much bigger demand on the fan.

In the latter cases, a consumer may have to visit a record shop or download store they would not otherwise frequent, but once they have bought the CD or the digital music file (assuming, as it usually will be these days, that file is DRM-free), the fan can then play the album or song on their usual playback device of choice, alongside all their other favourite records.

If an artist makes their music exclusively available to a streaming service – especially a subscription-based DSP – then that forces the fan to change the way they listen to music, and to move their custom to another provider on an ongoing rather than one-off basis.

And if a consumer’s favourite A-list artists all do exclusivity deals with different services, that creates a dilemma for the fan. Would they really subscribe to multiple services at any one time?

There is some evidence that some customers have subscribed to both Netflix and Amazon Instant Video in order to access to the two services’ respective exclusives. Though there are some key differences here: the video-on-demand services are currently a few pounds cheaper than the music-on-demand platforms, there are only really two players in the market at the moment, and people are more used to paying a subscription to access TV and movie content.

If all the big name music artists started providing wide-ranging exclusives to just one of the various streaming services on the market, that is clearly not a consumer-friendly approach. And most artists will be nervous of annoying their fans in this way. Which will likely rule out entire catalogue exclusivity in all but a very small number of cases.

Reach, Revenues & Chart Position
When it comes to windowing new content, a key risk an artist and label takes is reducing the reach of that music.

And while you can point to the success of albums like Taylor Swift’s ‘1989’, a top seller despite it being kept off the streaming services at launch, there is a big difference to windowing on a download store – where you are demanding fans make a one-off payment of £10 to access your new record, which they can then listen to alongside their other music – and windowing on a streaming service, where fans need to pay £10 a month and can only listen to the music within that environment.

It’s therefore reasonable to assume that locking your content to one streaming service will impact on the reach of your music. And most artists want their new records to be heard by as many people as possible. Restricted reach could also impact chart position, and the charts still play a key part in a label’s marketing strategy when it comes to pop music. And, of course, as streaming becomes a key and then the key revenue stream, it will affect income, which will reduce the benefit of any financial kickback the DSP provides for exclusivity.

It’s worth noting that all of this gives Apple a distinct advantage, even if the new Tidal has more direct artist connections. Because when iTunes relaunches with the Beats Music streaming service incorporated, an exclusivity deal with Apple can encompass both downloads and streams. And if the Pandora-style freemium iTunes Radio service could gain any traction, there’s a marketing channel there too.

By allowing the consumer to choose whether they pay £10 one-off to download the new record or £10 a month to stream it, the Apple proposition overcomes some of the reach issues involved in doing exclusivity deals. And if iTunes Radio did become a decent promotional platform, well that deals with the next challenge.

Using exclusives as marketing tools
Given that there has been talk for some time now that the subscription streaming services likely need exclusive content to distinguish themselves from each other, and to persuade consumers to upgrade to premium, it is perhaps telling how many labels continue to provide pre-release streams of new music to media rather than streaming platforms. Media like The Guardian in the UK and NPR in the US.

Or to streaming sites where no sign-up – freemium or premium – is required, like YouTube, with its much lower royalties, or SoundCloud, with its (until recently) zero royalty payments.

Which illustrates another problem. Labels have routinely used exclusive first-listen promotions or other content involving their artists as marketing collateral, given away to media partners to give away to their readers, listeners or viewers.

This is because record companies are nearly always looking to push new releases beyond an artist’s existing core fanbase, which means getting them in front of new audiences, which is where traditional media and music radio remain important.

Of course, labels should probably be thinking of the Spotifys of this world as if they were music media too, after all the market-leading streaming service boasts many more users than the average music website. But many in marketing and PR worry about placing their promotional exclusive content inside walled gardens, even more so in the social media age where you really want these exclusives to be embeddable on blogs, social networks and other websites, without the end-user being forced to sign-up to one service or another.

So, if exclusives are becoming the product, what is left for the marketers to use to build hype and reach potential new fans?

Piracy and opt-out platforms
The final challenge for the exclusives game was raised in various quarters after Tidal put its first Beyonce exclusive live, and it quickly popped up on YouTube.

Will artists and labels restricting access to new content to the subscribers of one specific service – especially premium-only services with relatively modest userbases – just lead to a renaissance in file-sharing?

Or provide a boost to ‘opt-out’ streaming platforms like YouTube, Grooveshark and SoundCloud, where users upload content without permission, and labels are obliged to spot it and request removal?

Given that the industry at large wants to persuade people to move away from illegal sources of content, and even the less lucrative opt-out platforms, over to freemium services that pay higher royalties, and better still the premium set-ups where decent money can be made, if this is a logical outcome of going the exclusives route, then it could be a case of one step forward, two steps back.

Certainly doing exclusivity deals with any one DSP requires the artist or label to then proactively police the opt-out platforms and file-sharing networks, and to issue the takedown notices that will remove the content from some (though not all) of these unofficial services. And while there are tools to help with that process, it puts an extra strain on the artist and label that needs to weighed against any kickback an exclusive-hungry DSP will offer.

The windowing of major new releases, so that they only appear on premium and not freemium channels, may well become the norm, even if market leader Spotify continues to resist this option for now (this approach may well be a key request in Universal’s current licensing renewal negotiations). And artists may well provide certain DSPs with occasional exclusive tracks, albeit knowing that these will quickly pop up on the opt-out platforms and file-sharing networks.

However, allowing just one service to secure a new album, hit record or significant chunk of catalogue is a risky business to get into, and will become even more so as streaming dominates over downloading in the digital space.

And while a combined download/streaming exclusive with iTunes may overcome some issues in the short term, for the record industry one of the big positives of the rise of streaming is that it has reduced the massive market dominance that Apple quickly secured in the early days of digital music. Helping the tech giant to regain that dominance via its new streaming service could therefore be counterproductive.

Streaming services as media
So what can DSPs who are keen to compete and upsell to premium do if, as many still believe, exclusive content is the best incentive?

Well, they could create their own exclusive music-based content, and truly become the radio stations, music magazines and MTVs of the digital era. Fans would be able to stream whatever music they like on any one service, but could choose one platform over another based on the extra programmes, concerts, interviews or documentaries it provides.

Some DSPs are already dabbling in this area, and indeed another interesting element of WiMP was its own editorial, though often with digital services bespoke content seems like an after-thought, more liner-notes or navigation tools than full-on entertainment in its own right. Perhaps the DSPs need to start thinking much more like media.

Many in music radio may caution that their research shows that ‘the kids’ aren’t interested in presenters and programming formats interfering with their constant stream of on-demand music. Though the success of a whole plethora of YouTube stars, with their pop radio and MTV-style content, suggests that young consumers do like engaging with personalities, it’s just that the radio sector hasn’t worked out how to satisfy younger appetites yet.

Apple’s hire of Zane Lowe for its all-new iTunes is therefore interesting. Does it have ambitions in this space? We’ll see. Though, while this proposal may hold the key for taking the streaming sector to the next level, it may have a negative result for artists and record companies. Because if the DSPs become content-creating media, rather than simply content-curating jukeboxes, they may well start questioning why 70% of their revenue is going to the music industry.

Artists as media
As a final aside, it may not just be the DSPs who need to start thinking of themselves as media. The rise of direct-to-fan channels and technologies has led some to predict that a big future growth market is artist-specific subscription services, basically a reinvention of the old fashioned fan club.

Some artists have already experimented in this space, though anecdotal research suggests one problem those running such services face is a lack of constant content. When an artist has a new record to sell there is lots to say, and a decent length tour will generate plenty of photos and videos. But what about during downtime? What can you give the subscription-paying fans then? And who creates that content, given that labels usually stand down once an album’s promotional campaign is done and dusted?

For these direct-to-fan services to work, artists too need to think like media. And that may well require the recruitment of new expertise onto an artist’s team, and further thought on who manages, resources and profits from the direct-to-fan side of any one artist’s business.