Music streaming services are a great way for fans to access, consume and discover music on the Internet. They also offer bands and labels great ways to get discovered, build a fan-base, and, for some, there is even some money to be made. Unfortunately there are many misunderstandings about the different services on the Internet and this post will (hopefully) clear up some of the questions that Bandzoogle members, and other DIY musicians and indie labels might have.

So, what exactly are “streaming services”?

The “ownership” of music has become less relevant over the last years. Many people (myself included) don’t feel they need to own any CDs, vinyl records and mp3s if most music is available on the Internet to listen to. Ownership results in maintenance and responsibilities: we have to clean records and make sure they don’t get damaged. We have to back up our mp3 collection and make sure we keep the format up to date (who knows if mp3 as a format will still be relevant in five years ?).

A great alternative to the above is using a music streaming service to access music. The files are stored “in the cloud” and we only access them through the Internet as opposed to owning them. Typically, you will not pay every time you listen to a track but you will pay a subscription fee, or there will be advertising that you will be exposed to in order to listen to the music for free.

What is important to understand (and this is where it gets tricky) is that there are basically two types of services: “radio” and “on-demand” streaming.

The “radio” option is borrowing its name from a technology it has little to do with, but it refers to the fact that it’s more of a hands-off experience. A “radio” streaming service will play a music selection that you cannot directly decide. You might chose a genre or an artist you like and tracks will be streamed to you that are similar to what you have selected. It’s a music discovery experience to help finding new music based on what you already like. The only influence on what you will hear is that you might be able to skip or rate what you are listening to (helps the service personalize your playlist) but you will not be able to decide exactly what is playing next. Streaming services like Pandora and Last.fm fall under category “radio”.

“On-demand” streaming is a more active music listening experience where the listener can directly decide on what they want to listen to. It feels and often looks like an online jukebox where you can listen to specific tracks, whole albums or build playlists.  These kind of offerings can really replace a CD collection: if the service has all the music that you like there is no need to own the recordings any more. Spotify, Rdio, Rhapsody, and MOG are examples of an “on-demand” streaming service.

The reason why it’s very important to understand the difference between those two types of services is that the licensing and royalties structure work very differently in each one. Without going in too much details, a “radio” service would only pay a fraction of the royalties an “on-demand” service is paying, due to the different type of music consumption in each service. Also, a “radio” service might pay the royalties to a collection society (such as SoundExchange in the US) and an “on-demand” service might pay steaming royalties directly to the artist or label. All this also depends on the country the service is operating in. And that explains why some services are not available in countries where agreements are not in place. Confusing, I know.

As an artist, how can my music get on one of the streaming services?

Just like traditional record shops, most streaming services don’t deal with artists or smaller labels directly.  This is because very small teams run those companies and they do not have the resources to deal with thousands of artists every day. There are some companies out there that might be able to help you get on some of the streaming services; ReverbNation, CD Baby, Ditto Music and Tunecore are popular with DIY musicians, and companies like IODA, The Orchard and IRIS deal mainly with independent labels. Keep in mind that they might not be able to get you on all the different streaming services.

Is it really worth it that I add my music to those services?

There have been many discussions on the web about the amount of money that is paid out to artists by streaming services and those numbers seem to be low. But they aren’t. Every one of the big streaming services (certainly the ones mentioned above) are paying out millions of dollars every year to the music industry. There are a lot of misleading articles out there (such as this one) that make it look like the money paid out is very small. But, I like to make the comparison between traditional FM radio stations and streaming services: the digital services pay out much more to artists and labels per listener than the FM equivalents – and in the U.S. the FM stations are not paying anything to the artists (only to songwriters).

One thing I hear a lot is that music streams might cannibalize sales of music and therefore some artists are understandably hesitant to make their work available for streaming. I have not yet seen any hard evidence that anyone sells less music because fans were able to stream their music. In fact, music streaming is a great way to promote some of the products that cannot be digitally delivered through the Internet such as tickets to gigs, merchandise or limited edition premium CDs/LPs.

So should your music be available for streaming? I think every artist should make sure their music is available on the new services. Other than the fact that there is ultimately some money to be made, there is a much more important argument: your music has to be where the fans are so the “old” music industry don’t even have the choice to fight this development and progress. The days where artists and labels can control the music and decide where fans will find and consume it are over. This might not always be advantageous for the musicians, from an artistic or financial point-of-view, but fighting this development is not only hugely frustrating but also a waste of time. Every musician is an entrepreneur, and part of that means you have to understand your market and be reactive to changes quickly.

Looking forward to feedback and questions: feel free to leave comments here or contact me on Twitter or my blog.

Just like there is no lack of music fans in Canada there is no shortage of talented programmers and entrepreneurs – other digital businesses (e.g. games, advertising, movies) seem to be quite healthy. Companies like Pandora, Spotify, MOG and Rhapsody however have never launched their service in Canada and others like Last.fm only have a limited service in the second largest country in the world. Also, looking at the new players that have seen some hype recently (such as mFlow, Thumbplay and rdio) have not announced any plans for a Canadian launch.

After speaking to a range of people about the lack of access to legal digital music in Canada there seem to be different explanations:

1. Licensing difficulties (1) – it is complex and expensive to license content from record labels for Canada

I find that hard to believe. When licensing reordings from labels or aggregators you will often strike multi-territory deals so there is not a lot of additional work needed when including Canada as a territory as part of a launch (for example) in the US. However, depending on the label, you might not be able to license content for all of North America under one deal but you have to go through two offices. There might be one department dealing with the US and one with the Rest of World.

Nevertheless, when launching an international music service it shouldn’t be too hard to include Canada as a territory from a label licensing point of view.

2. Licensing difficulties (2) – getting publishing rights is a nightmare

Yes it is. But it is everywhere. At least in Canada there is only one collection society dealing with the rights of the music composers whereby in the US you have to go to a bunch. In Europe you will (normally) still have to deal with a different organization in each country which is slowly changing so pan-European licensing should be easily possible at some point.

3. Canadian copyright law is in limbo

Whereby this is true it shouldn’t stop anyone from launching a music service in Canada. Without wanting to go in too much detail this is the deal: many people say that the Canadian copyright  law is outdated and needs modernisation. This was suppose to happen for years but whenever there is a new government the proposed changes are being put ‘on hold’ (read: ‘thrown away’).

The international music community is actually quite upset about the lack of movement in Canadian copyright law calling it a “major source of the world’s [music] piracy problem” (IFPI). Ouch.

Again, this should not stop anyone to launch a digital music company in Canada since the changes in copyright law are unlikely to affect consumer facing music delivery services.

4. Canada is too small to make an investment like starting a music service worth-while

This is probably the excuse I hear most often: It seems that companies feel their investment will not be returned because the music market in Canada is too small. And starting a music service is a rather big investment with the largest cost being music licensing.

I think this is a fair argument but doesn’t explain why services are being launched in the smaller countries in Europe (just one example here). So starting up a service in an English speaking country that has a similar music taste to its big neighbour shouldn’t be so hard then, right? After all, Canada is the seventh biggest music market in the world (2005).

‘Big neighbour’ are two very important words here. It’s a psychological issue that the US (population: 309m) is so big and suddenly makes Canada (population 34m)seem so small. Living here now for a few months I can see that Canada has a complex about being the ‘small neighbour’ and everything has to be compared with the US. And of course everyone has to agree that when it comes to starting any business, given the choice, one would have to go to the US as the market is simply larger.

But this is not what it’s about: Canada needs digital music companies that have already proven success in other big territories to launch locally or alternatively a new breed of Canadian companies that can move music fans away from unlicensed music usage.

Photo: EliB

I’m not one of those guys. However I had to think of something when Chris was talking about some of his ideas last night. They gave out free copies of the book (an abridged version, not the full one) so I can even quote him now. He is writing:

“What the Internet does is combine all three, compounding the price declines with a triple play of technology: processors, bandwidth, and storage. As a result, the net annual deflation rate of the online World is nearly 50 percent, which is to say that whatever it costs YouTube to stream a video today will cost half as much in a year.”

Although I agree that the above applies to any technology costs this does not work for any licensing expenses. The licensing fees for content is already the biggest expense for many services that stream or otherwise deliver content to consumers. Although there is certain evidence that the cost of content is going down (the PRS has recently lowered they per stream royalty for music streaming services) I don’t believe that this trend will keep on going at a rate of 50% per year.

Nevertheless, Chris Anderson’s book ‘FREE’ looks like another must read for anyone who is interested in how technology changes moder day economics.

It’s a great summary and there is a lot in those 10 mins – might be worth watching twice.

EDIT: as just pointed out by Chris, there is of course a second part to the above:

You can listen to my latest show here.

1. Jimi Hendrix ‘All Along The Watchtower’
2. Archive ‘Bullets’
3. Fredo Viola ‘The Turn (A Pagan Lament)
4. The Decemberists ‘The Rake’s Song’
5. Bonnie ‘Prince’ Billy ‘Afraid Ain’t Me’
6. Suicide ‘Ghost Rider’
7. Architecture In Helsinki ‘Hold Music’ (Max Tundra Mix)
8. Cazals ‘Somebody, Somewhere (Moulinex Remix)
9. MSTRKRFT ‘Fist Of God’
10. Passion Pit ‘I’ve Got Your Number’
11. The Wee Rogue ‘Into The Mist’

“The web is home to more new music each year than was released in many previous decades. Critics say the music is mostly junk – but the same could have been said for the Web before Google made the knowledge there accessible.”

I couldn’t agree more.

So you can pay 10 cents to ‘buy’ access to a track an unlimited amount of time however if you own the track already on your computer (and you let lala scan your library) you can listen to that track for free an unlimited amount of times. You can also buy full track downloads for 90 cents. Sounds all pretty complicated and I agree with what Bob Lefsetz was posting yesterday:

[...] With x number of people new to Google this year, what are the odds consumers are going to understand Lala’s business model?  Shit, I can’t understand their business model.  I rent the music online, but only online, I can use my own stuff online…what about the rarities, do those get uploaded too?  And, is it so complicated that I ultimately want to use this service? [...]

TechCrunch has got a different opinion and I get their point of view:

[...] Conversely, Lala wants you to listen to as much music as possible in the hopes that you’ll keep clicking that addictive 10 cent “web song” button, and is forgoing advertising entirely. The result is very refreshing. [...]

What I find refreshing is that those new ideas are coming out of a company that is party owned with Warner Music. There was never any doubt that there are very smart people working at Warner and it looks like we can now see some of that. It was always obvious that the big content owners should have been much more pro-active when it comes to new ways of monetizing their content. They missed out on that for years and are suffering because of that.

I can’t test out lala myself (as it’s only available in the US) but it sounds like it’s not very user friendly but makes sense in the end. Lets hope people out there are going to have the patience to figure all that out. And if not they can always come up with a new model.

More on this soon…