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The Past Year For Music Startups, The Success of Nexflix, And The Niche Side of Music Streaming

Spotify_logo_vertical_whiteIn a recent episode of the Upward Spiral, a music business podcast, we talked with Jon Maples, the former VP of product at Rhapsody, about what the music startup landscape looks like in 2015 and how the streaming wars amongst the largest companies are going. Maples also shared his view on why it's difficult to compare the success of Netflix to Spotify. Here is a transcript of the first part of the podcast discussion. 

The Past Year For Music Startups

Kyle Bylin: Jon, I know that you've spent some time over the holiday break reflecting on the past year in digital music. How would you describe this past year? What kind of year was it?

Jon Maples: As I put my piece, I think when we look back at this year, it's going to appear less of a benchmark year and more of a transitional year. I don't think we've really actually seen all the big players come in and their strategies completely come clear. I think what we're looking at from 2014, is it's going to seem more like, "Okay, we had a few of these things come up, but it's not clear where things are going." You had Beats and Amazon and Deezer and Tidal dip their toes in the water, but we have yet to see those strategies come through yet and in particular, this year with Beats transferring to Apple, to see how that actually comes out in the marketplace.

Bylin: If you were to speculate, what do you think some of the strategies of these larger companies might be?

Maples: The most intriguing part of every company that I see out there is Amazon. To me, they're using music exactly the way they want to use music — it's to get people to buy more product through Amazon. What they do is utilize content to keep people around and more active in Prime. Prime users spend twice as much as non-Prime users, and I think there's been some significant growth in Prime. Their entire strategy has been to drive more value, and drive longer duration and longer time with Prime. I don't know if we can really truly speculate what Apple is going to do, but it appears that they have made decisions around purchase, and how track purchase has gone down, and are using Beats as protection from the purchase revenue to drive people towards subscription. I think it's a win-win for them if purchase stays around that's fine but, if not, they'll have a streaming service as well.

Bylin: What about for music startups as a whole — both on those who are currently funded and have been around awhile, as well as those who might be looking to raise funding in the new year — what does this landscape look like for them?

Maples: It's going to be tough to raise money and I think the figures have come out that it's getting more and more difficult to fund startups — music startups, in particular. The ones that are currently in the market are going to see significant pressure on them because of all the new players that are coming in to the market place. This year you'll have the big four — all have multiple products that go after music, and separate it based on usage and the way people want to listen to music.

I think there’s going to be a lot of pressure around the ones already in the market place. The ones, in particular, that have a problem marketing their product. A perfect example is Rdio.

Rdio has found it incredibly challenging to market directly to customers. They're doing everything they can to widen the funnel, but when you have Apple and YouTube and Google Play — all taking all the oxygen out of the room. It's going to be really difficult for them to actually find a way to get those customers to go to their site.

Bylin: In the past few years, you've seen Rdio buy up large billboards, do the subway ads, and really trying to raise the awareness for this idea of unlimited music. Whether or not they've been successful in those campaigns, and felt like there was a return on that investment, is unknown. What are your thoughts? Do you think those billboard campaigns did Rdio any good?

Maples: No. I think it really comes down to the fundamental problem with most of these on-demand, full catalog, all access music services, is that they consistently have a hard time marketing to average people. If you think about it, it really comes down to the product that they are actually building and they are actually selling. It becomes incredibly difficult to find people that you can actually target directly with this. For example, when you have 20 million tracks and when you're trying to be as wide as you possibly can for an audience, you end up in a situation where you basically have to sell music as a generic product. It becomes lowest common denominator. So, that means Katy Perry, that means Drake, that means the top of the charts. I personally believe that there are people that believe in that, but most music fans are much more separated into their own tribe. When they see something for Usher and they don't care about Usher, they say, "This music service isn't for me.” I think that's been the fundamental problem with these.

 

The Success of Nexflix

Cortney Harding: I agree with you, but also how do you then explain — and again, this is not a music example — but something like Netflix? Netflix has been promoting the living daylights out of the fact they're going to have Friends on their streaming service starting this month. I don't particularly care about watching Friends. I use Netflix because it has weird British crime dramas that I like, or crazy Middle Eastern sitcoms that I think are funny to watch in translation. There's hipster stuff on Netflix as well, but a lot of their marketing is very, very mainstream. Why has Netflix managed to conquer that where Spotify and the others haven't?

Maples: I think it really comes down to catalog. In movies and TV, there's a much more limited catalog, and you can do a little bit of universality with that. But, I would also point out that Netflix had their bacon saved by basically their children's programming. Especially, when they did the price change, everything went haywire. I would bet that a significant portion of their plays then and now, really comes down to their children's programming. If you think about it, the children's programming is the closest thing we have to music in the video world. It's people who want to play it; they want to play it time and time again. Kids love to watch multiple times, and I think, in a lot of ways, you can use that example as something against that makes it look closer to what music looks like.

Harding: That’s interesting. I hadn't really thought of that. With the kids programming, you're right. My niece is almost three, and she's got access to an iPad. She doesn't have an iPad of her own, thank God. But, she watches a lot of things again and again. With Netflix it's the unlimited supply of cartoons. That's interesting, but I don't see Netflix — and again, I'm not the target audience so, maybe I'm just not getting served that content — but, I don't really see Netflix advertising their kids programming. I see them advertising their either very mainstream, like Friends programming, or their prestige House of Cards, Orange is the New Black type of programming.

Maples: I don't think they have to. I think that's the thing about it is the product sells itself. The most successful company in on-demand streaming that has seen growth in paid subscriptions — Spotify — they really haven't had to market either. They were there first, they were there free, and they were there with social features that, while didn't really play that well in Facebook, they played pretty well on Spotify themselves.

Bylin: When I open Netflix, I'm not sure why, I have the option between choosing my profile or a kid’s profile and, if you pick the kid’s profile, you can actually filter Netflix content based on specific characters and only show programming related to that. I know it's there and I know for some people, whatever setting they've clicked, it shows that as a default every time you log in, to log in as a kid.

Harding: Yeah, that shows up for mine too. I think that's just the defaults, and I would assume that's so people can set… If you click on kids, then you're not able to search for House of Cards or anything like that but that’s…

Bylin: But that’s how many? Thirty million people then know that Netflix has a lot of kids programming?

Harding: Yeah, that's smart. That's a smart move on their part just put it out there.

Maples: Yeah, absolutely the way they should separate their customers, and it's clear that that strategy is working. It'd be really fascinating to know how many log-ins they have on both sides.

The Niche Side of Music Streaming

Harding: Let's back up a little bit and talk about maybe the more niche side of streaming, because you're right. One of the things that has troubled Spotify, and Deezer, and Rdio, and pretty much everyone, is the fact that people don't — and we've said this time and time again — people don't want 20 million songs. They want the 20 songs that they want to listen to right now, or the 20 songs that they're going to listen to and going to like. In December, news broke that SFX is relaunching Beatport as an EDM streaming service. It's still a pretty huge range, but it's much more genre specific. Then, yesterday it was announced that a service company called the Overflow that is going focus on streaming Christian music. Do you think these services provide any sort of interesting solution to this problem of going to Spotify and seeing just way too much content?

Maples: Absolutely. I think there's no doubt that a genre-specific or styles-specific service would do a lot better because they can differentiate on catalog. It's not so much that they have it or they don't. With most of these all-access, 20 million track, on demand services having a search button and a warehouse, they can differentiate on it by the way that they're able to curate, and bring the content directly to the person that cares about that.

Harding: My question is with the Christian music, I think it's slightly different because that's more of a niche audience that stays in one lane, I'm guessing. EDM, at this point, is pretty popular. Does it then become, "Okay, I like a lot of different music, so I'm going to have subscribe to the indie rock service for the stuff that I like to listen to, and then I'm going to have to subscribe to the pop service for the stuff I want to listen to when I am running." That's my biggest concern with this. Are there any people out there that only like EDM, and are willing to pay just for EDM?

Maples: I believe that the Beatport service is free and the Overflow is $5.00 a month. It's closer to Pandora's pricing. I hear what you're saying and I think, right now, most people who use digital music use more than one service to actually satisfy their needs. I think if you have something that really fits that EDM mood, and works in that realm, I think you might end up subscribing to that, or having that in your app on your iPhone, and then also having the Spotify app. It's also free. Spotify is also free, and it's pretty good when it's free, too.

Harding: Yeah, that's interesting. I just remember one of the things — we did a bunch of interviews around when Beats launched last year — and someone, who was a friend of mine, who was on the show, and she basically said she hated the genre specificity in Beats because she likes a lot of different music, and she just wanted to play a list of 20 good songs. She didn't actually care what genre they were — whether they were rock or hip-hop — she just wanted a cool set of songs and a cool mood. It's going to be interesting to see how that plays out. I tend to follow along the lines of people in the music industry over-emphasize genre, but that's just me.

Maples: I don't think there's any doubt that there's way too much emphasis on it, and it makes sense. Most of the people who are running music companies right now are over 30 years old. If you ask people under 25, the genre/realm that people grew up in disappears. That's the one challenge that we have with these genre-specific services is that they're getting a little to narrow and they're going to really have to know their customers really well to be able to provide the right music for them.

Harding: Yeah. It puts a ceiling on your growth. There are only so many Christian music fans in the world. I just remember eMusic back in the day. I remember eMusic. They had the problem of — they had VC funding. They were a little great service. If they'd just stayed in their lane and been a really good service for indie Rock, they would have just cruised along. But, they had investors, and the investors wanted return on their money, and they got all that major label catalog. Their business model needed to evolve and it didn't. But I feel like with eMusic it was the beginning of the end when they opened up their catalog. That's my concern. These services are interesting, but they're going to hit a ceiling pretty quick.

Maples: I think they are going to have to have completely different economic models than we've seen so far with the grow like hell and go IPO like Spotify and everybody else is trying to do. They are going to have to really watch their costs, they are going to have to really cater directly to their customers, and I think they're going to have to be much more inventive in curation and determining that they are hitting the right curators. They are not going to go out built a Beat’s style staff of curators. I personally believe that most of these services are going to actually have to go out and find the curators that are already out there that are not being utilized correctly, and build them into services to provide a better experience for their customers.
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Kyle Bylin is a user researcher at SoundHound and author of Promised Land: Youth Culture, Disruptive Startups, and the Social Music Revolution.

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