If Groupon's musician partnership is "innovation" then both daily deals and the music industry are doomed
Few industries have taken more licks over the past few years than daily deals and the music business. Despite promising signs of a turnaround, Groupon is back on Wall Street's shitlist after posting an operating loss of $28 million in the first six months of 2014, compared to an operating profit of $49 million the year before. Meanwhile, its closest competitor LivingSocial, once valued at $3 billion, last year took what amounted to a bailout from investors to keep from going bankrupt.
The music industry is certainly healthier than the daily deals space, in the sense that people are listening to more music than ever, and music is a far more essential to society and culture than, well, coupons. But between shrinking revenues for creators and non-sustainable (or non-existent) profits for tech platforms, industry stakeholders are looking for any avenue possible to squeeze dollars from listeners and brands.
That's why the narrative of daily deals companies and musicians joining forces to help each other out is attractive -- at least on the surface. It's a narrative the AP pushes today in an article called "Music Acts Look to Groupon, LivingSocial for Help." Thanks to deals struck with Live Nation and AEG respectively, Groupon and LivingSocial have begun offering daily deals on concert tickets and other music products for artists like Arcade Fire and Wiz Khalifa.
The two artists the AP spoke to for the piece, Khalifa and Switchfoot drummer Chad Butler, seem happy with the arrangement, citing greater exposure for their music and concert offerings.
But musicians should be careful about getting too cozy with daily deals sites. Many merchants have been skeptical of the long-term value-add of these deep discounters, viewing them as vultures or parasites with little regard for their so-called partners. A survey of Groupon businesses found that only 16% were "very satisfied" with Groupon's promotions. And the reports of merchants who say it's difficult to convert first-time daily deals customers into repeat patrons are legion.
There's also the issue of how much value some of these deals offer to consumers. While it's hard to argue with half-priced concert tickets, some of the other deals reek of desperation on the part of both artists and Groupon. Case in point, this hilarious 2-CD Ciara bundle for $13.99. Yes, actual CDs. What the hell is a modern consumer supposed to do with two CDs? And never mind that both albums are available to listen to for free on Spotify right now. It reminds me of the same kind of "12 CDs for a penny" setups we saw in the 90s with Columbia House Records. At least with Columbia House, the company was offering music in a format people still enjoyed.
Groupon's rationale for the deals helping artists is that it's essentially providing cheap promotion for events. "The people that buy are not necessarily significantly price sensitive, they just don't know about it," GrouponLive vice president and chairman Greg Rudin tells the AP.
But I question the long-term economics of Live Nation, with a market cap of over $4 billion and extensive resources of its own, leaning too heavily on Groupon for event promotion. And it's not as if the market for big live shows is struggling either: 2014 is shaping up to be the best year for stadium concerts in 20 years, generating an estimated $300 million in ticket sales.
Rudin also says the company wants to start debuting new music for bands, a possibility which seems remote. Reselling CDs that would otherwise be collecting dust is one thing. But with Apple, Spotify, and YouTube each boasting close connections with publishers and record labels, along with their cachet as destinations for music lovers, why on earth would an artist want to debut a new album on Groupon? This makes even less sense when considering the seemingly desperate optics of aligning oneself with a deep discounter.
Based on the history of Groupon's rocky relationships with merchants and the still-limited scope of the platform's music offerings, these partnerships feel more like a way of discounting inventory that's expected to go unsold than a viable long-term business model. If it makes both parties marginally more money, then fine. But if this is supposed to be the road to salvation for either daily deals or the music industry, I've got a bridge to sell you.