Pando

3 biggest misconceptions about the music industry and Jay-Z's Tidal (which is doomed anyway)

By David Holmes , written on March 31, 2015

From The News Desk

The verdict is out: Tidal is likely headed toward a wipe out.

Virtually every tech and music publication -- with the predictable exception of Billboard which was given an exclusive interview with founder Jay-Z -- is extremely skeptical of Tidal, the rapper's "artist-first" streaming music platform. Bob Lefsetz called it "dead on arrival." Stereogum called it "half-assed hubris." Judging by the responses, Tidal is at best an interesting experiment in offering artists equity in a streaming software platform. At worst, it's a vanity play not to be taken seriously.

Tidal's greatest achievement may be dominating the news cycle yesterday, thanks to a huge social media push by its celebrity stakeholders and a totally insane press conference.

But as a result of garnering this tsunami of press, there have been a number of misconceptions about the music industry thrown out in the coverage surrounding Tidal -- from both mainstream and niche websites, within both negative and slightly-less negative commentary. I agree that Tidal will fail -- largely because, with no free option, no truly attractive exclusive content to offer, and no warchest of cash like its better-capitalized competitors, it will never attract enough customers to truly make waves in the streaming music space. But at least we can use its launch as an opportunity to correct some misunderstandings about the new digital music industry.

1. It's Spotify's and Pandora's fault that musicians don't get paid

Jay-Z told Billboard that his "definition of success" for Tidal is that artists "are not seeing a $4,000 check from 168 million streams." That's a clear swipe at Pandora. How do we know? In a 2014 Wired op-ed, pop singer Aloe Blacc criticized the Internet radio station for... sending him a $4,000 check from 168 million streams. (Shoutout to Stereogum's Michael Nelson for catching the reference). The message behind Tidal is clear: Artists aren't getting paid, and Jay's here to do something about it.

(As an aside, the $4,000 figure cited by Aloe Blacc was the amount he was paid in royalties as a songwriter, not as a performing artist. Performing artist royalties for online radio platforms are handled by SoundExchange and are generally much higher than songwriter royalties).

But the reason most artists are not compensated properly for their work has been the same since the advent of recorded music: Record labels.

According to a report from the audit firm Ernst & Young, record labels net 45.6 percent of the revenue created by streaming music. The supposedly evil, greedy platform itself -- which in this particular study was limited to Spotify and Deezer -- only takes home 20.8 percent. After 16.7 percent is taken out for taxes, that leaves 10 percent for songwriters and publishers, and 6.8 percent for artists. And even if Tidal makes users pay (upwards of $20 for the highest sound quality!) artists will still have the same shitty record deals and see the same shitty ratios they've had for decades.

Sure, artists may have felt richer during the heady days of $17 compact discs, but as ex-Smashing Pumpkins drummer Jimmy Chamberlin told me, "When money’s swollen like that there’s this ‘high tide rises all boats’ type of mentality," adding, "It's Motown all over again."

2. Nobody pays for music anymore

It's true that most people don't pay for music. Even as Spotify has grown its total user base, the number of paid subscribers has held steady at only 25 percent. But the word I take issue with in the sentence "Nobody pays for music anymore" isn't "nobody" -- it's "anymore." At the music industry's peak in 1999, the average music consumer spent only $28 a year. Last year, Apple found that the average iTunes user spends $48 a year on music.

And therein lies the conundrum with paid streaming services. By all rights, $10 a month -- or even $20 a month -- for access to virtually every song ever created is an unbelievably great deal. And yet, when the average consumer is only willing to spend at most $48 annually on music, $120 a year is way overpriced.

Maybe it's too late and the consumers of today are already too accustomed to free music. But to declare that "no one will ever pay for music again," simply because they won't spend $120 a year on it, is shortsighted.

3. Spotify is too far ahead for anybody to catch up

With the exception of Pandora -- which is a radio service and thus fundamentally different than on-demand services like Spotify, Deezer, and Rdio -- Spotify has more users and better brand recognition than any other streaming platform. By offering a free service for years and marketing it aggressively, Spotify has been the clear leader in customer acquisition. And so many have remarked that it's too far ahead of Tidal already for Jay-Z's service to catch up.

But the reason Tidal will never catch up to Spotify has nothing to do with Spotify's headstart. I know it's cliched to say, but it's still "early days" in the streaming music game. And once these services come standard with every mobile plan and automobile in the world, there are going to be literally a billion customers for the taking.

No, Tidal won't beat Spotify because it lacks the capital to burn money for years to acquire customers. And with so few users, Tidal's one advantage -- these so-called "exclusives" -- are a non-starter because these megastars aren't going to offer anything truly worthwhile to such a small number of listeners.

But you know who they will offer exclusive content to? Not Spotify -- not necessarily. It's Apple. That's because, despite the decline of digital downloads, Apple still has a channel for selling music and one that, for superstars like Beyonce and Taylor Swift, can create a huge windfall when it offers their releases exclusively.

So when Apple does finally relaunch its Beats/iTunes/whatever hybrid, it could offer the world's biggest artists exclusive two week windows, where their music is only available to purchase as a digital download. And as part of that agreement, Apple could then secure exclusive rights to stream those same albums after the two-week period, effectively sucking Spotify dry of every new release from a major artist.

It's hardly a foregone conclusion that Apple could or will do that. But even if it doesn't, the idea that Spotify is somehow invincible -- particularly with Apple in the room and, for that matter, YouTube -- is insane. iTunes Radio may not have killed Pandora. But anybody who doesn't fear Apple at least a little in this space is fooling themselves.

[photo by Adam Glanzman]