Streaming Services Strategies for Music

Spotify, a leading music streaming service.

Spotify, a leading music streaming service.

This post is my attempt to get a job at One Handed Music as a Label Assistant, and is part of their recruitment process. Along with my CV, they required to give short arguments for and against making music available on streaming services at the time of the physical and MP3 releases. I decided it is better to make a post about it here instead of sending them my arguments in the body of the e-mail.

In recent years streaming services for video and music have become increasingly popular and widely available to the mass consumer. This is due to several factors: technological developments, the deep penetration of smartphones and tablets, and the constantly increasing speed of mobile internet. For music fans this is very convenient as services such as Spotify, Deezer, Pandora, etc., provide a very cheap alternative to buying CDs or MP3. In order for them to instantly listen to a catalogue including millions of songs, they only need a device (phone, PC or tablet) and decent internet connection. This is great for the fans but it has to be looked at from the side of labels and artists as well. It is important for labels to be able to earn money in order to cover production costs, marketing costs and reinvest. As streaming services are well developed, they need to be present in any label’s business and marketing strategies. The question is whether a new release should be available in the streaming services at the same time with physical and MP3 releases or should this be delayed.

Why physical, MP3 and streaming should be released at the same time

There are many opportunities for a label when considering streaming music. I think that one of the main positive sides of streaming is that it gives listeners the ability to listen to the whole release, which might eventually lead to their desire to buy MP3s (in order to become independent from internet connection) or CD (especially if there is an incentive for those who buy the physical release). Another positive side is that streaming is an extra revenue stream for the label. Moreover, it is clear that there is a significant number of people who listen to music solely by using streaming services. Having this in mind, it would not be the best thing to put a marketing campaign into action, and miss the opportunity to monetize this type of listeners. On top of that, streaming services might be used as means to reach new audiences – by using playlists and recommendations, for example, or rely on serendipity. It is not to be ignored that the largest streaming services have successfully integrated with Facebook, where listens are often shared automatically, which has a potential to bring in new fans. It could be argued that there is a significant number of people who are used to consuming music in a certain way and would not change that. For example, those who buy CDs are not going to buy MP3s or switch to streaming as they are already used to CDs and it would be too much of an effort to switch, even though it is cheaper. Looking at streaming this way provides us with a brief overview of the positive effects it has for a label and a reason for not making a release available on streaming services at the same time with physical and MP3 formats can’t be found.

Why making a release available on streaming services should be left for a later date

Streaming services have positive sides but the threats they bring to a label should not be ignored. One of the biggest threats is the possibility of cannibalization. In other words, if an album is released in physical and digital formats and at the same time is made available on streaming services, there is a high risk of people not buying the album, but only streaming it. The reason for this is the fact that the music will be available for immediate listening and this will result in lack of motivation of the fans to purchase the release. Here comes another one of the negative sides of streaming – it is cheap. In order to bring in significant revenue, a release should be streamed millions of times. It is not very likely for independent labels to generate such huge numbers as their audience is usually small. Another problem is that it is unclear how exactly royalties are calculated by streaming service providers and how reliable they are. This sector is still very uncertain – as we saw recently Pandora is heavily lobbying to equalize their royalty rates with terrestrial radio, and we are yet to see Apple’s streaming service which is currently in development. Having all the above in mind, a release strategy which leaves streaming for a later date has solid economic motivation. It allows fans only to purchase the release at first, but also allows them to stream on a later stage. This results in maximizing the revenue as cannibalization can’t occur immediately after the release and initially limits the listeners’ choice only to buying.

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