Music streaming today is like an all-you-can-eat buffet. How much could artists earn with a ‘free market’ model?

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MBW Views is a series of exclusive op/eds from eminent music industry people… with something to say.  The following comes from Roneil Rumburg (pictured inset), Co-Founder and CEO of Audius, a San Francisco-based blockchain-powered music platform. Rumburg suggests that the music streaming business model today is “akin to the all-you-can-eat buffet, where one price is paid and consumption thereafter is unlimited” and suggests an alternative model for the future.

For the last decade or so, the recorded music industry has enjoyed a period of relative stability and growth, which is consistent with prior music format cycles.

Most people would agree that the streaming format saved the recorded music industry.

As with every technological revolution in music, however, streaming has been but a temporary savior. There are clouds on the horizon. Growth in overall streaming revenue is slowing down. Worse still, revenue per stream is declining, and now certain artists are deemed “unworthy” of receiving their fair share of the pie. This is driven by many factors, but the following are the biggest drivers:

  • Increases in consumption by each fan are not accompanied by a rise in subscription fees. That means growth in revenue has to come from new subscribers rather than increased engagement from existing subscribers.
  • Developed markets are reaching the point of saturation, reflected by their slowing growth rates.
  • Developing markets driving growth today have a lower Average Revenue Per User – meaning many more marginal users need to be added to drive the same level of growth in top-line revenue.
  • Each existing user, on average, is streaming more each year.
  • Growth in the amount of content published per year significantly outstrips growth in overall revenue.

Putting the puzzle together, we overall have a plateauing amount of total revenue paired with high growth in total content available and per-user consumption, which predictably has led to a decline in per-stream revenue on the whole.

An increasingly fixed input of fan payments is divided across an ever-increasing amount of streams and content.

This story is reflected fairly clearly in the data too:

As developing markets also reach points of saturation similar to mature markets, streaming revenue will only continue to plateau further.

The only remaining strategy for driving revenue growth with the constraints of the streaming business model will be jacking up consumer prices, increasing per-user revenue across the board, but risking churning subscribers and negating the gains made per user by losing overall users.

These moves are typically unpopular with consumers for obvious reasons.

So with streaming flattening, and declining at the specific content level, where does growth come from next?

Many different answers have been proposed to tweak the business model to more efficiently direct revenue, eg. “fan-centric payouts” or “artist-centric payouts” or “rightsholder-centric payouts”, but none of these solutions actually grow the overall pie of streaming revenue, they only quibble over how best to split it up between existing stakeholders. For every winner in these new models, there is definitely a loser whose loss is the winner’s gain.

Zero-sum games typically have negative-sum outcomes, as more and more time and money are spent fighting over the same limited pool of resources, in this case overall subscriber revenue.

The key question to ask ourselves here, however, is “Why is all consumption treated equally?” Couldn’t one apply more granular pricing rules to interactions with content instead of treating it all the same? We would argue yes, and that the new business models and formats created by unstructured and granular unstructured and granular pricing will drive the next cycle of growth in recorded music.

To draw a crude analogy, the streaming business model of today is akin to the all-you-can-eat buffet, where one price is paid and consumption thereafter is unlimited.

Imagine if all restaurants were all-you-can-eat. Fortunately we don’t have to – today’s dining landscape is as diverse as ever. Buffets, though growing quickly, represent $5.5 billion/year in the US market, while overall restaurant revenues in the US just among franchises are $365 billion, with the number for overall restaurant consumption being likely much larger but more difficult to measure. How much more money could music be earning with variable and granular pricing?

This is not apples to apples (please forgive the pun). Food has a marginal cost of production, while digital content does not. But it doesn’t take a significant leap of faith to understand that premium music experiences will very likely lead to more revenue generated against that music content than pushing it through the all-you-can-stream buffet.

“it doesn’t take a significant leap of faith to understand that premium music experiences will very likely lead to more revenue generated against that music content than pushing it through the all-you-can-stream buffet.”

Roneil Rumburg, Audius

So what does this look like in practice? The digital music services of tomorrow will work more like a free market for content interactions, where artists and rightsholders can configure any parameters they’d like governing what payment or other requirement needs to be satisfied to engage with the content in the moment.

This could be one-time payments, subscriptions, or even things like challenges where a user needs to be among top listeners or anything else one could imagine.

Overall, for the first time, this granular pricing will mean a free market for content exists, where prices are elastic to demand rather than fixed by intermediaries operating with inflexible streaming business models.

We’re not alone in pursuing this future – both Sir Lucian Grainge, Chairman and CEO of Universal Music Group and Robert Kyncl, CEO of Warner Music Group, have argued for a renewed focus on the superfan, Spotify recently hinted at a forthcoming superfan feature, and many other people have covered dimensions of this problem and argued for different forms of business model that introduce pricing granularity.

Tying these arguments together, the underlying value unlocked always comes back to granular pricing tied to a new form of direct distribution (allowing for the new pricing model).

We at Audius, and many others in the music tech community, are building towards this future today. And that future is bright! As an example, Audius’ recently launched content marketplace functionality was used by the producer Kato to generate over $20k in revenue through download sales in his first month.

Armed with these high-value fan relationships aggregated in one place, Kato can now deepen his engagement with this core audience and create further revenue opportunities.

This new free market model, for the first time, puts control into the hands of artists and rights holders. It rewards them for fostering deeper, unique relationships with their fans. And it gives them the kind of direct relationships with their most passionate fans that have been impossible up until now.

This new revolution will fundamentally change our industry for the better.Music Business Worldwide

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