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David Manlow on why we must continue to embrace legal streaming services This year will be a very interesting one for the continued growth and development of subscription streaming services. The likes of Spotify, Rhapsody (new owner of Napster), We7 and mflow have built up substantial user bases in the last few years and, according to a recent Bloomberg report, streaming services now make up the US record industry’s second largest source of revenue (after iTunes). Spotify has seen particularly strong growth in the last year, having reached the next key phase in its development (focusing on a up-sale facility to its premium services and increasing scale), and is now the second largest digital revenue source for European labels. There has, perhaps predictably, been a recent backlash against these services from certain labels, with major artists also choosing to exclude certain albums from these services due to concerns that streaming may cannibalise existing download and physical sales income. As the range and value of streaming services grows (and physical sales continue to decline), streaming services will need to do more to address such concerns by better informing the industry as to: (i) the market demographic they are penetrating (they are not necessarily cannibalising existing legal consumption, as evidenced by a recent Scandinavian survey in relation to the streaming service WiMP); (ii) how they should be evaluated (these are ‘long tail’ services, not directly comparable with downloads); and (iii) how they calculate and pay royalties (although record labels themselves also need to provide greater transparency as to how they share this income with their artists). Since the music industry is an ecology (its participants - artists, writers, publishers, record labels - are co-dependent), it is in their mutual interest to collectively support legal streaming services to avoid consumers turning (back) to illegal sites. Rights holders themselves needs to look at what they can do to help reduce the barriers to market for new licensed services, whilst ensuring a fair return for artists. There have been reports of record labels (and other stakeholders) making unreasonably high demands, primarily for large advances and share options, to license new services. This not only deters and (as with Spotify’s US launch) delays the launch of new services, but may prevent new services from launching at all. It can also lead to services choosing to launch without licences, as with Google’s cloud service. The Internet has guaranteed that future means of music consumption will be dictated by the consumer. If there are no viable, attractive licensed services available, or if particular artists or albums are excluded, some consumers may elect to purchase the download or CD instead, but many others will turn to illegal sites. Record labels are well aware of this, this is why licensed streaming services have received growing support and, in the coming years, are likely to form part of a range of legal music consumption options designed to meet different consumer needs. These options are likely to consist of a combination of: (i) paid downloads with ‘complete access’ (any device, any time); (ii) subscription streaming services with complete access; and (iii) ‘super fan’ deluxe physical packages (such as those provided by Topspin). With the exception of ‘super fans’, the issue of ownership is also likely to become less important, with consumers focused on having cheap, instant access. In order to flourish and remain a viable long term alternative to illegal downloads, streaming services also need to offer not only unlimited catalogues, complete access and interoperability (one subscription must feed the subscriber’s phone, tablet, car and home music/TV system) and the best user experience; but they also need to achieve scale. Spotify is well aware of this, hence its availability in 13 countries, including the US, its deals with Facebook and Virgin Media and its decision to allow third party app integration. This necessity of scale is why consumers are increasingly likely to see such services bundled with other products; most likely mobile phone contracts and cable TV contracts initially, but then possibly insurance contracts, student bank accounts and new car purchases. At a time when there is much negativity about the state of the music industry, the potential for licensed streaming services to achieve scale and tap into those consumers who have previously refused to pay for recorded music (an astonishing 95 per cent in the UK) is something which should be embraced.
David Manlow is an associate at Bray & Krais, a London music and entertainment law firm specialising in live events, music, theatre and production. www.brayandkrais.com |
