Why Aren’t Streaming Services Making Money?

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Virtually all music streaming services are losing money and we’re not talking above small amounts. In Q2 of 2018, Spotify lost a whopping $461 million. Pandora lost $92m. We’ll never really know how much Apple Music loses, and even Tim Cook said in a recent interview he’s not in it for the money.

You’re right, we’re not in it for the money. I think it’s important for artists. If we’re going to continue to have a great creative community, [artists] have to be funded. – Tim Cook

But what about Tencent? Tencent is profitable and has been for some time, yet they work in a market where the vast majority of music listeners can’t afford or don’t pay for music. In the first half of this year, their profit was $263m. What’s more interesting than that is their revenue stream doesn’t come from paying subscribers. If they relied on this they’d probably go broke as the Chinese market pirates music like no other. Tencent is set to IPO as previously reported.

So what’s going on?

Tencent recognizes that not everyone that listens to music can be classed as “music fans” but instead “music listeners”. There’s a big difference in these kinds of people; Listeners listen to music and that’s about it. Fans on the other hand, love music, go to gigs, buy the physical album and t-shirt.
These people represent only a tiny fraction of music listeners but they generate the majority of revenue for the music industry.

Tencent recognizes that not everyone that listens to music can be classed as “music fans” but instead “music listeners”.

These same fans generate over 70% of Tencent’s revenue by tipping their favorite artists. Tencent’s other 30% of revenue comes from paying subscribers and advertising.

Tencent’s model is way ahead of western streaming services.

Tencent doesn’t just run a streaming music network, they are a music social platform and this is where real music fans drive the ecosystem. Superfans are key and this is being forgotten by the likes of Spotify and every other 9.99 streaming service.

When you think of a super fan it’s easy to conjure up images of a crazy screaming fan with a tattoo of their favorite artist face on their arm, but superfans are much wider than this. They are the people that go to gigs and are passionate about music.
They drive the music business – They always have done.

So why are we measuring anything at all by the number of streaming artists are getting? On Youtube, a cat with a ball of string gets more views than a number one worldwide music hit. On Instagram, a photo of a pretty girl or guy gets more likes than your average band gets followers. We live in a society that thinks that Likes equal sales. They don’t.

Super fans are still key.

Tencent’s WeSing platform lets fans reward artists with tips. An artist with 6 figure follower counts can earn $7000+ a month, and that’s after Tencent take their hefty 70% fee.

Spotify, Apple Music, Pandora, Deezer (etc) all have 1 model: Subscribe to get all the music in the world, or pay nothing and get a few ads. That’s it!

However, there are a number of companies that take superfans seriously and understand that fans want to support their artist directly.

Bandcamp lets artists sell their music at whatever price the fan is willing to pay. They have been growing for the last 6 years and have been profitable for the last 6 years. They pay over $3m to artists each month.

Other companies that combine music with social media are also showing that on an artist-by-artist basis they can make a difference.
Patreon allows artists to take donations in return for social and music content via its web platform.
GigRev allows artists to run their whole fan experience directly through an artist branded app that allows fans to subscribe to receive premium content essentially giving the artist their own fan community or private labeled Facebook, live video streaming and music streaming platform – All in one.

So why is there such a big difference in how the big streaming services provide music and other companies that combine social and music together? The Answer appears to be, streaming networks have tried to reach music listeners. The others reach fans and artists and fans feel that connection. Music is worth more than 9.99 a month to fans.

 

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