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Wednesday, March 19, 2014

Amazon: the canary in the digital jukebox?

I'm not sure if my title represents the correct allusion I was trying to make.  But the gist of my thought is that this (golden?) age of unlimited digital streaming of music for $10/month may not be long for this world.

My small amount of research on the phrase "canary in the coal mine" informs me that coal miners used to bring a canary down into the mines with them.  This was before the days of ventilation and systems that told miners to get above ground because air levels were getting dangerous.  Canaries served as the early-warning system, due to their higher levels of sensitivity to particular gases present in mines.  If a canary stopped singing (to put it nicely), miners knew they best head towards daylight.  The phrase has colloquially come to mean a harbinger of what is to come.

Today, Pandora (the oft-used streaming radio service) announced that they are cancelling their annual subscriptions and raising fees across the board.  Pandora ($5/month, or free with ads) is not in the aforementioned $10/month club, because their service is more limited than the all-you-can-listen-to services like Spotify, Google Play Music, Rdio, Beats, etc.  Many of these services have their own ways of giving users a free-listen mode too, but their goal is to get paid monthly users and fast.

Pandora's raised monthly fee hits on the point that the current pricing structure of music subscription and royalties is simply not covering costs.  All of the parties fighting for this pie are currently trying to get market-share, and know that to the victor will go the spoils.

Case in point: let's look at the leader, Spotify.  In January, ReadWrite.com penned a cold shower piece to the company (and the industry), titled "Free Music Or Not, Spotify Still Has a Paid-User Problem."  The article came out around the time that Spotify announced a free plan, one that in addition to the already open access on PCs, 1) gave full features and control (with ads) to the tablet, and 2) gave similar access as #1 to mobile, but put further restrictions there by only allowing users to shuffle playlists, artists, or albums.

Why would the all access streaming leader do this?

Because, according to the article, Spotify needs to get to 40 million paid users, which is the point at which everybody - artists, company, labels, etc. - make a profit.  How many does Spotify currently have, you ask?  The article says that as of March 2013, they had 6 million paid users, and 18 million unpaid users.  So, they are 16 million users short of their paid goal, and that is including the legion of the unpaid.  By opening up mobile to a free plan, Spotify is looking to give users a no commitment taste, with the hope that they can raise the user base, and then the further hope that that user base will turn into paid subscribers.

Forty million users paying $10/month seems like a lot of commitment to me.  Anecdotally, many people are not that committed to music purchasing, especially when we have all gotten quite a run of free tasting.  The music business would probably not have taken such a hit during the digital revolution if users all along had been willing to spend the price of one album per month.

Which lastly, leads me to Amazon.  I just finished Brad Stone's "The Everything Store: Jeff Bezos and the Age of Amazon", and am utterly amazed by what the company has been able to accomplish under the stewardship of the (at times Steve Jobs-like) Bezos.  According to reports, Amazon is getting into the music-streaming business now.  The news also highlights the fact that Amazon will reportedly also have some kind of listening limits on their music service, so that you can freely listen to music like some of the other services, but will be driven ultimately to purchasing MP3s after exhausting the limit.  The streaming service will be built in as a new perk to Amazon Prime members.  It could be one of the reasons that Prime's price was just raised $20/annually.

The big question: Why is Amazon, the king of accepting financial losses in pursuit of market-share in seemingly all of their endeavors, not offering an all-you-can-eat music plan with Prime?

Could it mean that the canary has stopped singing?  Are the financials of going all-in just not worth it?

Or, does Amazon, like Apple, have too much stock built up in the selling of digital products a la carte?

I have often wondered why streaming music services went the way they did, giving away everything right away.  Couldn't they have tried to go with a Netflix-like approach, where, like TV shows, you have the availability of back catalogs on demand.  Newer seasons eventually get there, but are availabie immediately by purchasing them outright on services like iTunes, Amazon instant video, Google Play, etc.  Seems to me to be a fair bargain.  Maybe music needs to head that way, or towards what is being discussed with Amazon, so that the system can work for everybody.

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