Apple just announced they’ll be launching spatial and lossless audio, at no extra cost, to all Apple Music subscribers starting in June. Seemingly in response, Amazon announced that they’ll be folding their lossless quality tier into the standard Amazon Music subscription tier. Lossless quality music is $9.99 now.
Amazon & Apple are not music companies
Neither Amazon nor Apple need to make money with their music businesses. They utilize these aspects for greater ecosystem tie-in and can afford to use music as a loss leader. Not even considering Apple’s iPhone, App Store or MacBook business… Apple’s revenue for their Airpods equals the revenue of Spotify, Twitter, Snap, and Shopify combined (2019).
Another analyst puts the 2019 revenue for Airpods at $7.5 billion, rather than $12 billion. Still enormous. Airpods are becoming a platform. With its iTunes Store it sought to get more people on the iPod, which created a consumer lock-in that extended to the iPhone and the App Store. Steve Jobs‘ deal terms for iTunes also had a profound effect on the economics of music – laying the foundation for many of today’s discussions.
Lossless as a loss leader
Unless Apple and Amazon signed some very unique deals with labels, lossless streaming comes at a higher price than standard quality. That means that for now, Apple and Amazon are deciding to eat the cost in order to tie more people into their ecosystems. Amazon was previously criticized for this in 2011, subsidizingLady Gaga‘s album sales of Born This Way by discounting it to $0.99:
“The digital retailer used the album as a loss leader to promote their Cloud Drive storage service and paid Gaga’s label full wholesale price for each album sold.”
Apple has been taking aim at Spotify since the launch of Apple Music. That started with rhetoric around how human curation is better than algorithms. More recently it took the form of a letter to artists about Apple Music’s royalty rates. Spotify’s antitrust complaints in the EU about Apple’s App Store practices means Apple faces fines as high as $27 billion. Spotify announced they have a lossless tier coming up later this year. Most people assumed this would come at an extra cost. Apple’s decision to use their $200B war chest to eat the cost of lossless quality audio is very much a move against Spotify.
Growing the pie – undermined?
Spotify had the courage to move first and start increasing prices of its existing tiers. Streaming subscription prices have long been stuck at the same price, losing 26% of value due to inflation. The market has become mature enough to raise prices and that’s something that needs to be normalized in a way similar to Netflix’ price hikes.
Apple & Amazon’s strategy puts that at risk. Two questions to ponder: is music currently sustainable with so many companies relying on revenues from streaming services that are making a loss and are subsidized by tech giants or investors? Can this digital music landscape be sustainable without asking consumers for a fairer price?
“Perhaps hi-res music’s true value in streaming will be to enable the big DSPs to charge all their subscribers another dollar or two a month, rather than just to persuade a small fraction of them to pay five dollars more a month. If that strategy pays off, today’s news will have been a positive moment indeed.”
I’m less optimistic and think that if this was the strategy, they would have paired the news with a price hike. This is about ecosystem tie-in and hitting Spotify where it hurts in a way that’s likely to impair efforts to normalize fairer subscription pricing.
Spotify often gets contrasted with Bandcamp in order to explain the challenges of the music streaming landscape: low per-stream royalties versus much larger commissions on sales. The intensity of that discussion has moved all eyes from the actual one-to-watch, which is not Spotify, but YouTube – a service with a billion monthly active music listeners and 30 million subscribers.
Always has been
YouTube has of course long been on everyone’s radar due to the so-called ‘value gap’: the disparity between what YouTube was willing to pay for music & its perceived real market value. As the biggest music platform, YouTube was infamous for its low per-stream rates which, on average, are significantly lower than Spotify’s for music identified through its ContentID system (source). I chose to phrase things in past tense due to attention shifting to Spotify, but that does not mean rightsholders have found these issues to have been resolved.
Another concern is the power of YouTube and its mother companies Google and Alphabet, which is a common reason for complaints from music industry lobbyists about having imbalanced negotiations. Before I go into why I think YouTube is making all the right moves: the concentration of power towards tech monopolies is of big concern for me too (it’s why I deleted or deactivated my accounts on Facebook, Instagram, and WhatsApp). Keep this in mind when developing a strategy: always diversify, never put your eggs in one basket, and make sure you create ways to go direct-to-fan (e.g. collect phone numbers, email addresses, build communities).
YouTube’s evolution as a creator service
Google’s video service has long had something of great strategic value: not music. I mean that literally: it’s had content and creators that were not doing music. This has meant less complexities around licensing (but also poorer representation for creatives) and has allowed YouTube to experiment with new models.
The same is happening now with podcasts at Spotify and user-centric streaming payments at SoundCloud. Having ‘user-generated content’ from unsigned artists allowed SoundCloud to start trialing its ‘fan-powered royalty‘ model without every rightsholder having to opt-in through contract negotiations. Meanwhile Spotify is exploring new monetization models around podcasts, like paid podcast subscriptions. As a relatively new medium, podcasts don’t yet have the legal and political complexities associated with intellectual property in music.
YouTube & the next layer
Streaming is a base layer for music monetization. It’s shallow in that it leverages nothing but the relation between listener and catalogue. Monetization is driven by factors like accessibility (e.g. all devices, price), portability (e.g. offline) and convenience (e.g. catalogue size, search, recommendations). It’s absolutely basic: it’s not about the relation between fan and artist, it’s not about the quality of the art or music, it’s just about having the largest and most convenient store where you can access everything by paying from a magic wallet with your costs predictably capped at $10 per month. It’s a subscription business, not a music business – as Tim Westergren (founder of Pandora and now livestreaming service Sessions) also pointed out in my recent interview with him during Karajan Music Tech.
This base layer has advantages: it generates a huge amount of money for rightsholders and creates a foundational data layer which can be used to connect listeners to new artists and music or could be leveraged to learn more about existing fans and get new music to them. But streaming was never supposed to be the future of the music economy. It needs additional layers on top.
One of these layers is the Interaction Layer. This layer has been thriving during the pandemic thanks to a particular medium: livestreams. Livestreams encourage interactivity: fans can be exposed to each other in chats and the chat functionality can make fans feel like they’re seen by the artist(s) they care about so much. That means there’s value being created beyond simple music access. Value means opportunity to monetize and YouTube has seized that opportunity.
Through its Super Sticker and Super Chat features, YouTube allows creators to monetize their livestreams. Super Stickers are big, fun and quirky custom emoji that appear in the chat in exchange for a small fee. Super Chat allows viewers to highlight and pin a message for a certain duration of time, depending on how much they pay. In the first months of the pandemic lockdowns, from March to June 2020, over 2 million new users spent money on these features.
The second feature that provides an additional layer is channel memberships. This allows creators to created limited edition content, similar to what they might offer on Patreon or a SFW OnlyFans. At smaller numbers, it even allows them to create semi-bespoke content.
Layer integration
These features allow creators to monetize and connect with fans where they already are: YouTube (as opposed to onboarding them to Patreon or OnlyFans). This is the important distinction. These monetization options are not novel in and of themselves – many of them have been around for years or even decades. The important development is that these experience and monetization layers are integrating. Moving fans around various platforms causes friction, which means you won’t be able to convert everyone down the funnel from the streaming layer. It also keeps the data in one place instead of fracturing it.
Over the next years we’re going to see many examples of artists successfully building models on layers that sit on top of streaming. YouTube is going to play a significant role in that. The conversation will move from leveraging streaming (still essential for discovery & connection to wider audience) to interaction & bespoke options.
Another service to watch in this space is Amazon Music, which is slowly expanding their integration of livestreams from Twitch (another Amazon company, which also allows micropayments and memberships like YouTube).
Livestreams mean original content and a different set of rights than what you negotiate for on-demand streaming. This has given YouTube and Amazon the flexibility to experiment with these new layers. Spotify’s business strategy has introduced similar functionality to podcasts, but will they be able to do the same for music given the complexities of licensing and the various rightsholders that will want a piece of the pie?
The music streaming landscape is in flux and it’s not about Apple Music vs Spotify or Spotify vs Bandcamp anymore.
A special thanks to Vickie Nauman for some of the inspiration for this piece and to c/o pop and Germany’s association for independent music (VUT) for having us on a panel last week.
Scams, fraud, bots and theft: the ugly side of streaming provides a stark contrast to that beautiful feeling of having the world’s recorded music at your fingertips.
What is Two-Factor Authentication (2FA)
You are already using 2FA. Certain accounts, like Google, Facebook, or Apple, require multiple forms of authentication in order to sign in from a new device. This often works by verifying it’s you from another device, or by entering a code sent to your phone number, email address, or generated in an authenticator app.
It adds a layer of security to accounts that makes it hard to get in with just the username and password.
Why don’t streaming services use 2FA?
Popular streaming services like Spotify and Netflix famously don’t use 2FA, although the latter has recently started running tests with it, presumably to tackle account sharing. The reason for not implementing 2FA? Likely because it doesn’t help growth and in fact may hamper conversion rates.
Jorge Castro on developer community dev.to sums it up well through this fictional conversation:
Developers: We want to implement 2FA in our platform.
Netflix executes: Ok, and how much will it cost us?
Developers: Around two months.
Netflix executives: Ok, and it will increase the number of viewers?
Developers: Well, not really. It is about security.
Netflix executives: So, it will not increase the number of viewers but it could be a burden for some customers and it could decrease the number of viewers.
Developers: Yes, but it could be optional.
Netflix executives: So optional, an option that it plays against the number of viewers and it will cost us time (and money). Sorry but no.
Developers: But the security.
Netflix executives: We already invested in our security. If our customers have trouble then we could reset its password. It’s their responsibility, not ours.
However building in a little more friction could be beneficial to all… and tackle certain types of fraud more efficiently than a switch to user-centric streaming payments might.
Black market for streaming service accounts
For years, there has been a thriving market for streaming service accounts, with Spotify accounts selling for under a dollar. Many though not all of these are hacked. It’s so common that people commenting on their hackers’ music tastes has become somewhat of a meme and a quick search on Twitter pulls up countless examples.
This is not an issue that is exclusive to Spotify and Netflix, but there’s a high availability of examples since they are two of the most popular entertainment services without 2FA.
Fake plays, scams, and fraud
Just like it’s possible to buy ‘fake followers’ on social media, it’s possible to buy fake plays for streaming services. Jacking up the numbers can help to game the recommendation algorithm and build fake legitimacy for those looking closely at big numbers (but perhaps not closely enough).
Who cares if that is what someone wants to do? Well, everyone should, because it eats away at the pool of money distributed to all artists. Hackers have been gaming this system openly since at least 2013 in order to generate revenue.
An article by William Bedell from 2015 explains how he was able to do the same. At the time, not only did Spotify not use 2FA:
“There wasn’t even a CAPTCHA or email verification when creating accounts.”
Image by William Bedell.
The lack of better security leads to these types of fraud having to be traced & fixed retroactively, which often leads to streaming services taking music with fake plays down. That sounds good, but there are two issues: 1) we don’t know what percentage of fraud goes undetected, and 2) this opens up an attack vector (want your competitor’s music taken down? Just boost it with fake streams).
Audius (primer article), a new streaming platform and protocol that awards people tokens (called $AUDIO) based on their participation, is also running into this issue. Bots are used on the platform to game the system and get music into the charts. This messes with the platform’s weekly reward system, as WeirdCityRecords on Reddit points out:
“Curators have been robbed by bot users almost every week since the rewards inception (not only in terms of $audio but engagement being buried below bots), and now with a song being clearly botted to #1, it seems like this week 1 artist or possibly more will be deprived as well.”
The track accused of being ‘botted’ to the top outperforms the #2 by over 14 times, despite the artist and account being new to the platform and seemingly not having a significant presence on other music platforms.
Two-factor authentication would make it a lot harder to create loads of accounts like in the examples above, especially if you limit to 1 account per phone number.
Report fraud
Recently, I became familiar with another scam. Unfortunately that was due to falling victim to it on Spotify, though it may also exist on other platforms.
Botnets get employed to report people’s playlists for inappropriate content. This results in the playlist title and description being taken down. Bada-bing bada-boom: it is now easier to be the #1 search result for those same terms on Spotify.
Hi Bas! Your playlists are targets of botted attacks that report your playlists with false motives to keep them from appearing in search results. These atracks are going on for many months now and Spotify still has not implemented a solution.
As soon as I reported the erroneous report to Spotify and had them restore the playlist title and description, the botnet took it down again. This repeated half a dozen times over 2 weeks with my playlist existing without a title or description for the majority of the time.
I’m not alone in this and have found various playlists that also seem to be suffering from this issue (click here for an example if you’re curious about Romanian Manele music and here for GTA’s excellent soundtrack). This thread in Spotify’s support forums has other users reporting the issue.
The attack seems to have ended, but I almost gave up restoring my playlist every time it got taken down (I did consider writing a script that would auto-reply to Spotify’s takedown emails, though).
Since playlists are user-generated content, Spotify needs some type of system to deal with reports and make sure content that goes against the terms & conditions is taken down. After the 5th time my playlist got taken down and I asked if they could protect my playlist from the next auto-takedown, I got this answer:
“All user-created content can be reported, and while it may be possible that a report is invalid, all such reports need to go through our official report channel so we can handle them properly.”
So that’s a no. This means that anyone building playlists on Spotify with an unverified account can fall victim to this. Sure, the reporting account may get banned, but if it’s a botnet targeting you that doesn’t matter. That’s problematic, because unlike my hobbyist playlist with 100 followers, there are curation brands and artists with playlists that depend heavily on Spotify. They’re all exposed to this type of attack that seems to rely on either hacked accounts or easily-created free accounts.
Investment without security
People around the world are putting hours of effort into their streaming accounts: building playlists, followings, brands and in some cases companies using their presence. They’re exposed to insecurity.
Even accounts on platforms with better security get hacked, e.g. to misuse the trust someone has built up and run a cryptocurrency scam on followers (as fellow music-tech writer Cherie Hurecently became a victim of on Twitter, which besides Audius and the report fraud above was my third prompt for writing this piece).
Even if a streaming service can reinstate an account after a hack: the hack can damage your brand, e.g. if the hacker changes playlist titles and imagery to something offensive or scams, or just makes it impossible for you to keep running your playlist brand due to repeated reporting. If you enjoy services’ algorithmic recommendations, a hacker’s temporary account takeover can mess that up for you also.
Two-factor authentication is a basic standard for security. Maybe it’s time for streaming services to give it some priority and prevent fraud, scams, and theft.
Breathe in for 4 seconds, hold for 4 seconds, exhale for 4, pause for 4… Repeat.
When we think success, we tend to think big numbers. Most familiar examples of success have big numbers in common, especially those examples discussed around the world in newsletters and blogs like this one. The logical conclusion: success = big numbers.
Yet, when discussing success with musicians, I’ve found most would just be happy to make a difference to some people & be able to make a living off of it. If the goal is to make a living, then why does success necessarily involve racking up small amounts of royalties through thousands of plays until you finally have enough to make a living when combined with live gigs?
Our success maps are lousy. They’re based on highly visible examples of success which leads to a biased map. It also models strategy after something that worked in the past, but may not work as well now. If an artist achieved scale by cleverly playing the game of early-SoundCloud & the iTunes charts (Yellow Claw comes to mind) it’s impossible to copy that exact foundation since the context for the methodology has changed.
Breathe in, breathe out, think small
If the goal is to make a living, why bother playing the game of big numbers? Pitching playlists, building various social media profiles, gaming algorithms and spending countless hours on all that in the hope that the thousands of followers will translate into sufficient streams and bookings. It’s considered ‘the way’ to do it, but what if the goal can be achieved more efficiently on your own terms?
What does making a living mean for you? How much would you need monthly?
What do you enjoy doing? What would you like to have more time for?
How much time do you want to spend on your craft?
What do you dislike doing?
Take a moment (actually, take a week, or a month: this is your life we’re talking about). Breathe. Reflect. Define your goals by what you want, not by what you think is needed. Is having hundreds of thousands of fans a fun goal or is it actually methodology masquerading as as a goal? Achieving massive scale as an artist may look like success, but it’s often just a symptom of the methodology to achieve goals and not the goal itself.
Question your goals. Carefully & deliberately choose the game you play.
Why scale matters / mattered
Scale is a game. For companies that make money exploiting catalogues, scale is required in order to turn low margins into a big business. The same is true for ad-funded business: each individual ad serving isn’t worth much, but if you manage to get lots of people to constantly pay attention to your platform and your ads, you have a business. These dynamics underpin a lot of the modern music landscape: labels, social networks, music services – they generally all play a game of scale.
In the past, the range of available business models for musicians was quite limited, so musicians often opted to play the game of scale in order to sell lots of low margin products to make a living.
Thinking small(er)
Imagine you could only ever have 1,000 fans (not necessarily ‘1,000 true fans‘). How would you turn that into a business? Your livelihood would depend on the patronage of these people: how would you win that patronage?
But a fanbase is not actually the starting point of either your strategy or the ‘user journey’ to becoming a paid fan. Thinking small requires you to question how people discover you and your music. What do you need to convey in order for people to understand that being a fan of your music is different?
Inhale, hold, exhale, wait, repeat.
Ask: What are you leading your fans towards? What can you ‘sell’ to them and at what price? Remember: the higher the price, the smaller you can keep your numbers. Small scale has considerable advantages: the communication overhead is smaller, signal to noise ratio is better, you personally feel much more connected to your fans and so will they, plus it will be easier to reach them. A common trap is that people focus on ‘how to get heard’ by new people without thinking carefully about ‘how will they hear me again?’ In the case of small scale, you could potentially drop everyone a personal note or even a call.
Be brave in imagining scenarios. What if 90% of your art was only available to your Patreon, Substack or OnlyFans subscribers?
Create scarcity early
Figure out what’s the smallest number of fans you could monetize in order to make a living. Making abundant what’s easy to replicate is typically a good idea, as it helps with word of mouth & leverages the network effect of platforms & organisations that play the game of scale. But pause there.
Hold your breathe for 4 seconds, breathe out for 4 seconds, wait, and breathe again.
Now consider the fan journey: if people discover you through word of mouth or a playlist, what do you want their first impressions to be? What type of relation do you want them to have with you & your music? Through what tools and platforms? How do you bring them there when they’re first introduced to you? What does this introduction look like?
Reward fans with scarcity and do so early on. Scarcity is everything that can’t be easily made abundant: a one-on-one call, limited edition items, an NFT, playing a video game with you online, etc. Align it with what you like & what your fans like. Consider how you reward: perhaps you reward everyone who completes certain steps in the fan journey with something scarce, which can be as simple as a personalized message or a public shout-out. Of course, in order to build a business model, you will also reward people with scarce items in exchange for currency.
You can’t start early enough. Set your goals. Think about scarcity. Think about your fan experience, even if nobody has heard your music yet. Build it out together with your community.
SoundCloud is adopting the user-centric payment model, branding it ‘fan-powered royalties‘. I’m a proponent of the system and was even product director at a music streaming service that employed a user-centric model (IDAGIO’s ‘Fair Artist Payout Model’). Yet, recently I wrote a piece in which I worried about fan-powered royalties being a distraction for SoundCloud, so here are four reflections on the latest announcement.
#1 Recalculations of revenue distribution don’t tell the full story
I’ve sat in on more than a few discussions about user-centric payment models. These discussions often cite research papers that compare how the status quo of music revenues would differ in a user-centric model versus pro rata model. While it’s important to use the data at hand, this also causes a bias.
The streaming landscape, including the vast majority of all digital strategy employed by labels & artists, are based on a pro rata model. What types of services would succeed in a user-centric landscape? What type of strategies would emerge?
#2 SoundCloud should consider fan-powered royalties a platform pivot
The way music streaming services function is strongly influenced by their economics (funding models, user payments, rightsholder compensation models).
Music streaming services sell the catalogue to get new subscribers, who are treated as listeners first, fans second. “Music for every moment”: radio stations, curated playlists, autoplay – all ways to stretch people’s listening sessions to get more value out of the service & either subscribe or stay subscribed (or at the very least trigger more ads).
In a user-centric model, encouraging high listening diversity runs counter to artists’ interests. If I start a rap career (under an alter ego, to avoid another trademark claim) and I bring a fan to a platform because it’s user-centric, I do not expect that platform to then do everything in its power to make sure that fan listens to many other artists, thus diluting the value I get per fan. Rather, I’d expect the relationship to look a bit more like fan clubs (e.g. some crossover between the Patreon / OnlyFans walled garden model and streaming’s attention diffusion model).
In other words: SoundCloud should follow these fan-powered royalties with feature sets that make the platform more fan-centric.
#3 The flaw is in the subscription model, more so than the remuneration model
60,000 songs are added to Spotify daily. The democratization of music has been great if you think it’s important that more people than ever participate in the creation of recorded music. It’s also creating an increasingly competitive landscape.
What happens when the entire potentially addressable market has been sold streaming subscriptions? The pie stops growing. Long before that, the growth of that pie will slow down much faster than the number of new artists adding their music to services’ catalogues.
Streaming subscriptions are a dead end road. A user-centric model only rewards those artists whose fans don’t listen to a lot of music or are extremely loyal, thus maintaining a high “average listening-share per user“. User-centric models don’t generate more revenue.
One of the most insightful people about this problem, who regularly writes & speaks about it, is Mark Mulligan.
#4 Music streaming services need to become ‘music services’ with revenue models that scale vertically
I’m going to skip over some important nuance:
Streaming is not a feature. Music access wasn’t a problem. Piracy solved that. Legal music access was a problem. Rightsholder remuneration was a problem.
When you look back at the history of streaming services like SoundCloud and Spotify, you find an era with APIs that allowed external developers to tack on all kinds of additional experiences. Much of that has been shuttered (in part due to licensing agreements) and an assumption has emerged that music streaming subscriptions paired with the familiar UX conventions are the definitive model. They’re not.
Music streaming was only supposed to be the base layer. It’s a layer on which we need to build alternative revenue streams that scale vertically. I may be butchering economic terms here, so what I mean with that is this:
Music streaming has done a tremendous job at scaling horizontally: getting millions of people around the world to pay a flat monthly fee of $10, or the local equivalent. It has done a horrible job at scaling vertically: fans with more to spend basically go unmonetized.
Meanwhile, the model for artists still looks the same:
Make great music.
Grow your fan base.
Monetize your most limited resource.
That most limited resource is time. A live show is a limited event. A virtual meet & greet is limited. A livestream is limited. An autographed shirt or record is limited. An NFT is limited.
Streaming services, besides integrating merch, have done very little to create new revenue opportunities for artists. This is a failure of the landscape, rather than specific services. It’s hard to run a music streaming service: the economics are brutal. You have a high burn rate with upfront ‘minimum guarantees’ paid to rightsholders, you need to justify that burn rate to investors with fast growth, so streaming services tend to get locked into a single model.
The first link in this article, about SoundCloud’s fan-powered royalties, goes out to Fred Wilson‘s blog – an investor in SoundCloud. Hopefully it’s a signal of an understanding between SoundCloud’s leadership & investors that the company has to pivot from being a music streaming service, to being a music service that supports fan-centric business models.
That’s essential, because what happens now is that an expectation has been created with artists. They expect fan-powered royalties to work out better for them, but what’s the strategy to grow the pie?
While user-centric payments definitely make the landscape fairer and realign incentives by making sure the money generated by fans of certain artists actually end up in those pockets, it’s definitely not a silver bullet solution to make up for the difference between desired and actual revenue artists receive from streaming services. In other words: for the vast majority of artists, the immediate change in royalties from a shift to user-centric would be negligible.
Furthermore, it’s complex to negotiate, as SoundCloud’s VP of content partnerships Raoul Chatterjeepointed out during a recent session of the UK streaming inquiries:
“The whole investigation into user-centric is a very detailed and complex investigation that needs to be taken. It’s one potential path we’re exploring… and it would require industry-wide conversations and support to be impactful.”
SoundCloud is doing ok (especially compared to a few years ago), is reporting growing revenues, but it’s losing relevance. SoundCloud does not have time for lengthy negotiations. As a platform, they’ve lost their footing at the center of music subcultures and the longer it takes for SoundCloud to regain its position, the harder it will become.
Keep the lawyers at the (virtual) negotiation tables, but in the meantime, claw your way back.
Firstly, where do music scenes go to connect to stay connected with each other in 2021? I’ve argued that Instagram has usurped community building from SoundCloud. Of course it should be noted that TikTok is playing an increasingly important role there, especially for certain genres. To a lesser degree, groups on Facebook, Telegram, and Discord form places for people to share their latest tracks, get feedback, find people to do collabs or exchange remixes with, etc. As such, they’re also great places for fans to keep track of the latest developments in music.
Secondly, where did musicians turn when they struggled to make ends meet with just the income from Spotify, Apple Music, YouTube, etc.? They turned to Bandcamp in a massive way. SoundCloud, with its creator-centric roots, wasn’t well-positioned yet to accommodate these artists, because what it offers artists hasn’t changed much from its early beginnings. In 2020, being creator-centric meant helping creators make money – and SoundCloud didn’t have much to offer beyond what it offered artists since the service’s early days. That is: a place to upload your music and present it to other people. That addresses a pre-2015~ market need: making music easy to access. Access has been solved. Monetization hasn’t.
Another place that made music easy to access, YouTube, has been SoundCloud’s most important competitor. YouTube, since its early days, has offered social functionality similar to SoundCloud’s, in that one can follow creators (once innovative! Spotify only launched this 4+ years after launch), comment on tracks, and see other users’ profiles.
By 2021, YouTube’s suite has evolved to include membership clubs with monthly fees, monetization through content identification, and livestream monetization through social features that make fans more visible in the chat (similar to Twitch).
This is the landscape SoundCloud must address & find relevancy in.
SoundCloud was strongest when it catered to its early adopter users or users who exhibit that type of behaviour. Behaviour commonly associated with early adopter users is word of mouth, being a power user, and a willingness to overlook certain flaws as long as the product delivers exceedingly well on its core value proposition. These users are not well-addressed, since the value proposition has diluted over time in order to target wider audiences (e.g. through its Spotify-like subscription service). SoundCloud has made some great initiatives to woo creators in recent years, but the unifying aspect for all users on the platform is its listening experience – and that’s a social one.
People go to SoundCloud to discover new music. To find what’s ‘Next Up’ before it’s uploaded anywhere else. If you’re into a particular type of music, you’ll follow many of the same artists as other fans of that music and you’ll see some of those fans appear in the timeline comments on tracks.
Timed comments on Masayoshi Iimori’s track Alcohol.
On profiles, which have the same feature sets for fans and for artists, this social functionality is also present by displaying who someone follows and is followed by, as well as any tracks they’ve liked and comments they’ve left. For users who don’t upload any music, the main profile real estate consists of reposted tracks (similar to a Twitter user who only retweets). All of that is social.
Do the majority of users explicitly engage in social behaviour on the platform? Unlikely and it’s probable that a small minority of users create most of the (visible) activity, as on Twitter. SoundCloud is a community product where a minority of users create the value that the majority of users get off of the platform. Unlike Spotify, which tries to help users get as much value out of the catalogue as possible, SoundCloud should focus on the value users can get out of communities and the artist-fan relationship.
Lessons from gaming
This is not dissimilar to what fueled the success of games like Farmville or Clash of Clans. In free-to-play games, the majority of users will never spend any money. Instead, they create value for the ecosystem, so that a minority of users becomes willing to spend (big).
In order to leverage these dynamics, and create revenue for artists, SoundCloud must double down on social. How?
Step 1: Leaderboards on tracks and profiles. Show off the top fans of tracks and artists. Dedicated fans will want to earn their spot as the top fan. It’s not just fans: if you’re part of a certain music scene and want to make sure you’re ‘seen’, you’ll play new tracks on repeat, so you appear on the leaderboards on day 1. (just imagine K-pop stans, if you find it hard to imagine how fan communities would approach these types of dynamics)
This functionality already exists inside the stats dashboards artists have access to. All SoundCloud needs to do is make leaderboards visible on the various pages and perhaps create a setting so people can exclude themselves from public leaderboards.
Screenshot of the top listeners of a particular track in a 7-day time period (stats dashboard).
Step 2: Track and profile pages as real estate. Leaderboards create social competition and a way for fans to earn status. Now comes the monetization: let fans pay to claim pages in a non-obtrusive way, similar to how YouTube’s Super Chat feature lets you claim visibility in a chat during a livestream. You could let artists set prices or create some type of market dynamic for this.
Step 3: Place activity & payment on the same currency. As in gaming, certain users will spend more time creating value through activity and other users will fuel the economy through payments. By creating an on-platform currency, SoundCloud could reward active users with tokens that accrue value as people purchase tokens to spend on the platform with ‘real money’.
The tokens could then help artists mint their work as NFTs and create a more sophisticated dynamic for ‘tracks as real estate’. Basically, artists could earn money from playback, from selling tracks as NFTs, and by making commissions off of people speculating and reselling music NFTs (a commission percentage can be defined in the smart contracts associated with an NFT). From here, SoundCloud could come to function more as a protocol and create a metaverse-friendly version of its other early value proposition: music playback that embeds everywhere. This time with music as a vanity item that all can enjoy, but can only be owned by one person at a time while always staying associated with the creator – even when NFT ownership transfers from one person to another.
As the user-facing part of the platform shifts towards creating more value from the artist-fan relationship and the activity inside fan communities, subcultures, and scenes, lawyers can negotiate with industry gatekeepers to change royalty administration to a user-centric model.
Some of the above is actually what the Audius protocol is trying to accomplish. You could also go a lot further than what I’ve described, as Audius intends and as Mat Dryhurst explored in his essay SoundCrowd: Tokenizing & Collectivizing Soundcloud. Long term blockchain visions aside, for 2021, being a creator-centric company means being a company that helps monetize, so SoundCloud must focus on the short term and employ an “opportunities multiply as they are seized” type of strategy. That means: not standing still to evaluate distant forks in the road, because what you do along the way will determine the paths you can take from that fork.
User-centric is too slow for SoundCloud
Is user-centric streaming the right thing to do? Yes. Will it help SoundCloud in the short term? No, because artists will not see significant enough returns in order for them to drive more traffic to the platform.
Spotify is cool.. but @Bandcamp put double glazing on my house this year.
How can SoundCloud be as significant to artists as Bandcamp was in 2020?
SoundCloud must emphasize its community nature, since that’s how the type of value can be created that part of its core users will pay for. That won’t be most of the audience that SoundCloud has been marketing its music streaming subscription to (which can’t beat catalog-centric Spotify or value gap YouTube).
The platform must be selective about what type of behaviour it wants to cater to and the value it can create out of that. For that, it makes sense to use its DNA as a social music platform – something that Spotify, Apple (through Ping & Connect), and others have not been able to figure out. It needs to focus on the users that can amplify community excitement around significant monetization functionality and help make SoundCloud as culturally relevant as it was half a decade ago.
Signed,
A long term SoundCloud user with a 3-letter username: Bas (and more recently Viva Bas Vegas).
