Sirius XM has more than 20 million subscribers, but at what cost? The company barely skirted bankruptcy in 2009, and the Sirius+XM merger happened out of necessity, not choice. Meanwhile, the company has been hemorrhaging cash since the beginning, and its current earnings are modest (when they're profitable). And this is a great service we're talking about.
But satellite isn't an isolated corner of the music industry. Just think about how much money is being plowed into Spotify, and all for a sub-10 percent premium conversion rate? Or, just think about how much money was squandered on Thumbplay. Sure, not all of that $42 million was for the cloud in the sky, but the company fire-sold to Clear Channel with just 20,000 subscribers.
Well, it turns out that Clear Channel isn't interested in that part of the business. They want to beat Pandora at its own game, which is largely based on free access and heavy licensing costs (which may be working after all). Meanwhile, in a recent interview with Billboard, Clear Channel chairman of media and entertainment platforms Bob Pittman said it out loud. “It's very hard to acquire paying customers," Pittman said. “It's very, very expensive."
Unfortunately, the numbers support this statement. Just pick the play: Rdio, MOG, Rhapsody, Spotify, Napster, Thumbplay... all of these companies have struggled to establish serious, paying relationships with music fans. And the ones that have signed up have been expensive to obtain.
But this is also a problem in the very crowded DIY space, a sector that will ultimately prove to be overfunded and oversaturated. Talk to the executives and investors trying to establish this space, and you'll find a common problem: artists are very reluctant to pay for premium services, especially on a recurring basis. And the reason is simple: most of the artistsyou know are probably struggling financially; they are not living a 'middle class artist' lifestyle or booming on the 'digital revolution.' That's fantasy.
So go ahead, call me a “hater" or a “doom-and-gloomer," I'll gladly take the criticism. Especially since it frequently comes from CEOs and employees at these overfunded, unrealistically-guided companies. They want outsized returns, hockey-stick growth and multiples worthy of this 'revolution,' and they hate anything that spikes the Kool-Aid. But maybe that's not the music industry we should be building here.
And that's the point I've been trying to drive at, because there's a more modest and reasonable business that lies beneath. It won't pop champagne corks at Sequoia Capital, but there are already examples of solid success stories.
For example, take Tunecore. Say what you will about Jeff Price, but he actually has one of the most successful companies in the space, and iTunes distribution has a lot to do with that. But Price can't produce the type of capital returns that Wall Street or Silicon Valley VCs demand, so he has a problem.
But is that really a problem for the rest of the music industry, and its artists, labels, and managers? Or, is it really an issue with the unrealistic expectations and demands being placed on this emerging business? Maybe the glory days are still haunting us today, or worse, influencing what really qualifies as success.
But satellite isn't an isolated corner of the music industry. Just think about how much money is being plowed into Spotify, and all for a sub-10 percent premium conversion rate? Or, just think about how much money was squandered on Thumbplay. Sure, not all of that $42 million was for the cloud in the sky, but the company fire-sold to Clear Channel with just 20,000 subscribers.
Well, it turns out that Clear Channel isn't interested in that part of the business. They want to beat Pandora at its own game, which is largely based on free access and heavy licensing costs (which may be working after all). Meanwhile, in a recent interview with Billboard, Clear Channel chairman of media and entertainment platforms Bob Pittman said it out loud. “It's very hard to acquire paying customers," Pittman said. “It's very, very expensive."
Unfortunately, the numbers support this statement. Just pick the play: Rdio, MOG, Rhapsody, Spotify, Napster, Thumbplay... all of these companies have struggled to establish serious, paying relationships with music fans. And the ones that have signed up have been expensive to obtain.
But this is also a problem in the very crowded DIY space, a sector that will ultimately prove to be overfunded and oversaturated. Talk to the executives and investors trying to establish this space, and you'll find a common problem: artists are very reluctant to pay for premium services, especially on a recurring basis. And the reason is simple: most of the artistsyou know are probably struggling financially; they are not living a 'middle class artist' lifestyle or booming on the 'digital revolution.' That's fantasy.
So go ahead, call me a “hater" or a “doom-and-gloomer," I'll gladly take the criticism. Especially since it frequently comes from CEOs and employees at these overfunded, unrealistically-guided companies. They want outsized returns, hockey-stick growth and multiples worthy of this 'revolution,' and they hate anything that spikes the Kool-Aid. But maybe that's not the music industry we should be building here.
And that's the point I've been trying to drive at, because there's a more modest and reasonable business that lies beneath. It won't pop champagne corks at Sequoia Capital, but there are already examples of solid success stories.
For example, take Tunecore. Say what you will about Jeff Price, but he actually has one of the most successful companies in the space, and iTunes distribution has a lot to do with that. But Price can't produce the type of capital returns that Wall Street or Silicon Valley VCs demand, so he has a problem.
But is that really a problem for the rest of the music industry, and its artists, labels, and managers? Or, is it really an issue with the unrealistic expectations and demands being placed on this emerging business? Maybe the glory days are still haunting us today, or worse, influencing what really qualifies as success.
