The music industry has seen quite a bit of change with regards to how users consume their music; it has become more and more digitalized. Long gone are the days where you see people running along with Walkmans in hand. People have since converted to using MP3’s to listen to their music. However, this area has evolved as well. In the recent past, almost everyone used iTunes to purchase songs, but now, streaming services dominate. The trend of music streams going up and digital purchases from platforms such as iTunes going downward has been occurring for quite some time. With the essential death of iTunes, 2 significant players in the streaming market have emerged: Spotify and Apple Music.
Spotify is the most popular of all platforms, boasting a user base of 100 million users. Spotify’s main attraction is the fact that they offer both a free subscription with ads, and a paid ad-free subscription ($10/Month). 70 million of Spotify’s users are practitioners of the free service. Apple Music, on the other hand, only offers a premium service ($10/Month or $15/Month for a family plan) Being relatively new to the game, Apple music has a user base of 15 million, but that number is growing quickly and is only 1/2 of the Spotify’s paid consumer base. Furthermore, Apple Music has access to the entire iTunes library, and due to its popular name/the ridiculous cash on hand they have, they can afford to pay for limited exclusive rights to new releases and albums that artists put out. They signed Drake, one of the biggest names in the industry today, for about $20 million in order to get limited rights to his music. Many others, such as Arianna Grande, Frank Ocean, and Taylor Swift, give Apple first dibs when it comes to their content (in Swift’s case, Apple is the only company that has access to her music).
There is a 3rd player in this market as well. In 2015, Jay Z acquired Tidal in an attempt to provide a unique streaming platform to users, and he was financially backed by various artists. His value proposition was built off of three main things. In the past, Spotify has come under scrutiny for providing low royalties per stream for musicians. On average, Spotify pays out between $0.006 and $0.0084 per stream, so less than a cent. Because of this, many artists, most notably Taylor Swift, decided to take their entire catalog off of Spotify. Jay Z and Tidal’s backers claimed that Tidal would pay a 75% royalty rate to all artists, far more than any other streaming platform. This, theoretically, would help out many independent artists who have been getting stiffed with Spotify’s rates.
Secondly, Tidal users would have access to a plethora of exclusive content. Many of the people who have a stake in Tidal are among the biggest names in the industry. Jay Z, Rihanna, Kanye West, and Beyonce all have released exclusive/limited exclusive content on Tidal. Kanye’s The Life of Pablo, Beyonce’s Lemonade, and Rihanna’s ANTI were by far three of the biggest releases this year in music, and all were only available on Tidal at some point (In Beyonce’s case, Lemonade will only be available to stream on Tidal for perpetuity).
Lastly, Tidal gave users the option to purchase a plan that gave them access to lossless audio. Basically, when compressing music into an MP3 format, all the sounds a machine thinks the human ear can’t audibly perceive are discarded. This makes the file much smaller. However, many people can notices the bits of music that have been left out, so it seems as though they are listening to lower quality music. Lossless audio, or HiFi as Tidal calls it, employs a compression technique that retains every single bit of detail from the original recording, while still managing to reduce file sizes considerably.
With all three of these factors combined, one would assume that Tidal would be pretty successful. However, Tidal has only amassed 3 million users since Jay Z and company took over, and has been involved in a ton of negative press. Why is this the case?
Tidal’s owners’s vastly over estimated what users would be willing to pay for their service. Originally when Tidal was release, users had to buy the HiFi option, which costs $20/Month. After 7 months of poor performance, they began offering another version that was priced similarly to Spotify, and had the same music quality as well. Realistically, the average listener most likely can’t tell the difference between lossless and regular audio, so why would anyone pay twice as much than they would with another streaming service? Why would they pay of they could listen to it for free on Youtube or Spotify? Lossless audio is a very technical concept that the masses really don’t care for
Improper Evaluation of Content
Tidal also put too much stock into its exclusive content. Tidal boasts an extremely impressive lineup of artists who provide the platform with music, videos, and much more. When Lemonade was only available on Tidal, it shot to the top of the App Store. However, Beyonce, in all her wisdom, would never limit her profits by alienating customers who don’t have Tidal, so she made the album available to purchase on iTunes as well. For Beyonce fans, it makes much more sense to simply make a one time purchase to own the album, rather than pay a monthly fee for it. And for those who don’t want to pay anything at all, they could pirate it. For example, The Life of Pablo was pirated over 500,000 times in less than a week after its release.
Misjudged What Users Care About
Additionally, the owners assumed that since they are paying the highest royalties of all the streaming options, customers would be inclined to adopt Tidal. They tried to play the morality card, which in theory isn’t a bad strategy. Many potential customers, especially millennials, will spend more on brands that are socially responsible. However, simply not enough people actually care about the royalty aspect of streaming. If I’m listening to Beyonce, Jay Z, Madonna, or Rihanna (who all have a stake in Tidal), do I really care how much these millionaires are making off royalties?
Barriers to Entry
Lastly, Tidal faced high barriers to entry. At the time of its release, Spotify already had amassed a user base of over 75 million people. When Apple released Apple Music, it had access to the millions of Apple product users. These network effects, combined with aforementioned factors, proved to be too much for Tidal to overcome.