Why Apple Music and Tidal have flawed business models

I’m a big entertainment junkie and I love to sit back and watch as the internet continues to transform the way we get our content.

I was a DIRECTV customer for many years until I realized that with an AppleTV box, SlingTV, Netflix and HBO Now, I had everything I needed at one quarter of the price.

My DIRECTV service was gone. Just like that.

Technology evolution continues to change our choices and determine what we spend our money on and why.

The one model which has continued to baffle me is streaming. I understand why people stream music and how that is attractive to younger millennial consumers.

What I don’t understand however is why two of the (supposedly) most progressive streaming companies don’t understand how ridiculous their streaming models are and why they are finding it hard to make money.

Jimmy Iovine a very respected music mogul and current Apple Music exec recently let it slip that the streaming business is a tough one with very slim profit margins for Apple and everyone else.

Jimmy Iovine

His quote (at 21:20) “Well the streaming sites aren’t making any money”.

Not a surprise – here’s why.

The current streaming business models

Apple Music and Tidal are basically paywalls that make no sense.

Here is the value proposition – you pay money to be a member of our club and in return we will give you access to exclusive content that our artists will create and you get access to our wide library of content.

From an online business perspective that is ASS BACKWARD (more about that later).

As online newspapers like the Wall Street Journal have found out (the hard way), consumers don’t like paywalls.

Wall Street Journal Paywall

We just don’t. It’s not a rational thing, it’s an instinctive thing – we don’t like commitments unless they offer undeniable value at a compelling price.

Netflix has undeniable value. HBO has undeniable value. I simply can not get (legal) access to Game of Thrones or House of Cards any other way INDIVIDUALLY unless I subscribe to HBO and Netflix respectively.

That makes sense. Putting up a paywall for access to music I can get a la carte makes absolutely no sense.

I’ll give you a recent example.

Jay Z New album 4:44

Jay Z’s 4:44 release is a great example. It was released exclusively on Tidal and it was heavily torrented until it came to iTunes.

Heck even Snoop Dogg joked about his inability to get the album until one of his homies bootlegged it.

And just like magic, as was always the plan, the album is now on iTunes and I can purchase one song or the whole album a la cart.

Once again, putting up a paywall for access to music I can get a la carte makes absolutely no sense.

In addition, a cursory glance at the “benefits” both companies offer is fluff that is not that compelling to me (not undeniable value).

Here’s what I think makes more sense.

The future streaming business model

A streaming company should offer FREE memberships BUT should create a model where artists can set up their own online musical homes that offer paywalls for content of value.

An example.

I would never pay Tidal or Apple Music for access to their “libraries” but I would sign up for FREE to an Apple Music portal where I had access to my favorite artist’s mini site.

The difference is, I would log in with my FREE Apple Music ID and window shop in different artist’s “shops” if you will. I would only pay for access to an artist’s sub community that I chose.

A practical example. I am a MASSIVE Jodeci fan. This band defined my college years and I could write 10,000 words on how they changed music … but I digress.

jodeci diary of a mad band

I wouldn’t pay Apple Music to get access to everything Apple had.

I would happily pay $2.50 a month to get access to a mini Jodeci community located within Apple Music where I could stream their songs, see exclusive videos of them in the studio, get access to exclusive merchandise etc.

And while I was in the neighborhood, I might do the same for Rihanna’s mini community etc etc.

A model that encourages fans to support JUST THEIR ARTIST would be better for the consumer, streaming company and better for the artists.

  • For the consumer – I am paying for ONLY the artists I want to support (which would be probably 10 or more).
  • For the artist – They have access to their fans directly and can own their mini communities and monetize them in new and innovative ways – albums, singles, videos, merchandise, tickets, interviews, giveaways, meet and greets etc all enabled by a large company that can give them the tools to do so.
  • For the parent company – They own the initial username/password/demographic info and now they can get a small percentage of each smaller community within their larger site. They continue to make money from the music and now they make a percentage of the money from extra artist material – they lose nothing.

I could easily pay $25 a month to be part of 10 different artist portals and see backstage footage etc. That’s $25 in revenue for Apple and the artists every month.

Even better, this is also a perfectly meritocratic model.

If Jodeci didn’t continue to update their monthly content, I would unsubscribe and they would lose money. If they continued to keep me happy, I would continue to pay – it would be up to them.

2 million Jodeci fans paying them $2.50 a month is $5 million a month. Not bad for an artist doing what Jimmy Iovine said he wants them do – CREATE. Not bad for me and 20 of my friends who love that group. Not bad for Apple Music or Tidal who would take their share of the revenue.

Technology is making the world smaller – as I said in my article yesterday, artists who are unable to create an intimate relationship with the fans will not be able to succeed – it’s that simple.

Creating a paywall for access to a wide catalog of music is simply fighting the last battle. The next battle for music dominance is using technology to enable artist-fan intimacy.

Whoever can do this best will win.

Leave your comments below. I would love to get your feedback on this concept.

Leave a Comment Below

  • Makes a ton of sense dude BUT the labels and large companies always end up fighting the last battle. You know how that works…

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