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Three Ways Music Services Can Cash in on Their Most Valuable Listeners

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Ari Shohat is the founder and CEO of Digitally
Imported,
 an online radio service
with over 3.8 million monthly listeners.

Transforming premium service: Three ways music services
can cash in on their most valuable listeners

The top digital music services are still struggling with a very
basic problem: How to get listeners to pay for content.
While there will always be users who prefer a free
option, there are many listeners who, if given a more
enticing option, would invest in a richer experience.

The era of the free ride is over

Analysts have described the current business model for
streaming music as “inherently unprofitable,” and recent
earnings reports underscore this point. Artists,
songwriters and music services alike are dissatisfied with
the current financial structure of the online music
industry.

It may seem like users are the only ones coming out ahead, but
they are also suffering – some in terms of cost, and all
in terms of quality.

Inverting the online music value proposition

Because so few users have a financial stake in the current
online music market, users’ needs are largely overlooked.
Most services cater to a huge base of free listeners,
who are getting exactly what they pay (or don’t pay) for –
A “Do-It-Yourself” experience that lacks cohesion,
consistency, diversity and direction. Meanwhile, paying
subscribers get relatively little bang for their bucks.

In order to evolve the online music business model toward
profitability, the current value proposition must be
inverted: Free and illogical pricing models,
commonplace technology features and homogeneous,
overplayed content need to be replaced with dramatically
superior experiences. Once this shift begins, a growing base of
premium subscribers will vote with their wallets to steer
music services toward greater innovation and more balanced
pricing.

What are users willing to pay for?

1. Human Sensibility:

When done right, human curation is perhaps the highest value
any music service company can add to its offering. Along
with Digitally Imported, other services have strongly
embraced the value of the human touch, including Apple, as
evidenced by its strategy with Beats Music.

+Former Beats Music CEO Launches a Talent
Competition App

Recognizing the value of the human touch, some music services
are striving to imbue song selection algorithms with more
human-inspired traits. By achieving a more “human”
experience, they hope to build the value of their offerings and
attract morepaid users, a strategy that continues to fall flat.

The problem with this approach is two-fold. First, human
curation is defined by individuality, artistry and
imagination; there is simply no technology that mirrors
these traits.

Second, many music services are missing a crucial step –
drastically reducing the overall size of their music
catalogs – before song selection begins. Track quantity,
once considered a selling point in digital music, has been
replaced by track quality. Continual, intensive human
editing of the full catalog is the backbone of successful
curation. Algorithms laid on top of bloated, unwieldy
music catalogs are doomed to dredge up low-value content
and disappoint listeners.

2. Scarcity:

Beyoncé’s 2013 album, released exclusively on iTunes, sold a
record-breaking 828,773 copies in three days. When
access to desirable content is restricted,
even for a relatively short period of time, there is a
much higher likelihood that users will pay for it.

The power of scarcity is not limited to big-name artists. At
Digitally
Imported
we stream more original, exclusive and
first-to-air content than any other online music service, and
feature both well-recognized and up-and-coming artists and
DJs. Some of this content becomes more widely available
after the negotiated exclusivity period ends, but in the
meantime, our high proportion of exclusive shows and mixes
boosts total listening time and builds loyalty,
contributing to our 90% renewal rate among paid monthly
subscribers.

3. Discovery:

The prevailing approach to content discovery is fundamentally
flawed: User-driven personalization merely reinforces
existing habits, rather than diversifying and
deepening content selection.

Of the 25 million-plus available digital tracks, only a tiny
fraction is of high value to a listener at any given time.
Counter to common practices, the most popular music
should not dominate users’ limited listening opportunity.
Rather, it should be continually moved out of rotation,
making room for discovery of new content.

Expert curators, much like traditional radio and club DJs, are
the best resources for tapping into trending music,
filtering out stale content and resurrecting vintage tracks
at the right moments. The resulting experience is
authentic, entirely unpredictable, and a perfect balance
of fresh, familiar and revived content.

Each act of discovery offers listeners a unique thrill, whereas
hearing the hottest hit becomes less exciting with each
repetition. Music services will earn more listener
loyalty and premium subscribers by cultivating a sense of
musical adventure than by recycling overexposed tracks.

Music services: It’s your move

The current financial structure of online music is a pressure
cooker. Music services have created a vicious cycle,
relying on free offerings to entice rapid user growth, and in
turn pressuring the creative community and a small base of
paying users to render this model viable.

In reality, this pressure is facing the wrong direction. Rather
than pushing artists and songwriters to lower the cost of
content, music services must challenge themselves
to evolve in order to compel more listeners to invest in
experiences they care about. This may be easier said than
done. But unless these companies have endless resources
to counter mounting financial losses, climbing the value
chain is the only way out of the red.

 

Photo by Björn Olsson on Flickr used with the Creative
Commons License

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