Kanye, TLOP, Tidal: Revisiting the Subscription Business Model
Kanye’s TLOP release is the latest in a series of Tidal exclusives aimed to drive more traffic to the struggling streaming service. As Alex Cranz over at Gizmodo cleverly shows, these exclusives don’t appear to be working for Tidal based on the short lived spikes in Google searches for Tidal.
Apple Music follows a similar pattern, showing one major spike in searches around Taylor Swift’s exclusive, while Spotify’s search traffic remains stably high.
TLOP’s release is another reminder of the fierce level of competition in the music streaming industry and of the ongoing battle for subscription dollars.
As more and more businesses shift toward subscription-based models, in what Ben Smith calls the second wave of the web, which services will win the $9.99/month battle? What can music subscription services specifically do to attract and retain customers, knowing that exclusives are only temporary fixes? Drawing from the basics of competitive advantage, there are five main opportunities for services to differentiate:
- Content Library: Essentially every on-demand service has access to the same library of ~30M songs (the exceptions here are Pandora and Amazon Prime which offer a much narrower catalogue of a few million songs). With equal breadth, services use exclusives as a hook to pull users in. As shown above, this is not a sustainable strategy on its own.
- Content Delivery: Services have varied approaches to how music is delivered. Songza provided mood-based playlists, Apple Music focuses on human curation, Pandora offers personalized passive listening, YouTube is a bottomless pit, and Spotify does a little bit of everything. Creating sustainable competitive advantage on this dimension requires a belief that consumers have strong preferences on how they like to consume music (see last week’s post for more on that topic).
- Switching Costs: Given the nature of personalized music services, the product gets better as the user listen mores. Pandora fine-tunes stations with smarter recommendations. Spotify makes favorite songs easily accessible through self-created playlists. As the worse-than-expected launch of Apple Music hinted, new services might be able to capture users who are new to paid streaming but will have a tough time convincing those with a music library built up elsewhere to switch.
- Pricing: There is some dispersion in pricing today. Spotify at $9.99, Pandora One at $3.99, YouTube Red bundled with Google Play, and Amazon included in Prime services. However, there seems to be a split in the market of people who are willing to pay for music on-demand at ~$10 per month and those who value it at <$10, remaining content with free services. In the future, services are likely to test out different tiers of pricing associated with certain features in order to convert more free users to a paid plan. Rdio tried this and Pandora is expected to roll-out a tiered service later this year.
- Brand: As decades of marketing research conclude, building a brand is at the core of providing a sustainable competitive advantage. Over the last year, we have seen every major brand pouring millions of dollars into ad campaigns, including Spotify, Pandora, and Apple Music, taking the hit in short-term losses to hopefully create brand awareness and loyalty with their listeners.
As the market continues to evolve, we will see services flex these variables in order to build and retain scale. In a future certainly headed for consolidation, services will need to test what mix of these five elements of differentiation will lead to a winning business.
Libby Koerbel loves to analyze ambiguous questions, listen to live music, and meet new people. She is an expert strategist with experience at the Boston Consulting Group, Pandora, Universal Music Group, Muzooka, and Pritzker Group Venture Capital. She is currently a MBA student at the Kellogg School of Management.
This post is a part of a series on how millennials discover content. Read more on: framing uncertainty, curation wars, music tastes, and abundance.
