Tidal and the Future of Music

Ben Thompson at Stratechery:

This is why Jay-Z and his chart-topping partners are taking on Spotify, not their labels. Jay-Z is the extreme example here: he has his own label that deals with artists directly, but Roc Nation is a part of Universal Music Group, which handles distribution, and is financed by Live Nation (making a move into the record labels business) to the tune of $150 million over 10 years. Jay-Z isn’t giving that money back so that he can make his music exclusive to Tidal, nor are any of the other artists.

Moreover, even if Jay-Z and company were truly independent, they would be heavily incentivized to avoid exclusivity as well: remember that music has high fixed costs but (especially on the Internet) zero marginal costs. That means the best way to make money is to sell as many units as possible in order to spread out those fixed costs. That, by extension, means the optimal strategy for whoever owns the music is making it available in as many places as possible – the exact opposite of an exclusive.

This ultimately is why Tidal will fail: it’s nice that Jay-Z and company would prefer to garner Spotify’s (minuscule) share of streaming revenue, but there is zero reason to expect Tidal to win in the market. Tidal doesn’t have Spotify’s head-start or free tier, it doesn’t have Apple’s distribution might and bank account, and it doesn’t have any meaningful exclusives — and to be successful, you need a lot of exclusives

What I like about Ben's post is how he goes beyond Tidal and the music streaming business model to look at the music industry as a whole.

The question of why record labels still exist in the Internet-era is one that many have asked. Ben really explores how labels' roles are under threat in numerous ways and how they manage to stay relevant (for now). His whole piece is worth a read. 

Source: Stratechery