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Like Google’s messaging focus, YouTube’s efforts to spin out successful streaming and music products has felt confusing and haphazard. Now the company is simplifying and consolidating that play by decoupling the music and film components with the launch of a new service.
YouTube Music is, as the name suggests, a music streaming service that will launch on May 22. Aimed squarely at competing with Apple Music and Spotify, it’ll cost $9.99 per month following a free trial period as is standard in the industry.
An ad-supported version will be available for free also, but it won’t include premium features such as background listening, song downloads and music discovery features. (It’s worth noting that this new service will replace the existing Google Play Music service.)
YouTube Music was originally part of YouTube Red, the company’s subscription video streaming service, and though it is being decoupled, customers will be able to subscribe to both services if they buy a YouTube Red subscription, which is now priced at $11.99 per month. Except that YouTube Red will now be known as YouTube Premium since it covers both music and video.
Confused? Well, essentially YouTube has made it possible for customers to opt for music only. But it is also dangling the carrot of the full video service for just $2 more. Or, if you prefer a more negative slant, YouTube Red now costs $2 more than it did before. Take your pick.
The split makes a lot of sense when you consider how many people use YouTube for playing music for free despite a plethora of excellent streaming experiences like Spotify and Apple Music. It’s particularly popular in emerging markets where you can see YouTube listeners on public transport or other moments that Spotify and co would want to own.
That said, the new YouTube services are being focused on first-world markets initially. The company said the first stops will be U.S., Australia, New Zealand, Mexico and South Korea. Further down the line, it will expand to Austria, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Norway, Russia, Spain, Sweden, Switzerland and the United Kingdom.
Exactuals, a software service offering payments management for the music industry, is debuting r.ai, a new tool that it’s dubbed the “Palantir for music”. It’s a service that can track songwriting information and rights across different platforms to ensure attribution for music distributors.
As companies like Apple and Spotify demand better information from labels about the songs they’re pushing to streaming services, companies are scrambling to clean up their data and provide proper attribution.
According to Exactuals, that’s where the r.ai service comes in.
The company is tracking 59 million songs for their “Interested Party Identifiers” (IPIs), International Standard Work Codes (ISWCs), and International Standard Recording Codes (ISRCs) — all of which are vital to ensuring that songwriters and musicians are properly paid for their work every time a song is streamed, downloaded, covered, or viewed on a distribution platform.
Chris McMurtry, the head of music product at Exactuals explained it like this. In the music business, songwriters have the equivalent of a social security number which is attached to any song they write so they can receive credit and payment. That’s the ISI. Performers of songs have their own identifier, which is the ISWC. Then the song itself gets its own code, called the ISRC which is used to track a song as it’s performed by other artists through various covers, samples and remixes.
“There’s only one ISWC, but there might be 300 ISRCs,” says Exactuals chief executive, Mike Hurst.
Publishing technology companies will pay writers and performers based on these identifiers, but they’re struggling to identify and track all of the 700,000 disparate places where the data could be, says McMurtry. Hence the need for r.ai.
The technology is “an open api based on machine learning that matches disparate data sources to clean and enhance it so rights holders can get paid and attribution happens,” says McMurtry.
For publishers, Exactuals argues that r.ai is the best way to track rights across a huge catalog of music and for labels it’s an easy way to provide services like Apple and Spotify with the information they’re now demanding, Hurst said.
We are in a subscription hell. Paywalls are going up across the internet, at aggregated prices few but Jeff Bezos can afford. The software I used to pay for once now requires an annual tax, because … “updates.” We are getting less every day, and paying more for it, all the while the core openness that made the world wide web such a dynamic and interesting place is rapidly disappearing.
I’m not a subscription hater. Far from it: subscriptions are vital, because they provide sustainability to the content and software I care about. Regular, recurring income helps make the business of creation more predictable, ensuring that creators can do what they do best — create — rather than stress about whether the next book or app is going to generate their yearly earnings.
Greed, though, has managed to make subscriptions deeply unpalatable. Sustainability has become usurious, with news subscriptions jumping in price and app developers suddenly demanding a fee where none existed before. This avarice for our wallets though is not misdirected. Ultimately, one group of people is to blame for this situation, and it isn’t the bean counters in the accounting department.
And by us, I mean the proverbial 99% consuming public who refuses to pay for any content or software — except for Netflix or Amazon Prime, of course.
Just take a look at the abysmal conversion rates for online content. The New York Times gets 89 million uniques per month, but only has 2.2 million subscribers, excluding crossword and other app subscribers. The Guardian has 800,000 financial supporters, but about 140 million unique visitors at a peak a few years ago. Last year, the Wikimedia Foundation received donations from 6.1 million donors, yet just the English language edition of Wikipedia received 7.7 billion page views last month. That’s 1,300 April page views per annual donor.
The implied conversion rates here are in the very low single digits, if not lower. And that’s no surprise given the extreme lengths people go to get content for free. A friend of mine uses AWS to rent IP addresses to reset his article meter on popular news pages, allowing him to download web pages through a Singapore data center using a custom command line utility. Engineers who make hundreds of thousands of dollars are suddenly tantalized by the challenge of trying to break through a porous paywall. I have less technical friends Googling URLs, setting up proxies, and other tactics to get to the same outcome.
The problem with these minuscule conversion rates is that it dramatically raises the cost of acquiring a customer (CAC). When only 1% of people convert, it concentrates all of that sales and marketing spend on a very small sliver of customers. That forces subscription prices to rise so that the CAC:LTV ratios make rational sense.
What we get then is a classic case of economic unraveling. A company could offer an affordably priced subscription, but users hesitate, and so the company tries to do more marketing initiatives, which raises the cost of the subscription. That makes the vast majority of users even less willing to purchase it, so marketing gets more budget to go after the highest spending consumers.
Before you know it, what once might have been $1 a month by 20% of a site’s audience is now $20 a month for the 1%.
That’s basically the math of the New York Times. Last year, the company generated $340 million in digital-only revenue from 2.6 million subscribers (including derivatives like crosswords and cooking). That’s $155 a user on average annually, or about $13 a month. The Times had an implied conversion rate of about 2.5% from my earlier calculations. If they could convert 20% at the same sales and marketing cost, they could charge $20 a year and get the same revenue (maybe $22 for added credit card processing fees).
The entire subscription economy is ultimately a 1% economy — it’s focused on a very small subset of users who have demonstrated that they are willing to pay dollars for content. The most likely factor that someone is going to buy a subscription is that they already have a subscription to another service. And so we see pricing that reflects this reality.
There is a class of exceptions around Netflix, Spotify, and Amazon Prime. Spotify, for instance, had 170 million monthly actives in the first quarter this year, and 75 million of those are paid, for an implied conversion of 44%. What’s unique about these products — and why they shouldn’t be used as an example — is that they own the entirety of a content domain. Netflix owns video and Spotify owns music in a way that the New York Times can never hope to own news or your podcast app developer can never hope to own the audio content market.
Yes, we are living in a subscription hell, but it is also heavily a product of our own decision-making as consumers. We want content and software for free, and in fact, we will go to ridiculous lengths to avoid paying for it. We will protest ads and privacy-invasive tracking, but we will never support the business model that would make that technology obsolete. Even when we will consider buying a service, we will wait so long and make the conversion so expensive that a huge chunk of our individual revenue will simply evaporate in sales and marketing costs.
The solution here is to become more intentional about aligning our content spending with what we read, use, watch, and hear. Put together an annual content budget, and spend it liberally across the publications and creators that you enjoy. Advocate for pricing that makes sense for you individually, but also convert more easily when you find something that you like. The friction has to lower on both sides of the marketplace for the 20% to supplant the 1%.
I don’t want a world filled with gilded walled gardens designed to ensure that the 1% have the best information and entertainment while leaving the rest of us with clickbait fake news and bad covers on YouTube. But creating content and software is expensive, and ultimately, businesses are going to sell to the customers that pay them. It’s on all of us to engage in that market. Maybe then this subscription hell can freeze over.
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