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Penny Fractions: Western Music Streaming Needs a Refresh, Now

Hope y’all are doing well this week. One quick housekeeping note: The newsletter previews I send myse
Penny Fractions
Penny Fractions: Western Music Streaming Needs a Refresh, Now
By David Turner • Issue #54 • View online
Hope y’all are doing well this week. One quick housekeeping note: The newsletter previews I send myself keep appearing on the Promotions tab on Gmail, so I guess I just wanted to say if you haven’t gotten a recent issue or noticed an issue let me know. Otherwise, please enjoy my more usual rambly thoughts on Tencent Music and alternative models for music streaming.

Last week the Tencent Music filed for an American IPO. That’s increased attention on the music division of the overall Chinese entertainment giant. What I’ve found interesting in the American press is the question of why Tencent, not Spotify, cracked the code for making money off music streaming. Music analysis Marc Mulligan put that together by saying:
But, perhaps the most significant thing of all is that TME isn’t really a music company or investment opportunity, but is instead a series of social entertainment platforms, of which music – and much of it not even streaming music – is one minor part.
I wrote about this in my first newsletter of the year about the differences between platforms and again when I wrote about Twitch. If entertainment streaming business models must exist within a binary of advertising supported content where ads are sold not directly with the creator but with a third party (YouTube, Facebook) or directly paying out to creators for potentially more niche content then (Twitch, Kickstart, QQMusic) it’s fairly easy at this point to see not only, which model is more profitable (the one were people directly pay money) and which one potentially is better for the actual artists and not the platforms (again, the one were people directly pay money).
This is why I was happy to see Cherie Hu write a blow-by-blow breakdown of Tencent Music in Music Business Worldwide that suggested western dependence on scale potentially missed the boat in what kind of business models are offered by the internet. Hu points out that it’s only small % of the overall users of Tencent’s various apps that actually pay artists but the amount of money they pay out is able to more than make-up for the lack of payment that is happening from the rest of the user base. This quote is with my own emphasis:
Firstly, with the exception of the comments sections on SoundCloud and YouTube, the music streaming experience on the likes of Spotify and Apple Music is becoming increasingly individualized and non-social. Flagship algorithmic recommendations such as Spotify’s Discover Weekly rely on the collaborative filtering of crowds, but not on the direct interactions of groups.
This is allegedly an issue of both supply and demand: for instance, Spotify has slowly been stripping away its few native social features due to “low user engagement.”
Secondly, the most potent music video and live-streaming apps in the West in recent history did not implement any type of micropayment functionality. Instead, they flocked to the stereotypical economic backbone of advertising—even without any proof of sustainability.
If there is one thing that’s been clear since the early major label fights with YouTube is that the music industry never quite bought into the idea of their entire industry should be supported by advertising. That’s not without good reason, because the music industry for well over a century made money through the selling of physical goods, not slotting in dentist commercials between album deep cuts. The industry fought YouTube and Spotify on this point, because before either of those companies existed there was an idea of just charging a money fee for access to the music. Certainly on paper it makes sense as to why that’s a great idea, it’s fucking easy money, but it runs so far against the strengths of the music industry. This wasn’t an industry that was built on surveillance advertising or as a passive entertainment tax, it sold overpriced hunks of vinyl and plastic and convinced consumers of an album mystical value in these objects. Music should be the space where people rushing to get fans to directly purchase and engage with artists, but beyond merch that opportunity still feels under-realized.
These recent Tencent articles renewed a personal interest to think outside of the status quo of the contemporary music business. Chris Castle offered a different path with the “Ethical Pool” options where fans would have a say in where their subscription is going every month. There is always the thought that you subscription should be simply split based on the artist you actually listen to. Both of these methods would subtly tweak the overall approach to the industry in a way that would push away from endless scale and instead potentially reestablish a connection between artist and fan that streaming can easily break.
Tencent Music showed there is a path for music streaming that major western music companies at least for now are ignoring. One that appears to be profitable, could more directly benefit artists, and pushes fans to directly engage with artists rather than with the platform. (I’ll say here SoundCloud did just open up their direct monetization platform, now just add a tip system) Spotify, and to the same extent Pandora, don’t appear super invested in building artists engagement with fans on their platforms, even as they slowly roll out these tools. Rather they just want people to keep listening to to their platforms and serving them ads and pulling in subscribers, even if both are clearly long term more interested in advertising. I don’t expect to see Twitch or Tencent Music like features in Apple Music or Spotify by the end of the year, but it’s now fairly obvious there is a market just sitting there for someone, could it be you, to take it.
Correction
I wanted to make a correction from last week’s newsletter. In my comparison of Apple Music and Spotify, I implied that Spotify doesn’t separate by album types. This is incorrect, if you go on the app and click “See More” on the “Releases” tab you’ll a breakdown, though not as detailed as Apple’s, of different albums variants. Apologies for getting that detail wrong.
6 Links 2 Read
John Hermann dives a bit into the peculiar stories about Spotify making playlists based on your DNA. A friend asked me about this and I was like “Well that sounds like bullshit.” Hermann does his due diligence and asks what exactly it is that these companies are selling, but I’d still just call it bullshit.
This is less my insights but more just a general thought. I wonder what ‘peak’ internet saturation will mean for companies that are constantly trying to grow and how businesses will shift once there are no more consumers and they’re just left fighting for our limited attention.
Data Factories - Stratechery
I never feel a need to up-sell Ben Thompson but him breaking down how people are essentially both raw material that powers Facebook/Google and the refined end product is frightening in how little control users have in this equation.
This is kind of a lark but I wanted to include it. A message board I occasional lurk (Reset Era) just had a thread about people’s music streaming preferences. Obviously pick and choose the responses that align to your own biases but I will say the people who mentioned that they use Apple Music because of their phone said exactly what I always think is an underrated factor that people are lazy and will just use the default player on their phone. (A belief I won’t shake is that: More people are emotionally connected to their phone, than music platforms.)
A good way to read piracy popularity, or lack thereof, is as a check on entertainment capitalism. Now using that frame, when I look at mass corporate consolidation, decreased options for consuming content, and eventual prices rising on top of stagnant wages. Yeah, the 2020s could be the second decade of rampant digital piracy.
Surprisingly, or I guess less so if you know me well, but I don’t travel a ton. Still a heads up for y'all that do please don’t support hotels where workers are striking. Or in simpler terms don’t be the New York Fucking Yankees.
The Penny Fractions newsletter arrives every Wednesday morning (EST). There is an additional $3 a month newsletter (Dollar Fractions) that’ll arrive every Friday morning (EST) if you’d like to subscribe. The Penny Fractions artwork was done by graphic designer Kurt Woerpel whose work can be found here. Any comments or concerns can be sent to pennyfractions@gmail.com. If you enjoy this newsletter might I recommend emailing it to you an old high school classmate. Doesn’t matter if they like music or the biz just forward away!
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David Turner

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