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.