If Streaming is the Future of Music, Let’s Get on With It! by John P. Strohm

I went to my fourth Future of Music Policy Summit in Washington, D.C. a couple weeks ago.  As usual at FMC events, I was in the company of some of the smartest, most forward-thinking people in the music business.  Also as usual, there were many spirited converstions regarding future business models for recorded music.  What I didn’t hear, however, was what I would consider an appropriate level of urgency regarding the immediate future of the recording industry, specifically what must happen in order for subscription streaming services to achieve sufficient market share to really compete with various “free” options.

I learned something fascinating during a break-out panel I sat on concerning access to digital music on college campuses.  While several years ago the dominant behavior among tech-savvy music fans on campus was to amass and hoard huge numbers of unauthorized MP3 files, downloading seems to be going out of vogue.  Nowadays, according to a number of students in attendance, the trend is to stream recordings on demand – primarily from YouTube.  This information is both troubling and encouraging to me.  On the one hand, it’s troubling because most (though by no means all) songs anyone wants to hear on demand, and typically no royalties are paid to the artists.  On the other hand, it’s enconraging because in my opinion it points the way to what people really want for the foreseeable future: a user-friendly, accessible site providing legal and reasonably high quality streams on demand.

Most people I talk to who are really engaged in the quest to “save the industry” agree that subscription digital streaming services make sense.  It’s clear that we’re transitioning out of a dominant “ownership” model to a dominant “service” model for recorded music (as well as other digital media, but for purposes of clarity and focus I’ll stick with music).  The desire to own and collect recorded music won’t go away any time soon, but it won’t make sense to “own” digital files once all music is accessible via high quality streams – even if “ownership” means the “cloud” model where a collection is stored online.  What’s the point?  The technology and structure already exist for streaming – most people have broadband access and sufficiently sophisticated devices to participate in such a service immediately.  I propose that many – perhaps most – consumers would happily pay for a reliable, user-friendly, fully licensed subscription service.  It’s also clear that the vast majority of consumers aren’t hung up on super high-quality audio.  The question is how much (if anything) consumers will be willing to pay, and for what kind of service.

As an aside, it’s funny to think how much our collective thinking has changed in such a short time – and how spoiled we’ve become.  If someone had told me fifteen years ago that I could have on-demand access to virtually all recorded music throughout history through a user-friendly interface accessible in my home, car, or earbuds, I’d have been thrilled.  If they’d asked how much I would pay for the service (and I had way less money back then), I’d have probably said fifty bucks.  And I’d have been happy to pay that much…I used to spend at least that on CDs to supplement the many promos I happily received each month.  Now, half a generation later, we’re debating whether such a service is even worth five dollars a month.  We need to change our thinking if we care about artists having any incentive to make quality recorded music.  Free is not sustainable.  There must be a fee for access in the new paradigm or else the industry will utterly collapse.  And I promise you will miss it when it’s gone.

I believe that, in order to succeed in achieving the necessary scale (certainly upwards of ten million subscribers, probably several times more), a streaming service would have to be able to offer pretty much everything – at minimum a continuously updated body of digitized works at least equal to the iTunes store.  I’m sure this isn’t lost on the likely companies currently working on such a service, which I assume would include Apple, Google, Amazon, Spotify, and likely some VC-supported start-ups. Streaming services have already launched and enjoyed some success, but in my opinion none of the services have been sufficiently high-quality, complete or convenient to achieve the necessary scale.  In order to succeed, a service has to be so good that we’d become totally addicted over the course of a week-long trial period.  It has to be everything we’ve ever wanted and more.

The reason, it seems, that we don’t already have a subcription service that achieves the sort of scale required is that licensing of the so-called “content” (i.e. the songs and recordings) is extremely complicated.  Furthermore, there aren’t any workable economic models to establish licensing rates and fees that would facilitate a sustainable model.  In my opinion, there’s work to be done on two fronts: one, expert economic analysis regarding pricing and licensing structures that would sustain a subscription model long-term; and two, a simplified licensing structure that would make it easier for viable new streaming services to launch.

I’m not involved in the ongoing negotiations between the potential new services and the rights-holders, so I can’t really address exactly what is preventing parties from reaching agreeable, sustainable terms.  One idea on the publishing side is to revise the consent decree ASCAP and BMI operate under to give the performing rights organizations the right to grant mechanical rights in addition to performance rights, thus concentrating two necessary licenses into a single negotiation.  Another would be some sort of compulsory or collective licensing for sound recordings; however, there are issues.  On the one hand, major labels are not going to willingly relinquish their right to aggressively negotiate on behalf of their copyrights, and on the other hand there’s the problem of potential anti-trust issues.  Additionally, the negotiations must be based on revenue models structured around what consumers are likely willing to pay, which will require hard economic research and analysis.

The purpose of this, however, is not to propose a point-by-point solution to solve the licensing quagmire.  Rather, it’s a plea to encourage the necessary parties – the rightsholders, established digital distributors and retailers, artists, PROs, unions, service providers, and the United States government – to engage in productive discourse towards making sustainable services possible.  If the licensing process is streamlined and if guidelines exist, then start-ups would have the certainty of knowing how much money they need to raise to compete with big companies such as Google and Apple, and as a result investment in start-ups wouldn’t be so risky.  Additionally, start-ups won’t negotiate deals with rightsholders so generous to the rightsholders that there’s no way their business can succeed.  The ideal would be something approaching a level playing field, so that the best services will succeed in the long run.

I’ll admit that I’m optimistic.  I’ve devoted my life to this industry, first as a recording artist and producer and now as an artists’ attorney.  I have a great deal invested – both emotionally and otherwise – in seeing the recording industry continue to function as a substantial source of revenue, particularly for artists.  I have faith that if services are created that provide real value and convenience to consumers, they will achieve the scale necessary to “save the industry,” as it were.  But it has to be a choice, a preference to the various “free” options.  Such value would come from convenience, accessibility, reliability, audio quality, and amazing features offering such filtering functions as playlists and on-point recommendations.  I look forward to the realization of the “celestial jukebox,” but I realize there’s a lot of work to be done to get there, and the longer it takes, the more money the industry will lose.  So, come on, let’s get it done!

John P. Strohm is a transactional entertainment and intellectual property attorney with the firm Johnston Barton Proctor & Rose LLP. John’s practice focuses on the representation of musicians, songwriters and independent record labels. Prior to becoming an attorney, John was a professional musician and producer for over a decade. He performed and recorded as a member of several notable alternative pop/rock acts, including The Lemonheads and Blake Babies. Follow John on Twitter @JohnPStrohm.