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Facebook: Making the World Safe for Music Subscription Services September 25, 2011

Posted by Bill Rosenblatt in Business models, Music, Services.
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Facebook’s announcement of the integration of several music services at its f8 conference last week attracted a lot of hype and even more breathless press coverage.  But what exactly will it do for these services?

A lot.  A huge amount.  In fact, this could be a tipping point in favor of subscription services against the iTunes paid-download model.

First I must get some personal bias out of the way: I have always been a fan of subscription services, and I’ve never had much use for iTunes.  I’ve tried them all.  I feel that subscription services have suffered from a lack of marketing resources and from negative treatment in the press, which — at least until the hype started to build around Spotify’s US launch — dismissed them as “rental” and thus inferior to the iTunes ownership model.

I always felt that this was a naive and unfair characterization of subscription services, which offer a value proposition that happens to be unfamiliar to people who are used to radio and record stores.  iTunes is a digital version of a record store; Pandora is digital radio, taken to the limits that the law (specifically Section 114 of the Copyright Act) will allow.  That familiarity is why each of them have more than 100 million users today.

But subscription services have languished at a lower order of magnitude.  Even Spotify, with its free, ad-based offering, claims total membership somewhere between 10 and 15 million.  Paid subscription service membership is said to total around 5-6 million worldwide, with the top two (Spotify and Rhapsody) making up at least half of that total.

And it’s true that even if people understand the value of subscription services — the celestial jukebox, with libraries of over 10 million tracks available on demand at any time, for the price of about one downloaded album per month — they are not for everybody.   They aren’t good deals if you have a few favorite songs that you want to listen to over and over again.  They are much better for “grazers” like myself, who like to try all sorts of music before (in most cases) losing interest and moving on to something else.

But I wonder about cause and effect here.  Do people listen to the same few songs over and over again because they have been conditioned to the record-store model — where every song represents a financial investment —  or would they still do so even if the model changed?  (Did I become a grazer while being a radio DJ for 12 years and enjoying access to large music libraries at three radio stations?)  It’s hard to say in general, but I bet that at least some people will change their habits once they see the advantages of the alternatives.

That’s where Facebook comes in.  Subscription services have competed with each other by offering more and more features that are likely to appeal to the same core audience, attempts to be all things to all people, or pure bloatware.  Rhapsody, MOG, and Napster in particular have become many-headed beasts that try to appeal to all types of listeners while not succeeding in attracting many beyond the cadre of grazers.

Facebook integration should change all that.  The basic idea of Facebook integration is that whenever you play a song on one of the integrated services, it shows up on your Facebook page for all your friends to see. They can click on a link and play the same song on the service on which you are playing it.  The participating services have set up various flavors of free trials and restricted free tiers of service a la Spotify.  This will introduce subscription services to a vast new audience of people, many of whom would otherwise not have considered subscription services at all.

Subscription services have “share” features, through which users can post their songs playing or playlists to Facebook, Twitter, blog posts, email, etc.  But how many people actually do this, and how many people actually respond?  Not very many.  It’s not consistent, it doesn’t scale well, and most users probably treat this kind of thing as an annoyance, a form of spam.  The new Facebook integration amounts to an opt-out version of this: if you connect with Facebook, all of your plays get posted there.  Given Facebook’s enormous reach, that’s one hell of a lot of “I’m listening to this song” posts; they will become a fact of life on Facebook and virtually impossible to ignore.

I don’t know of any financial terms between the participating services and Facebook (e.g. commissions on paid subscriptions), but as they say, you can’t buy this kind of publicity.

Yet I am a little concerned about how all of the subscription services are falling over each other to offer freemium deals to take advantage of all that publicity. There are just too many subscription services now.  Spotify and Rhapsody are the top two, and there are enough differences between their feature sets to keep them both viable for a while. I worry that second-tier services like MOG, Rdio, and Slacker will try to compete on price or by extending their free offerings to the point that the public will come to expect more and more for nothing.  

I have little doubt that the market can’t support more than two or three of these services and that the others will wither and die.  (Rdio, which depends too heavily on features that Facebook integration now renders redundant and has a lackluster mobile client, ought to be the first to go.) Let’s just hope they don’t take the entire industry down with them by setting public expectation that they should be free while hemorrhaging money all the while.

Facebook integration is the marketing tidal wave that subscription services have needed ever since Rhapsody became the first to launch with major label licensing back in 2002.  I predict that by this time next year, total paid memberships of subscription music services will reach 10 million and free memberships will cross the 50 million barrier.  iTunes and Pandora certainly aren’t going away, but subscription services will finally join them as the viable music business model that they deserve to be.

Comments»

1. Paul Sweazey - September 25, 2011

Does anyone provide a “what my friends are listening to” channel, or is anyone talking about it? I would much prefer “friends” channel to yet another deluge of messages that I have to make decisions about.

2. Bill Rosenblatt - September 28, 2011

Paul,

Yes, this is the essence of what Facebook is doing.


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