Around the Net
Are Music Services Destined To Fail?
- GigaOm, Monday, December 12, 2011 11:55 AM
Despite strong subscription and ad revenue streams, music service Spotify will never be profitable. That’s according to Michael Robertson, founder and former CEO of MP3.com, and currently CEO of personal cloud music service MP3tunes, as well as radio recording service DAR.fm. Why? Because the music labels on which Spotify’s relies dictate one-sided business terms.
In the world in which Spotify operates, “The supplier [i.e., music labels] will always elect the formula that captures the largest amount of money for themselves, completely disregarding the financial viability of the store [Spotify],” Robertson writes in GigaOm. “If the store miraculously managed to generate a profit, the landlord would simply raise the rates after two years.”
Robertson goes on to list a number of onerous demands to which Spotify -- not to mention Rhapsody, MOG, Rdio, and other music services -- must abide. In general, music services must agree to pay the largest of a pro-rata share of minimum of $X per subscriber; per-play costs at $Y per play; or Z percent of total company revenue, regardless of other business areas. Adds Robertson: “This means labels de facto set retail price … which limits the ability of the music service to develop ancillary revenue streams that aren’t siphoned off by the labels.”
