Hip Hop icon Jay-Z launched music streaming service Tidal through a rather awkward event. A platform that would remain true to the artist. Paying fairer royalties for an underappreciated art form.
Internet access is becoming a commodity across the globe. Of course there are parts of the world where there is limited access to even basic necessities such as electricity. But in many parts of the developed world, internet connectivity is reaching saturation points. Prices drop, data caps disappear and cellular networks improve. Unlocking new possibilities to consume content everywhere you go. Over the years new industries have sprung up and grown rapidly in this changing media landscape. One of them is streaming, and today we specifically focus on music streaming, pointing our lens at Jay Z’s Tidal.
Streaming services have been gaining popularity quickly over recent years, reaching a staggering 400 million subscribers in the first quarter of 2020. One major player stands on top of them all, Spotify, with a market share of 32%, followed by Apple Music with 18% and 14% for Tencent Music. Apparently Tencent had a music service. Tidal doesn’t even have one percent and is categorized in the other category that takes up 16% of the market. Here you have it. Tidal cannot compete and will never win. Jokes aside, will Tidal be able to conquer the music streaming market, or is it doomed to remain a dwarf among giants?
The rich taking a stand
In January 2015 Jay-Z acquired Scadinavian music streaming service Aspiro for allegedly $56 million. Aspiro ran two ad-free music services across Europe, one called WiMP and Tidal, the latter which would become Jay-Z’s answer to Spotify. A few months later, Tidal was officially launched with partner Sprint, through a gathering of celebrities, who metaphorically stood behind the music industry. They were representing the artists. At least that’s the vibe they were aiming for I guess. Tidal would be a premium music streaming service for a base price of $10 per month, and delivering high quality audio through its Tidal HiFi subscription for $19.99 a month, one of its main selling points. Through its premium pricing model, Tidal would deliver fair(er) rates to artists, instead of competitors, like Spotify and Google Music.
The media was quick to point out the flaws in Tidal and the rather shaky release event. Variety opened skeptical saying, ‘Of course, just because Tidal is backed by a bunch of music celebrities is hardly a guarantee it will gain traction in the highly competitive space. The company says artists will provide exclusive content on the service; but Tidal will not offer a free version of the service, which will inevitably hamper its ability to attract users.’
Variety had a good point in saying that a free alternative would be a lower barrier to entry for potential users to try out the service. We see this model used extensively in the Software as a Service market. A model we today call the Freemium model. Obviously, there are many reasons one can think of not to deliver a free service, but a bare minimum of a trial version for 30 days is a nice option for potential customers. Tidal was fighting to attract streaming users and especially music enthusiasts who are willing to pay a premium for the best sound experiences. But chances are they were already using streaming services extensively and wouldn’t just give up their music library they’ve accumulated over the years.
Streaming services have been gaining popularity quickly over recent years, reaching a staggering 400 million subscribers in the first quarter of 2020.
Time Magazine took it a step further through an article ominously called, ‘How Jay Z’s Tidal Press Conference Showed He’s Out of Touch’. Those are pretty strong words from a renowned magazine. Do it for the click! Tidal claimed that artists will be in control of their music. Time smashed the celebrities that gathered around to launch the music service, saying, ‘In the age of Spotify, it is entirely legal to listen to music constantly and never spend money on it. Countering that fact with the moral claim that celebrities would prefer if you didn’t stream music for free only makes sense if you believe celebrities should get everything they want, one hundred percent of the time.’
And that’s exactly the hardest argument that Tidal has to overcome to win the hearts of the consumer, because these celebrities are covered in a veil of wealth. Shlomo Wiesen from Social Media Week commentend, ‘It was rather amazing to see this strange display – super-duper millionaires who we all love, complaining about not receiving enough money, and asking for our (monetary) help to take back the music industry.’ The question one might ask, why would a middle income household who can barely make ends meet, pay a premium to already wealthy celebrities?
The Guardian also questioned the future of Tidal, noting that the app dropped out of the top 700 downloads chart on the iPhone. The news website raised questions at the high price tag the service was entering the market with, and not having an ad-supported version. The Guardian, just like Time Magazine and Social Media Week, pointed out the truthfulness of Tidal’s raison d’etre saying, ‘Yet it is not just consumers that Tidal has struggled to convince; the service has also garnered criticism from numerous musicians, who claim it only helps the Madonnas and Jay Zs of this world, and smaller bands and emerging artists will not reap any benefits.’
So already from the get-go Tidal was off with a shaky start, which turned into a PR-nightmare rather than a sales pitch. And as Tidal was released into the wild and the criticism that was pouring in from left and right, Spotify was going its merry way. But from the shadows another contender entered the ring, Apple, who, 6 months later launched its Apple Music service. Apple boasted a catalog of 30 million songs, all accessible through one easy to use app. The service would be available in over 100 countries with technology that curates unique playlists based on the users preference. We know that Spotify does the same, but Tidal had an additional competitor it had to topple over.
The power of the platform
For Tidal the giant platforms were an easy target. They dominate music streaming, taking the artists ‘hostage’, paying them next to nothing. At least according to the founders of Tidal. But is this really the case?
Credit where credit is due. There’s no denying that Tidal pays their artists well in comparison to other streaming services. Although it’s not at number 1. Digital Music News rounded up the biggest platforms and their per stream payouts. Surprisingly enough, Napster, the godfather of peer to peer music sharing over the web, pays out artists the most, with $0.019 per stream. Tidal came in second with $0.01284 and third Apple Music with $0.00735. That’s not even a whole cent and that’s for the third spot. Spotify is nearly at the bottom, with a per stream rate between $.003 and $.005. Pandora pays even less with $0.00133. These numbers don’t say much as standalone figures though. Let’s say in a hypothetical situation we compare Spotify against Tidal. As an artist we are able to generate a million streams for a song, that would generate $5,000 with Spotify (when taking the highest pay-out into consideration) and $12,814 at Tidal. That’s a significant difference, so the answer is straightforward, Tidal has the best offering for artists. Artists only have to delete their music from Spotify and move to Tidal to get their fair share. But is it really that simple?
This same question was posed by Roots Music Canada, a website that posts related news around the Canadian Folk, Roots, Blues and more music scenes. In March 2019 Heather Kitching reached out to those working in the music industry and asked for their reasons to keep using the service. Geoff Kulawick from True North Records replied,’I’d rather have low proceeds than no proceeds.‘ Continuing to say, ‘The bad guys here are the big tech companies, especially Google, who are constantly trying to drive down the value of content on their platform.’ Nicolas Boulerice of the canadian folk band Le Vent Du Nord, said to Roots Music, ‘We’ve exchanged an illegal system that paid us nothing for a legal system that pays us nothing.’
Those are valid points, but the article fails to highlight one important factor that drives artists to platforms like Spotify. Size. You’re not going to join an Uber competitor if it only has ride hailers in New York and you operate in Seattle where there are no customers. You chose Uber, because that’s where the customers are. When a platform has a lot of users and its customer base is growing, the potential to reach more customers is equally growing, opening up new revenue streams.
Napster, the godfather of peer to peer music sharing over the web, pays out artists the most, with $0.019 per stream. Tidal came in second with $0.01284 and third Apple Music with $0.00735.
This point was made by former editor in chief of Wired magazine Chris Anderson, who analyzed how the music industry benefited from the rise of digital music services. Instead of relying on big hits that brought in significant sums of money, digital services would be able recommend music to users, helping them discover new genres and artists. Those artists didn’t have to release music all the time. Music from way back can be suggested to the user based on their preferences. Chris Anderson saying, ‘Hit-driven economics is a creation of an age without enough room to carry everything for everybody. Not enough shelf space for all the CDs, DVDs, and games produced.’ Continuing, ‘This is the world of scarcity. Now, with online distribution and retail, we are entering a world of abundance.’
Through this digital ecosystem, consumers are tempted to discover music they could otherwise not reasonably afford. They wouldn’t buy a whole album just for one song or from an artist they weren’t sure fitted their tastes. With the vast digital music libraries, new markets are unlocked and smaller artists who weren’t selling anything, are now being rediscovered. For companies it’s a far more stable and durable business model, because you’re not betting your whole company on a few big waves. Each month millions of users generate smaller sums of revenue, but combined, it’s a smash hit month over month. And when one user drops out, you won’t feel the strain.
The marketing behemoth
While Spotify may be most known for its ads between songs and a more aggressive push to move users to its premium subscription, it’s also a well known brand in the advertising scene. And it’s been going at it for several years. Increasing its market share through strategic partnerships and large advertising campaigns. Something we’ve yet to witness from Tidal. Years before Tidal entered the scene, trying to be a serious competitor to its rival Spotify (and other underpaying streaming platforms), it was conquering the world by storm. I won’t do a deep dive into Spotify itself, because that can be a whole analysis on its own, but it will help us place Tidal into context. How little it could move the needle against some of its biggest competitors.
In 2011 Spotify partnered up with social media giant Facebook, which would allow users to set up a profile through Facebook, connect with friends and share their playlists. It would be a more seamless way of sharing music. Not only that, but users who wanted to join could sign-up with their Facebook accounts. With the free subscription option and the low barrier to entry through a Facebook sign-up option, Spotify had unlocked a new potential market to be tapped into.
After the major partnership with Spotify, it seemed like the company was confident enough to push for a large advertising campaign outside its homebase Sweden. It wasn’t that the company was afraid to advertise. In 2009 Spotify advertised in Sweden, but in the United Kingdom it spent less than 5,000 pounds on advertising. A very low amount of such a huge potential consumer market. But three years later it finally happened. Spotify would launch a ‘seven figure’ brand campaign in the United Kingdom. The campaign would be a mixture of cinema, video on demand and digital out of home ads. This would be a new addition to the marketing strategy within the Spotify portfolio. Where it previously leaned on strategic partnerships with large brands like Vodafone, it now took matters into its own hands. Uplifting the brand to a premium service, which also benefited its partners which had exclusive deals that potential customers were eager to get. Spotify didn’t end there though. In 2012 they would launch the first outdoor campaign in the United Kingdom, together with JCDecaux. The aim of the campaign was to increase brand awareness and attract new users to the service. And while Spotify was going hard, the company that wanted to kick the establishment, the underdog that would rise to the top, was nowhere to be seen.
One year in, in 2016, Tidal reached 3 million paying subscribers, where 1 million of them were paying for the HiFi option. But it wasn’t anywhere near the amount that would nudge a whole industry. In Q1 of 2016, Spotify had amassed 30 million subscribers, ten times the amount of Tidal. Given, Tidal started later on, but Spotify was really gaining speed. A year earlier the service had 18 million subscribers. In just one year it nearly doubled its subscribers.
The Verge looked back at three years of Tidal, asking the same question we are trying to answer today. What was going on at Tidal and why it won’t be able to win? The Verge noted, ‘For Tidal, the way it handles its business is its biggest issue.’ The company inflated its subscriber count and it had only 6 months of capital left. Tidal prided itself with exclusive deals, but according to the Verge, ‘Tidal’s entire marketing strategy of using exclusives to grow the service has largely been ruled ineffective by the music industry. Apple, which followed Tidal down the exclusive rabbit hole, essentially gave up on the practice after about a year.’ The buzz Tidal was trying to achieve through partnerships just wasn’t enough.
Doomed from the start
There were a few critical errors that Tidal made that prevented it from reaching any significant market share. The first one was the launch event where a group of millionaires gathered around to smash the music giants that they weren’t paying their fair share. This was an easy target for outsiders. Just like the South Park episode did several years ago, where it showed how illegal downloading prevented the celebrities from buying less expensive yachts and villas. It was a PR-disaster, because you are signaling to your middle class customers, who have to weigh in every penny, that they are robbing millionaires of what they truly deserve. More money. Well, you’ve already guessed that this would never fly well with consumers.
Another important factor is that Tidal never really put in the effort to boost their brand and acquire new customers. Spotify was spending millions on marketing across the globe, especially ramping up its efforts in the United Kingdom. It was claiming a spot in the consumer’s mind for music streaming services. Tidal was nowhere to be seen. On top of that, Tidal through its pricing model didn’t convince users to switch from other services. There was no trial option, no free plan. How were they ever going to compete with free versions where people had built up extensive libraries?
Tidal was off from a rocky start and it was unable to convince users to move to their platform. While consumers may care about the artists, convenience is all that matters. They’re coming from a world where entertainment is basically free and now they are paying to listen to music legally. They were doing artists a favor. I may be polarizing the topic, but in essence, I doubt many average music listeners will be bothered by the amount per stream. So using that as a unique selling point for your business, will not turn into growth. Tidal will either fade into oblivion or merge into another. It was just a blimp in the music streaming cosmos.