Hip Hop icon Jay-Z launched music streaming service Tidal. The promise: higher royalties for an underappreciated art form. But was this enough to convince fans to ditch their current music subscriptions?
Streaming services have been gaining popularity quickly over recent years, reaching a staggering 467 million subscribers in the first quarter of 2021. One major player stands on top of them all, Spotify, with a market share of 32%, followed by Apple Music with 16% and Amazon Music with 13%. Tidal doesn’t even have one percent and is lumped together in the ‘other category’ that takes up 9% of the market. So can Tidal turn the proverbial tides?
The rich taking a stand
In January 2015 Jay-Z acquired Scandinavian music streaming service Aspiro for allegedly $56 million. Aspiro ran two ad-free music services across Europe and Tidal was one of them. A few months later, Tidal was officially launched with partner Sprint, through a gathering of celebrities, who metaphorically stood behind the music industry. Tidal would become a premium music streaming service for a base price of $9.99 per month, and delivering high quality audio through its HiFi subscription for $19.99 a month, one of its main selling points. Through its premium pricing model, Tidal would be able to deliver fairer rates to artists.
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 valid point that a free alternative would be a lower barrier to entry for customers to try out the service. While there are many reasons as to why not to deliver a free service, but a bare minimum of a 30 day trial version would’ve been a nice option. Tidal was operating in a very competitive market after all, and instead of pinning itself on a premium plan only, it should’ve used all the tricks in the book to attract music enthusiasts, who are willing to pay a premium for the best sound experience. But chances are, the moment Tidal launched, they were already using another streaming service extensively and wouldn’t just give up their music library they’ve accumulated over the years when the only selling point was higher pay-out rates for artists and better sound quality. The latter which has to be experienced.
Streaming services have been gaining popularity quickly over recent years, reaching a staggering 467 million subscribers in the first quarter of 2021.
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’. Tidal claimed that artists would be in control of their music, but the magazine pointed out the hypocrisy of the celebrities who gathered around to launch the music service by 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 had to overcome to win the hearts of the consumer, as these celebrities were covered in a veil of wealth. Social Media Week commented, in the same manner, pointing out the fact that millionaires came out to complain about not receiving enough money, and giving a desperate plea to the general public to help them save the music industry.
The Guardian also questioned the future of Tidal, noting that the app quickly dropped out of the top 700 downloads chart on the iPhone. The news outlet raised questions concerning the high price tag and not opting for an ad-supported version. The Guardian, just like Time Magazine and Social Media Week, all questioned the sincerity behind Tidal’s message as the service mostly favored larger musicians within the ranks of Madonna and Jay-Z, leaving smaller bands and emerging artists behind.
So already from the get-go Tidal was off with a shaky start, which turned into a PR-nightmare rather than a sales pitch. As Tidal was released into the wild and the criticism was pouring in from left and right, Spotify was going its merry way. And from the shadows Apple entered the ring as well, who, 6 months later launched its Apple Music service. Apple boasted a catalogue 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 preferences. Now, Tidal had an additional competitor it had to topple over, and not just anybody.
The power of the platform
For Tidal the giant platforms were an easy target. They dominate music streaming, taking the artists ‘hostage’ and 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, pays out artists the most, with $0.019 per stream. Tidal came in second with $0.0125 and third Apple Music with $0.01. Spotify is nearly at the bottom, with a per stream rate between $.003 and $.005. At first glance the answer is straightforward, Tidal has the suitable offering for artists. Now said 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 raised by Roots Music Canada, a website that posts related news around the Canadian Folk, Roots and Blues music scene. In March 2019, it reached out to those working in the music industry and asked for their reasons to keep using streaming platforms. 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 that artists have exchanged an illegal system that didn’t generate any income for a legal variant which pays nothing either.
Those are valid points, but the article fails to highlight one important factor that drives artists to platforms like Spotify. Size. When a platform has a lot of users and its customer base is growing, the potential to reach more listeners 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.
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 to 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 could be suggested to the user, based on their preferences. Chris Anderson noted, ‘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.’ Digital distribution had created an online 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
Spotify is 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 marketing campaigns. Years before Tidal entered the scene, trying to be a serious competitor to its rivals, Spotify was already conquering the world by storm.
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. 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 Facebook, it seemed like the company was confident enough to push for a large advertising campaign outside its home-base. In 2009 Spotify already advertised in Sweden, but in the United Kingdom it spent less than 5,000 pounds on advertising. A very low amount for such a huge potential consumer market. So three years later it finally happened. Spotify would launch a ‘seven figure’ brand campaign in the United Kingdom. The campaign would be its first large television campaign within the UK. Where it previously leaned on strategic partnerships with large brands like Virgin Media to acquire customers, it now took matters into its own hands. Through advertising it would uplift the service to a premium brand, which also benefited its partners, who 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.
A year after its advertising push in the UK, Spotify launched its first campaign in the United States, having a planned budget surpassing $10 million and aimed at television viewers of the ‘The Voice’ which was airing on NBC. The campaign would expand throughout different channels including digital and social media campaigns and print advertising. The large marketing push came two years after the company launched its service in the US in 2011.
One year in, in 2016, Tidal reached 3 million paying subscribers, 1 million of them were paying for the HiFi option. But it wasn’t anywhere near the amount that would generate enough cash flow to launch giant advertising campaign. In Q1 of 2016, Spotify had amassed 30 million subscribers, ten times the amount of Tidal. Tidal may started later on, but Spotify was really gaining speed and was light-years ahead. A year earlier the service had 18 million subscribers and in just one year it nearly doubled its subscriber count. Spotify was also enjoying its 4 year head-start and spent millions on marketing to increase its market share across the globe while Tidal was nowhere to be seen.
In 2018 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 wasn’t it be able to gain any significant market share? The Verge observed that its whole operations were the reason for its many failures. The company inflated its subscriber count and it had only 6 months of capital left. Tidal prided itself with exclusive deals, but The Verge pointed out the flaw in this strategy noting, ‘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 those partnerships just wasn’t enough and without any noticeable advertising campaign on record, it wouldn’t move the needle either.
Square acquires Tidal
In March 2021, things started to gain momentum again for the streaming service, when Square Inc. acquired a majority stake in Tidal. The acquisition would be complemented through cash and stock. Square Inc. paid $297 million for the majority stake in the music streaming service, which would operate independently within the group. In the announcement Square highlighted this would open up a new business vertical, creating an opening for them to enter the music streaming market. Jack Dorsey, co founder and CEO of Square, noted that music is an integral part of the economy, believing that music is deeply rooted in culture and through Tidal it can support artists in their creative endeavors. The true reason as to why Square decided to acquire a majority stake in Tidal remains vague for the average onlooker. Peter Kafka at Vox Recode couldn’t find a definitive answer either as to why Square would invest in a music streaming service with little to no market share. The only plausible reason Kafka envisioned was that Tidal would serve as a portal for Square to sell NFTs, of which Dorsey is a great fan. Maybe the answer doesn’t even have to be as complicated as that. Dorsey might’ve thought it would be good to affiliate Square with Jay-Z to boost the popularity of its platform.
In November 2021, in an attempt to boost its user acquisition, Tidal finally gave in and announced that it, too, came with a free plan and an enhanced paid version. Just like Spotify it integrated direct-to-artist payments and fan-centered royalties. In the press release Head of Tidal, Jesse Dorogusker said the enhancements would further expand on the core values set out by the streaming service and through the pricing model, new users could now experience the music library for free. At the time of the release the free option would only be available to United States customers. What prompted Tidal to make this move is not clear from the press release alone, but when reading between the lines, and in light of the Square acquisition, there was undoubtedly pressure from its majority stakeholder to get its act together and reclaim market share before it would be swallowed up by its competitors.
Tidal was 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 the press. 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. The event was a PR-disaster.
Tidal also 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 UK and the US. It was claiming a spot in the consumer’s mind for music streaming services. Tidal was nowhere to be seen. On top of that, through its pricing model it didn’t convince users to switch from other services. There was no trial option, no free plan. It would take them six whole years to come with a free pricing option.
While consumers may care about the artists, convenience is all that matters. They’re coming from a world where entertainment was basically free and now they are paying to listen to music legally. The average music listener won’t consider the pay-out per stream nor the audio quality. So using that as a unique selling point for your business won’t result in growth. Tidal will either fade into oblivion or merge into another. The only thing that can turn into its favor, is ramping up the marketing machine. But as other platforms are generating more revenue by acquiring new customers, so will their ability to attract more subscribers.