Dreaming out loud is great -- until it's time to wake up.
Billboard's Glenn Peoples wonders if the music industry can learn from Netflix's (Nasdaq: NFLX) success in a column last week.
"With Netflix consumers have proven they will rent content -- even rerun content -- and stream it from the cloud," he argues. "They will pay for digital content they could get for free through illegal means. They will pay if the service allows streaming through multiple devices -- including mobile."
He then goes on to discuss Netflix's blowout quarter. After all, what digital media service wouldn't want to see chunky profitability and a 69% spike in paying subscribers over the past year?
"If a music service can reach the scale of Netflix, it too can pay rights holders handsomely while continuously improving the product and giving subscribers a high level of service," he concludes.
Sounds great. It'll never happen.
The song remains the same
It's not as if the music industry hasn't tried to create the aural equivalent of a Golden Corral buffeteria. We can go all the way back to the ill-fated days of pressplay and Music Net -- years before Netflix began streaming celluloid.
There are plenty of ambitious players out there today. Rhapsody, eMusic, and MOG have been at it for years. Microsoft's (Nasdaq: MSFT) Zune Pass and Best Buy's (NYSE: BBY) Napster prove that even the big boys can't go mainstream with unlimited music streaming at an "all you can eat" fixed price. Most of these services offer the kind of multi-device portability that makes Netflix so popular.
Why hasn't it caught on? Let's go over a few of the reasons.
The first knock -- and probably the biggest blow -- is that music and video are consumed in entirely different ways. A movie is a long-form piece of art that's typically viewed once. A song is a short-form piece of art that lends itself to repeated plays while it's still infectious to our ears. In other words, a consumer can peg a tangible value on streaming a series of flicks during any given month. A music subscription will always feel incomplete at the end of the term.
There's also the discrepancy in file sizes. Music piracy hit the record labels a lot harder than video piracy has hit movie studios, largely because downloading a 5 meg song file is a lot easier than a whole gigabyte for a high-quality movie.
Premium music also has more free streaming alternatives taking a battering ram to the pay wall. I'm not just talking about Pandora or CBS' (NYSE: CBS) last.fm here. Nearly every song imaginable is available for free -- and often legally -- on YouTube. Good luck finding that movie you wanted to see for free, legally. Even the mighty Netflix is blasted for its lack of new releases, while it's easy to find new tracks that haven't even been officially released.
2 companies that may make it work
It takes more than a successful model to make this work. No one has successfully taken on Netflix over the past decade, even as it performs its retention magic with rolled-up sleeves for all to see.
It also has to be a company in a position to make it work. It could have been Best Buy with Napster, since it sells a ton of the gadgetry that streams music. It could have been Microsoft with Zune Pass, since it has the ability to shoehorn its software into its popular operating system.
Neither company got it right, but there are two companies with even better views in Apple (Nasdaq: AAPL) and Sirius XM Radio (Nasdaq: SIRI). They're just not playing that card at the moment.
Apple is the country's largest music retailer, even though it's never manned an indie vinyl shop or a CD megastore. The iTunes Music Store is every major label's best friend, even if they don't always see it that way.
When Apple acquired lala in 2009, only to shut it down a few months later, everyone figured that iTunes on the cloud was coming. We're still waiting. There are more than 100 million iOS gadgets out there in the form of iPads, iPhones, and iPod Touch players. They all have an iTunes icon. Things will get interesting once Apple turns on the streaming spigot.
Sirius XM is another company that can make things interesting. It already has more than 20 million radio buffs paying for premium audio. Having the established base is huge. Do you think that streaming through Netflix would be as popular today if it didn't have millions of couch potatoes onboard? The difference between Netflix and Sirius XM is that Netflix chose to include streaming at no additional cost. Sirius XM charges existing receiver-based accounts $2.99 a month for streaming.
Is that the right approach? I don't think streaming through Netflix would have taken off if it had slapped a $2.99 surcharge on the perk. What if Sirius XM included streaming for those paying $1.98 a month already as a music royalty fee (which only about half of Sirius XM subs are currently doing)? What if it's included as part of a higher-priced package once the Sirius XM 2.0 rollout takes place by year's end?
The argument against tearing down the Sirius XM streaming pay wall is that it will leave money on the table. It was an easy decision for Netflix to make since streaming customers go through fewer discs that Netflix has to stock, maintain, and ship both ways. However, doing exactly that would make it as close to being the Netflix of audio streaming as any other existing service.
Apple and Sirius XM appear to have bigger fish to fry. Apple's inevitable cloud service will likely aim to be a piecemeal platform. Pity. Sirius XM isn't likely to nix streaming as a revenue stream, unless it uses it to justify an overall rate hike later this year. Pity.
A Netflix for music? Sorry, Peoples. It won't work.
Will there ever be a Netflix for digital music? Share your thoughts in the comment box below.
