A $60 Million Bet on Humans
Beats Music doesn’t begin until January, but it's already being touted as the next big thing in music streaming. The star power of famed record producer Jimmy Iovine and Nine Inch Nails frontman Trent Reznor, who developed the project with headphone maker Beats Electronics, has certainly helped. But its biggest sell will be how it fills a perceived gap in the market.
On the surface, there doesn't appear to be a gap at all: Spotify has long been a fixture in the U.S., as have Pandora, Songza, Grooveshark, and Rdio, which recently suffered layoffs despite its growing number of users. Even French startup Deezer, which is available in 80 countries worldwide, plans to expand to the U.S. next year. Then there's Apple's iTunes Radio, which may be the best-positioned of all of them.
Revenge of the DJs
Although none of the startups in the streaming-music space is profitable, despite boasting millions of paying subscribers, they seem to offer consumers more than enough to get their music fix. Most are available on mobile and offer a reasonable selection for non-picky fans.
But from Beats's perspective, that isn't enough. There is no human curatorial element (read: DJs), much less any reliable means for broadening users’ tastes. Other services have experimented with radio and discovery features, but without human guidance, listeners have trouble connecting with an artist or finding new ones worth exploring. Some users feel bombarded by the array of artists to choose from--Spotify's catalog includes more than 20 million songs, while Pandora's numbers around 900,000--and others are frustrated by algorithmic curation that makes errors like mislabeling a band's genre.
Beats, which raised $60 million in funding earlier this year, promises global scale and intelligent curation, meaning artists will create playlists and offer suggestions.
"As great as it is to have all this information bombarding you, there’s a real value in trusted filters," Reznor, who serves as Beats Music's chief creative officer, told The New Yorker last year. Beats Music "is like having your own guy when you go into the record store, who knows what you like but can also point you down some paths you wouldn’t necessarily have encountered."
Real people recommending songs will help set Beats apart, says Quentin Fleming, an adjunct professor at the University of Southern California’s Marshall School of Business. And Beats Electronics’ reputation will put the service on customers' radar, especially if the company finds a way to integrate its hardware with the streaming service. Beats Electronics is on track to make $1.4 billion in revenue this year, reports Fast Company's Austin Carr, and leads the $100-plus headphone market in the U.S. with a more than 60 percent share.
Business owners can learn from Beats, although it seems counterintuitive for such a successful company to move into the streaming music business--a place where no one has profited. "I wonder if they see the market maturing enough to where it might make sense," Fleming says. "Beats is such a high-quality sound system, they might be targeting people who don’t just want to hear something but the full depth and range of the music."
Jeffrey Carr, clinical professor of marketing and entrepreneurship at New York University's Stern School of Business, views Beats's strategy differently. The company is following in several businesses' footsteps, he says, assessing what it's currently selling and what customers are buying in addition to its products. "If you sell headphones and they’re being used to stream music, then to them it looks like a small step," he says.
Both professors say Beats probably commissioned market research to see what customers felt was lacking and how they could improve those issues. “If Beats Music becomes a success,” says Fleming, “then it will be because they somehow found a way to address these things in their offering. Even though all these companies are in the streaming music business, there may be no one in the space where they’re trying to play.”
However, Carr argues it really doesn’t matter whether the market is mature or full of competitors, as competitors are a fact of every business (and a good one at that). “If you look at Amazon, it’s a bookstore," he says. "It’s not like that market needed another seller. The difference is whether you have something to bring to the competition that is different and valuable to the customer.”
JILL KRASNY | Staff Writer
Jill Krasny is a staff writer for Inc. magazine, where she covers the intersection of entertainment and startups. Prior to Inc., she was a writer for MTV and Esquire and an editor at TheStreet. She is a graduate of the University of Southern California with a degree in communication. She lives in New York City.