Will Beats Dominate the Music-Streaming Business?
BY Jill Krasny
Beats Music, the streaming service launched Tuesday, brings plenty of star power and marketing muscle, but it will still have a fight on its hands in the ultra-competitive industry.
There's plenty to like about Beats Music, the new music-streaming service launched Tuesday by music producer Jimmy Iovine, Nine Inch Nails frontman Trent Reznor, and rapper Dr. Dre. The interface is elegant and intuitive, while the human touch is readily apparent and perhaps Beats's strongest selling point. A feature called Right Now, for instance, helps users create the perfect playlist for any situation just by filling in sentences, Mad Libs-style (example: "I'm at My Computer and feel like Working with Myself to Musica Tropical").
In many ways, Beats sets the bar for smart curation and what other new services might hope to achieve in terms of celebrity endorsements and audience appeal. The service's launch raises the stakes for what many predict will be a competitive year in the music-streaming space. The industry's current leaders include Sweden's Spotify, which has $250 million in funding and 26 million listeners, and Pandora, which continues to dominate with more than 35 million listeners and an intuitive interface that only seems to get better with time. A host of new services promise to make an impression as well, including Deezer, which boasts a catalog of more than 30 million tracks and ventures stateside from Paris this year.
Here's a look at some of the other challenges facing Beats Music and what the service has going for it.
Big Names Are Behind it
Beats would be nothing if not for the names of Iovine, Reznor, and Dre. The latter's imprimatur singlehandedly propelled Beats from a brand hawking a so-so hardware product to one that the Financial Timesreportedhad "40 percent of all U.S. headphone sales and close to 70 percent of the premium-priced headphone sales over the Christmas period" in 2012. Reznor, another shrewd businessman who established a cult-like following with Nine Inch Nails, also knows how to rally his fans without pandering to them. For his part, Iovine has the biggest Rolodex this side of Sunset Boulevard, thanks to years in the business producing legends like U2 and Bruce Springsteen.
It's Spending on Marketing
He may not be a household name, but Iovine knows how to leverage his brand. From 2011 to 2013, he was a mentor on American Idol and before that scouted raw talent like Robin Thicke and Lady Gaga. Unlike most music services, including the ill-fated MOG, which Beats acquired in 2012, Iovine and company seem more than willing to spend on getting the word out, which is key to achieving scale in this business. To date, Beats has a lucrative subscription deal with AT&T, promotional tie-ins with Target and Ellen DeGeneres, and a Super Bowl commercial on the way.
The Human Touch
Spotify's catalog of more than 20 million songs is too overwhelming to sift through alone, while Pandora's mislabeling of songs comes off as clueless. Those services' "algorithmic curation" might sound exciting to coders, but the average music listener just wants someone with good taste to guide her. From the Right Now feature to the Find It section, which offers primers on genres, activity-driven playlists, and curated selections from the likes of Rolling Stone, Equinox, and the Grand Ole Opry, it's hard to see where Beats can go wrong here.
With digital music sales declining for the first time since iTunes went online, some analysts wondered whether streaming music was to blame. Not everyone was convinced, though; Horace Dediu of market research firm Asymco said apps in general might be the culprit. "Downtime or 'boredom' was filled with app interaction [last year]," he wrote on Asymco's blog. "As the experiences become increasingly compelling, they 'move upmarket' and compete more aggressively with existing media consumption patterns." With App Store sales topping $10 billion last year, Beats might not hold everyone's attention as long as Candy Crush.
Not Everyone's Convinced They Should Rent
If the App Store's success is any indication, consumers still aren't ready to drop their à la carte music habit. The ability to buy songs for 99 cents is hard to beat--it's not too expensive but more than a drop in the bucket--and the album format has been out of vogue for awhile. That's not to say Beats can't steer listeners toward the rental model, but their habits aren't likely to change overnight. Currently the single most popular way for listeners to find music isn't on apps but terrestrial radio, where, sadly, the stations with the least variety secure the most interest.
Good Design Is Meaningless
Even when they're user-friendly and fun to explore, most music services aren't financially viable. Pandora has yet to break even and keeps running up against costly royalty issues with record labels and music publishers like ASCAP and BMI. Spotify, meanwhile, needs to achieve massive scale in order to be taken seriously, says Matt Pincus, founder and chief executive of Songs Publishing, a music publishing firm. And let's not forget Rdio, which has its own headaches after undergoing a slew of layoffs and folding its streaming video service, Vdio, last year.