TIDAL - The Revolution Will Not Be Spotify

The Revolution Will Not Be Spotify: why failure is an option for Jay Z’s streaming service

Jay Z's new streaming service isn't a viable business and maybe that's the point.

- Apr 8, 2015

Last week, prominent venture capitalist and sometime rapper Jay Z announced the re-launch of a new streaming service called TIDAL at a press conference alongside some of his famous friends, two members of Arcade Fire and three grown men wearing shiny helmets. No stranger to hyperbole, Jay Z has predicted that the service is “going to change the course of history.” At the launch, Alicia Keys quoted Nietzsche.

Beyoncé, Rihanna, Nicki Minaj, Madonna, Usher, Calvin Harris Tidal Press Conference 2015

Even beyond the undeniable silliness of a group of multi-millionaires pleading poverty and posing as freedom fighters in order to sell an entertainment platform, this bizarre episode makes less sense the further it’s examined. Why, after all, is a man who once said “I’m not a businessman, I’m a business, man” suddenly so invested in solving problems at the intersection of art and commerce? And why has Jay Z, who despite this self-characterization has always appeared a consummate businessman, offered 3% equity in a service he purchased for $56 million to each of the music celebrities who were willing to endorse the product at the launch event (an investment of around $18.6 million) essentially just for showing up?

Perhaps the service isn't just an attempt to carve out a space in the streaming marketplace. Maybe it's more like an American-style third party political candidacy: an attempt to influence the mainstream with a set of boldly stated, if unrealistic, ideals.

Two of the highest profile owners of the “artist-owned” company, Rihanna and Kanye West, are both in the midst of promoting upcoming albums yet neither of them have invested much of that attendant promotional capital in the launch of TIDAL. Rihanna released a major single, “Bitch Better Have My Money,” four days before the press conference, (though a second single, “American Oxygen” had a lower profile premiere on the service on Monday) and Kanye, who co-produced Rihanna’s new album and has been releasing singles with Rihanna and Paul McCartney over the last several months, has offered no new content at all.

The lack of meaningful contributions from these artists, and the relatively lightweight fare provided by other co-owners (a previously available White Stripes TV appearance, playlists curated by Coldplay, Deadmau5, 3 minutes of behind the scenes footage from a 2013 Alicia Keys concert) would seem to imply that their commitment to this supposed epoch-shifting artist reclamation of the music industry is less than total. So why are they doing it?

The unveiling of TIDAL comes just before one of the biggest players in tech, Apple, makes their formal entry into the streaming game with the re-launch of Beats Music, helmed by Jay Z’s former business associate Jimmy Iovine. That might seem like a power play, especially since the acquisition occurred almost a month ago, but when asked about it in a Billboard interview the day of the TIDAL press conference Jay Z said that he had told Iovine “I don’t have to lose in order for you guys to win.”

Bitch Better Have My Money (Live At The 2015 iHeartRadio Music Awards) (Explicit)

That statement seems absurd on its face; they're competing for the same marketshare. But, in the same interview, Jay Z may have revealed his true motives for getting behind TIDAL... and it's not about crushing the competition. It's an opportunity to “get in and strike an honest blow," he says, "and if the very least we did was make people wake up and try to improve the free vs. paid system, and promote fair trade, then it would be a win for us anyway.”

Perhaps, as Jay Z’s not-quite-defeatist statements suggest, the service isn't just an attempt to carve out a space in the streaming marketplace and run a money-making enterprise in a sphere where the biggest players - Spotify, Pandora and Rhapsody - operate on models that industry observers have called “inherently unprofitable.” Maybe it's something more akin to an American-style third party political candidacy: an attempt to influence the mainstream with a set of boldly stated, if unrealistic, ideals.

TIDAL certainly could be (and probably is) a cynical attempt to co-opt a legitimate issue in the name of branding, but the disclosed details of TIDAL's structure seem to stake out strident, if largely symbolic, positions in several key areas of the music industry debate surrounding streaming services (royalty rates, freemium pricing structures, artist vs. label ownership). The controversial pricing (TIDAL’s high fidelity tier has been ridiculed for being almost double the cost of Spotify) can also be read as more than just price gouging. What if it's an acknowledgement of a deeper problem in the established streaming model?

In recent times, streaming services have been consistently heralded as the future of the music industry. It’s certainly an appealing narrative, especially to the music consuming public and the major record labels. Listeners receive unprecedented access to music at an affordable price while being absolved of the guilt associated with downloading music illegally, while the labels who, through the leverage they hold through their massive catalogues, are granted sweetheart deals (like the one that gave them significant equity in Spotify for bargain basement prices back in 2008) that allow them to prosper despite the shrinking revenues generated by recorded music.

Kanye West - Diamonds From Sierra Leone (Remix Feat. Jay-Z)

But as rosy as the streaming model may seem to those two parties, there's mounting evidence that it doesn’t really work for anybody else. Apart from Jay Z’s TIDAL co-owners, a laundry list of artists, among them Taylor Swift, Thom Yorke and Bob Dylan, have removed their music from streaming platforms while protesting minuscule royalties and payment models that are untenable for smaller and emerging artists. Meanwhile, the streaming companies themselves have so far failed to establish that they can turn a profit while selling unlimited access to the majority of all of the music ever recorded for $10 a month.

The real model for companies like Spotify, as with a great many tech companies, has been posited as a game of “spot the idiot”: an attempt to find someone desperate or stupid enough (it’ll probably be Yahoo!, it’s always Yahoo!) to be willing to buy a company at a sky high valuation without recognizing that it lacks a viable path to profitability. Spotify founder Daniel Ek insists this is not the case and that Spotify can become profitable if it can grow to a sufficient scale, but even if he’s right, the company is unlikely to be able to do so while improving royalty rates - these payments already take up 70 percent of its revenue. If Spotify is going to grow, that doesn't mean the royalty cheques will too.

As appealing as it is to believe them when they tell you that you can have all the music you want for next to nothing while insuring the artists who made it are being fairly compensated, its worth remembering that that probably isn’t true.

Perhaps this is what Jay Z and company are alluding to when they talk about “restoring the value to music.” Jay Z wants you to pay more for streaming services because the cost of streaming services is unsustainably low, and while the stratospherically wealthy pop music royalty assembled at the TIDAL launch are perhaps not the most palatable group of people to deliver this message, the amount of coverage the service has generated since Jay Z bought it would indicate that people are at least paying attention. And that might be all he needs to deliver his message.

On its surface, the launch of TIDAL looked like a typical startup product launch, full of empty tech-talk platitudes about "revolution" and "change." But maybe, just maybe, they meant it.

Generally speaking when tech startups get together with venture capitalists and do something “disruptive” that dramatically lowers the cost of a service to the consumer somebody guiltless is getting screwed (see: Uber and licensed cab drivers), but in this case some members of the aggrieved party are in a position to have their complaints heard. Despite what may be convenient to believe, the difference between streaming services and illegal downloading is one more of degree than of kind, and while $10 a month for unlimited access to music is certainly a great deal, it’s worth considering who we’re getting in bed with when we pay for these services.

There is something ridiculous and depressing about Jay Z using high profile investment in a tech company to protest the practices of tech companies, and the delirious pretension of the TIDAL launch has distracted from the sentiments expressed, but he may have a point. Apple, Google, Spotify (and the major record labels that own them) are offering a desirable service, and as appealing as it is to believe them when they tell you that you can have all the music you want for next to nothing while insuring the artists who made it are being fairly compensated, its worth remembering that that probably isn’t true.

Perhaps all it takes is $56 millon, some lossless audio and a stage full of billionaire musicians to prove that.

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