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The SaaSing Of The Music Business

The SaaSing Of The Music Business

 

The music business is about to undergo another seismic shift. It was around 2005 when I joined Warner Bros. I was the 20-something-year-old kid who was supposed to have every answer about all things digital.

It was around 2005 when I joined Warner Bros. Records as their new head of technology. I was the 20-something-year-old kid who was supposed to have every answer about all things digital. I remember distinctly the first record I worked on. Not because the record was special to me personally (it wasn’t), but because that was when I began to understand how a “record” was viewed by the record labels and the industry.

Back in the day, two things drove music sales: the record itself and the story that publicists told about the record. There was no iTunes pre-sales or bundling the album with new Samsung phones. Everything depended on first-week sales and chart position, as well as how the record rose or fell during the second week. It was a totally anonymous process. Even the record store owners had no idea who was buying. It was a simple transaction reported to SoundScan.

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By the late 1990s, the music industry had created a pretty successful promotion and publicity machine. First-week sales were driven by meticulously choosing the best single from the record, getting spins on top radio shows, producing big budget videos for MTV, print and TV promotions, record reviews and interviews with the artists. All things served the commerce transaction funnel.

The results of that first week of sales, along with the radio airplay, helped tell the “story.” If the record charted to No. 1 with millions of sales, the news was used to bolster second-week sales, as well as support the second single on radio and MTV and help launch the tour. The story, the sale and the spins — this marketing dance worked over and over again.

In the late 1990s and early 2000s, the on-demand and “as a service” economy started heating up across a broad range of industries. Enterprise software developers started hosting their applications on the web, with subscription services focused on locking in long-term customers to optimize average revenue per user (ARPU). The traditional high-margin transaction of software sales gave way to by-the-cent optimization of a built-in audience.

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And where was the music business through this?

While first-generation SaaS (software as a service) providers were taking hold in the enterprise, a few pioneering streaming music services were making their debut. As Napster fell victim to legal battles, Rhapsody emerged in 2001 as one of the first legal providers of subscription-based music. At that time, the record labels viewed Rhapsody and others subscription services as “just another” source of revenue to support physical retail sales.

It’s no longer about pre-sales and Week 1, it’s about nurturing an audience month-over-month to drive loyalty and increase returns on a streaming service platform. All of the promotion dollars and methods to support Week 1 have to be retooled for a longer cycle, up to 6 months in many cases.

Now that the narrative has changed, can the music industry move into being an “as a service” economy?

The streaming services also have to play the SaaS game to ensure subscribers don’t churn and join other streaming services. In many respects, the artists themselves become creative talent for iTunes, Spotify and others, much like engineers and product developers are the rock stars behind other SaaS providers, such as Uber and Airbnb.

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As of today, it isn’t the business that made Apple put the U2 album on your phone.



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