Post by KeithL on Mar 13, 2018 15:01:36 GMT -5
Sorry.... I missed this the first time around.
In general, in the business model, companies that provide services like streaming music have two basic categories of costs.
(I forget the proper textbook names for cost types.)
To take the analogy of a fast food restaurant.....
One type of cost is the direct cost of products and services.
For every hamburger they sell, they must buy one raw hamburger, and one bun, and two packets of ketchup, and one little cardboard box.
This cost is DIRECTLY proportional to the number of hamburgers they sell.
The other type of cost is costs that are often referred to as "fixed costs" - even though that is an oversimplification.
Your favorite hamburger joint probably pays a set franchise fee every year to use their name.
And the cost of purchasing and maintaining equipment comes under this heading.
(Even though the equipment wears out quicker, and costs a bit more to maintain when they're very busy, those costs rise more gradually....
they may spend 20% more on grill maintenance if they sell twice as many burgers, but they won't spend double. )
Labor costs are somewhat more complex.
While they may have to hire more people to sell more burgers, there are usually economies of scale involved... as well as marginal steps.
Your burger joint would need to hire two people to sell a dozen burgers a day - just to keep the doors open.
However, they could sell several hundred burgers a day before having to hire a third person.
Let's say they make fifty cents on every burger they sell; but it costs $500 a day to keep the place open.
Without doing any math, it's obvious that, if they sell fifty burgers a day, they'll lose money.
But, at some point, the 50 cents they make on each burger will add up to enough to overwhelm that franchise fee.
And the number of burgers they can sell will increase FASTER than their need to hire more employees due to economies of scale.
Therefore, there is some number of burgers where the profits per burger will overwhelm the fixed costs and they'll start making money.
This happens because the profit per-burger rises proportionally to the number of burgers they sell - while all or most of the other costs rise more slowly.
A similar situation is true for most companies that sell services like streaming music.
They have a whole bunch of fixed costs, or costs that rise gradually, like staff salaries and the cost of purchasing servers and bandwidth.
And they have per-sale costs, like those licensing fees.
They expect to lose money initially, when they have very few customers, but a lot of fixed costs....
However, once they sign up a lot more customers, they expect the small per-sale profits to add up to a huge number that overwhelms the fixed costs.
Note how this relies on the basic idea that they're "losing money on overhead, but making money on each sale".
The problem is that, with Spotify and Tidal, apparently they are NOT losing too much money on the overhead.
They're simply not making enough profit on each sale (they claim largely due to the per-sale licensing costs).
Therefore, as they sign up more and more customers, their financial situation improves a little... but not enough.
(And, since their fixed costs aren't that bad to begin with, they really can;t improve those very much.)
The only real solutions are higher subscription fees or lower license costs.
Spotify has been experimenting with a "CD quality" service level; if they can sign subscribers up for a more expensive subscription that could provide an obvious solution.
However, bear in mind that, in our current system,the license fees are paid to the STUDIOS who own the music; they are NOT paid directly to the performers.
So, for example, it has been suggested that a streaming provider could produce some of their own content directly, and so cut out the studio as middle-man.
It has also been suggested by some that the studios charge way too much for their license fees, of which the artists don't get nearly enough, and perhaps some sort of change there is overdue.
(Perhaps the whole business model of "labels and studios" just doesn't fit that well with the new ways people want to purchase their music.)
However, from the numbers, it seems obvious that a lot of people WANT to purchase their music by streaming rather than buying plastic discs.
Therefore, one way or the other, streaming is here to stay - because the market will get what it wants in the end.
Keith:
Have been reading this site to glean info about MQA for some time and wanted you to know how much your information/thoughts/perspective are appreciated. This is one of the ways audio threads can serve important purpose.
Several times you have mentioned that streaming services cite licensing costs as the reason they are losing money. By this do they mean costs paid to labels/performers OR monies paid to production services such as MQA or MP3?
If they are claiming the former, then there is something seriously wrong. Labels and performers are receiving significantly less monies now than they were during the CD timeframe. To show how dire the situation is, here is a recent NYT article providing detail about the downturn in composer, performer, and producing revenues:
www.nytimes.com/2018/01/28/opinion/congress-musicians-music-bus.html?action=click&pgtype...
My assessment of the services I have tried (Spotify, Pandora, and Tidal) is that they are not charging nearly enough per month to support the artists available on their sites. Further, there is the real problem of verification: proving to the label and/or artist how accurate are the volume numbers.
Having spent some time in both musical and corporate worlds can second your assessment above that whatever entity turns out to be the Amazon of streaming will have to come to grips with the finances of their business model.
AND I HOPE that higher monthly charges prevail over low performer fees that continue to force musicians into poverty.
In general, in the business model, companies that provide services like streaming music have two basic categories of costs.
(I forget the proper textbook names for cost types.)
To take the analogy of a fast food restaurant.....
One type of cost is the direct cost of products and services.
For every hamburger they sell, they must buy one raw hamburger, and one bun, and two packets of ketchup, and one little cardboard box.
This cost is DIRECTLY proportional to the number of hamburgers they sell.
The other type of cost is costs that are often referred to as "fixed costs" - even though that is an oversimplification.
Your favorite hamburger joint probably pays a set franchise fee every year to use their name.
And the cost of purchasing and maintaining equipment comes under this heading.
(Even though the equipment wears out quicker, and costs a bit more to maintain when they're very busy, those costs rise more gradually....
they may spend 20% more on grill maintenance if they sell twice as many burgers, but they won't spend double. )
Labor costs are somewhat more complex.
While they may have to hire more people to sell more burgers, there are usually economies of scale involved... as well as marginal steps.
Your burger joint would need to hire two people to sell a dozen burgers a day - just to keep the doors open.
However, they could sell several hundred burgers a day before having to hire a third person.
Let's say they make fifty cents on every burger they sell; but it costs $500 a day to keep the place open.
Without doing any math, it's obvious that, if they sell fifty burgers a day, they'll lose money.
But, at some point, the 50 cents they make on each burger will add up to enough to overwhelm that franchise fee.
And the number of burgers they can sell will increase FASTER than their need to hire more employees due to economies of scale.
Therefore, there is some number of burgers where the profits per burger will overwhelm the fixed costs and they'll start making money.
This happens because the profit per-burger rises proportionally to the number of burgers they sell - while all or most of the other costs rise more slowly.
A similar situation is true for most companies that sell services like streaming music.
They have a whole bunch of fixed costs, or costs that rise gradually, like staff salaries and the cost of purchasing servers and bandwidth.
And they have per-sale costs, like those licensing fees.
They expect to lose money initially, when they have very few customers, but a lot of fixed costs....
However, once they sign up a lot more customers, they expect the small per-sale profits to add up to a huge number that overwhelms the fixed costs.
Note how this relies on the basic idea that they're "losing money on overhead, but making money on each sale".
The problem is that, with Spotify and Tidal, apparently they are NOT losing too much money on the overhead.
They're simply not making enough profit on each sale (they claim largely due to the per-sale licensing costs).
Therefore, as they sign up more and more customers, their financial situation improves a little... but not enough.
(And, since their fixed costs aren't that bad to begin with, they really can;t improve those very much.)
The only real solutions are higher subscription fees or lower license costs.
Spotify has been experimenting with a "CD quality" service level; if they can sign subscribers up for a more expensive subscription that could provide an obvious solution.
However, bear in mind that, in our current system,the license fees are paid to the STUDIOS who own the music; they are NOT paid directly to the performers.
So, for example, it has been suggested that a streaming provider could produce some of their own content directly, and so cut out the studio as middle-man.
It has also been suggested by some that the studios charge way too much for their license fees, of which the artists don't get nearly enough, and perhaps some sort of change there is overdue.
(Perhaps the whole business model of "labels and studios" just doesn't fit that well with the new ways people want to purchase their music.)
However, from the numbers, it seems obvious that a lot of people WANT to purchase their music by streaming rather than buying plastic discs.
Therefore, one way or the other, streaming is here to stay - because the market will get what it wants in the end.
Have been reading this site to glean info about MQA for some time and wanted you to know how much your information/thoughts/perspective are appreciated. This is one of the ways audio threads can serve important purpose.
Several times you have mentioned that streaming services cite licensing costs as the reason they are losing money. By this do they mean costs paid to labels/performers OR monies paid to production services such as MQA or MP3?
If they are claiming the former, then there is something seriously wrong. Labels and performers are receiving significantly less monies now than they were during the CD timeframe. To show how dire the situation is, here is a recent NYT article providing detail about the downturn in composer, performer, and producing revenues:
www.nytimes.com/2018/01/28/opinion/congress-musicians-music-bus.html?action=click&pgtype...
My assessment of the services I have tried (Spotify, Pandora, and Tidal) is that they are not charging nearly enough per month to support the artists available on their sites. Further, there is the real problem of verification: proving to the label and/or artist how accurate are the volume numbers.
Having spent some time in both musical and corporate worlds can second your assessment above that whatever entity turns out to be the Amazon of streaming will have to come to grips with the finances of their business model.
AND I HOPE that higher monthly charges prevail over low performer fees that continue to force musicians into poverty.
