Why Spotify is the Living Dead

Below I include a recent article from Barron’s Magazine, presenting the financial challenges to Spotify, the dominant music streaming service.  Here’s why I believe it’s dead:

Spotify [is] a “pure play on a loss-leader category.”

Streaming music has been priced as a loss leader, in other words the costs of streaming music exceed what platforms receive from subscribers in revenue. This is not atypical for networking platforms as the platforms hope to monetize the data these networks create through their users. Of course, a network does not really become valuable until it is of dominant size and able to maintain continued user engagement. Facebook is the one we are most familiar with. And Facebook did not become profitable until it had been in operation for 6 years and experienced phenomenal user growth. Also, FB has an ad revenue model (more on this later).

The problem with Spotify is that its major product line loses money, a lot of money. Streaming unlimited music costs a lot more than $10/month per subscriber. But raising the price merely loses subscribers, and customer acquisition costs (CAC) on the margin often increase over time. So, the desperate strategy is to find a way to generate revenue from the data sharing network.

But Spotify faces some serious competition: Apple, Amazon, and Google. All three of these tech titans can afford to lose money on streaming for a long time, much longer than Spotify can stay solvent or keep the support of its investors. Spotify is a dead man walking. Its subscriber base will be auctioned off before it depreciates to zero. Or not.

For example, how does Spotify compete with this?

Facebook may be next

I expect the revenue squeeze will also hit Facebook’s main advertising model. Digital advertising is dominated by Google and Facebook. Google monetizes search routines it gathers every time you invoke its search algorithms. Facebook monetizes social sharing and likes. Each then sell access to this data to third-party advertisers. Now, search is a more robust indicator of interest than likes, so Google’s ad reach and keyword auctions offer greater value than FB “likes.” FB tries to increase its value through social network dynamics, but there is so much noise there that there’s a real question how much that is really worth in terms of advertising conversions.

But both platforms need to look at the big shadow hovering just over their shoulders and bearing down on their ad models. Amazon knows what people buy on its platform, which reveals a far more robust indicator for what people will buy again. Access to Amazon’s data will be worth that much more than FB and even Google. I expect FB has the weakest attention model and thus Amazon and Google will continue to eat into its ad revenues. I’m sure FB is working overtime trying to figure out how to pivot and leverage its massive user base. Libra Coin is a clear indicator of that. FB is hoping to use crypto tokenization to monetize peer-to-peer finance and banking. Unfortunately it faces some serious regulatory opponents in the central banks and the commercial payments industry. But I suppose FB has much cash to burn trying to find its next lily pad.

The real problem with the scramble for data real estate is that there are only so many hours in a day. On top of that, users and consumers are becoming cognizant of the value of their personal data and will be less inclined to give it away for free. This blows up most of the “mobile app” bubbles vying for attention in the digital economy. The future, if one is to believe in technological progress, is a far more decentralized digital universe where users reap much more value from the data they create and share, and successful platforms will need to deliver much more value than a free app for their users.

The question for us all is who will eat whom on the way to this future? (If we believe Elizabeth Warren, she will be eating them all. Politics is always a wild card.)

Spotify Stock Has Had a Miserable 6 Months. Wall Street’s Optimists Are Wrong.

By Avi Salzman

Barron’s October 5, 2019

A miserable few months have made Spotify’s stock as dull as elevator music. Now, some analysts think the stock is beaten down enough that a rally is coming, and Wall Street is ready to groove on the remix.

Spotify Technology (SPOT) has fallen 17% since Barron’s wrote a skeptical cover article on the company (“Spotify Stock Is Risky Because the Music Industry Isn’t Changing Fast Enough,” April 19). Short interest on the stock, which was below 3% for much of the year, is now above 5%.

Yet two formerly bearish analysts have recently shifted to a more neutral stance, on the theory that the bad news is already in the stock’s price.

Spotify is the global leader in streaming music, and it passed 100 million paying users this year. Still, doubts have grown on Wall Street about the company’s ability to sustain subscriber growth.

In August, Spotify started giving new premium users three free months of service, up from one month, which “has supported fears of negative subscriber trends,” writes Credit Suisse analyst Brian Russo, one of the analysts who has become incrementally more positive about the shares. The company has launched other offers, too, including six free months of Spotify for people who buy an Xbox Game Pass.

Investors will have to wait until Oct. 28, when Spotify reports third-quarter earnings, to find out whether the generous offers are cutting into its margins. For now, the stock still seems stretched. Its market cap is $21 billion, more than the $19.1 billion that the music industry took in worldwide in 2018—and most of that money goes to labels and artists.

Spotify, meanwhile, is expected to lose $1.92 a share this year; in April, the loss had been projected to be $1.48. Kevin Rippey, an Evercore ISI analyst, calls Spotify a “pure play on a loss-leader category.”

Spotify is looking at new revenue opportunities. The company has branched out into podcasting, with plans to spend as much as $500 million this year on acquisitions in the space. But there is no obvious payoff from those purchases; the podcast ad market in the U.S. is still below $1 billion. Spotify didn’t respond to requests to hear the company’s case from top executives.

Spotify leads rivals like Amazon.com (AMZN) and Apple (AAPL) among young customers, but it will probably need to find older fans in developed markets to hit Wall Street targets, Russo argues. That could be tough. Amazon’s smart speakers have helped it sell music packages to older customers and will make it difficult for Spotify to expand in that market, Russo says.

And Spotify’s rivals are increasing their offerings. Google-owned YouTube Music is promoting personalized playlists to help users find new music, an area that has been one of Spotify’s biggest strengths. Amazon has released a high-quality music service that costs $12.99 for Prime users—a small premium to Spotify’s $9.99—offering listeners CD-quality sound, or better. Unlike Spotify, those companies don’t depend on music to make money.

Because of the competition, Russo expects Spotify to grow disproportionately in emerging markets, “where disposable income is lower and monetization, both in terms of subscription and advertising, is more challenging.”

Spotify stock may well rise when the company reports third-quarter numbers, given the bearish setup in the market. But for it to become an attractive longer-term investment, it needs a clearer path to profitability.

Data Privacy

facebook lobby

Good, thorough, and l-o-o-o-o-ng article on data privacy issues, legislation, and network value. From the NYT Magazine. Read about what’s being done to you behind closed doors…

The Unlikely Activists Who Took On Silicon Valley — and Won

Some excerpts:

Almost by accident, though, Mactaggart had thrust himself into the greatest resource grab of the 21st century. To Silicon Valley, personal information had become a kind of limitless natural deposit, formed in the digital ether by ordinary people as they browsed, used apps and messaged their friends. Like the oil barons before them, they had collected and refined that resource to build some of the most valuable companies in the world, including Facebook and Google, an emerging duopoly that today controls more than half of the worldwide market in online advertising. But the entire business model — what the philosopher and business theorist Shoshana Zuboff calls “surveillance capitalism” — rests on untrammeled access to your personal data. The tech industry didn’t want to give up its powers of surveillance. It wanted to entrench them. And as Mactaggart would soon learn, Silicon Valley almost always got what it wanted.

Through the Obama years, the tech industry enjoyed extraordinary cachet in Washington, not only among Republicans but also among Democrats. Partnering with Silicon Valley allowed Democrats to position themselves as pro-business and forward-thinking. The tech industry was both an American economic success story and a political ally to Democrats on issues like immigration. Google enjoyed particularly close ties to the Obama administration: Dozens of Google alumni would serve in the White House or elsewhere in the administration, and by one estimate Google representatives visited the White House an average of about once a week.

Mactaggart … faced an American political establishment that saw the key to its future in companies like Google and Facebook — not because of whom they supported but because of what they did. The surveillance capitalists didn’t just sell more deodorant; they had built one of the most powerful tools ever invented for winning elections. Roughly the same suite of technologies helped elect Obama, a pragmatic liberal who promised racial progress and a benevolent globalism, and Trump, a strident nationalist who adeptly employs social media to stoke racial panic and has set out to demolish the American-led world order.

In the end, not a single lawmaker in either chamber voted against the compromise.

Political power is a malleable thing, … an elaborate calculation of artifice and argument, votes and money. People and institutions — in politics, in Silicon Valley — can seem all-powerful right up to the moment they are not. And sometimes, … a thing that can’t possibly happen suddenly becomes a thing that cannot be stopped.

The promise of blockchain is to disrupt this Monopoly game.

Madmen and the Godless Algorithm

FB-vs-Google

This article from The New Yorker.

Good overview history of the advertising model that has dominated our commercialism for decades. It’s now gone on digital steroids. The disruption of ad technology has interesting implications.

How the Math Men Overthrew the Mad Men

By Ken Auletta

Once, Mad Men ruled advertising. They’ve now been eclipsed by Math Men—the engineers and data scientists whose province is machines, algorithms, pureed data, and artificial intelligence. Yet Math Men are beleaguered, as Mark Zuckerberg demonstrated when he humbled himself before Congress, in April. Math Men’s adoration of data—coupled with their truculence and an arrogant conviction that their “science” is nearly flawless—has aroused government anger, much as Microsoft did two decades ago.

The power of Math Men is awesome. Google and Facebook each has a market value exceeding the combined value of the six largest advertising and marketing holding companies. Together, they claim six out of every ten dollars spent on digital advertising, and nine out of ten new digital ad dollars. They have become more dominant in what is estimated to be an up to two-trillion-dollar annual global advertising and marketing business. Facebook alone generates more ad dollars than all of America’s newspapers, and Google has twice the ad revenues of Facebook.

In the advertising world, Big Data is the Holy Grail, because it enables marketers to target messages to individuals rather than general groups, creating what’s called addressable advertising. And only the digital giants possess state-of-the-art Big Data. “The game is no longer about sending you a mail order catalogue or even about targeting online advertising,” Shoshana Zuboff, a professor of business administration at the Harvard Business School, wrote on faz.net, in 2016. “The game is selling access to the real-time flow of your daily life—your reality—in order to directly influence and modify your behavior for profit.” Success at this “game” flows to those with the “ability to predict the future—specifically the future of behavior,” Zuboff writes. She dubs this “surveillance capitalism.” [I question whether this will really work as anticipated once everybody is hip to the game.]

However, to thrash just Facebook and Google is to miss the larger truth: everyone in advertising strives to eliminate risk by perfecting targeting data.[This is the essence of what we’re doing here – reducing the risk of uncertainty.] Protecting privacy is not foremost among the concerns of marketers; protecting and expanding their business is. The business model adopted by ad agencies and their clients parallels Facebook and Google’s. Each aims to massage data to better identify potential customers. Each aims to influence consumer behavior. To appreciate how alike their aims are, sit in an agency or client marketing meeting and you will hear wails about Facebook and Google’s “walled garden,” their unwillingness to share data on their users. When Facebook or Google counter that they must protect “the privacy” of their users, advertisers cry foul: You’re using the data to target ads we paid for—why won’t you share it, so that we can use it in other ad campaigns? [But who really owns your data? Even if you choose to give it away?]

This preoccupation with Big Data is also revealed by the trend in the advertising-agency business to have the media agency, not the creative Mad Men team, occupy the prime seat in pitches to clients, because it’s the media agency that harvests the data to help advertising clients better aim at potential consumers. Agencies compete to proclaim their own Big Data horde. W.P.P.’s GroupM, the largest media agency, has quietly assembled what it calls its “secret sauce,” a collection of forty thousand personally identifiable attributes it plans to retain on two hundred million adult Americans. Unlike Facebook or Google, GroupM can’t track most of what we do online. To parade their sensitivity to privacy, agencies reassuringly boast that they don’t know the names of people in their data bank. But they do have your I.P. address, which yields abundant information, including where you live. For marketers, the advantage of being able to track online behavior, the former senior GroupM executive Brian Lesser said—a bit hyperbolically, one hopes—is that “we know what you want even before you know you want it.”[That sounds like adman hubris rather than reality.]

Worried that Brian Lesser’s dream will become a nightmare, ProPublica has ferociously chewed on the Big Data privacy menace like a dog with a bone: in its series “Breaking the Black Box,” it wrote, “Facebook has a particularly comprehensive set of dossiers on its more than two billion members. Every time a Facebook member likes a post, tags a photo, updates their favorite movies in their profile, posts a comment about a politician, or changes their relationship status, Facebook logs it . . . When they use Instagram or WhatsApp on their phone, which are both owned by Facebook, they contribute more data to Facebook’s dossier.” Facebook offers advertisers more than thirteen hundred categories for ad targeting, according to ProPublica.

Google, for its part, has merged all the data it collects from its search, YouTube, and other services, and has introduced an About Me page, which includes your date of birth, phone number, where you work, mailing address, education, where you’ve travelled, your nickname, photo, and e-mail address. Amazon knows even more about you. Since it is the world’s largest store and sees what you’ve actually purchased, its data are unrivalled. Amazon reaches beyond what interests you (revealed by a Google search) or what your friends are saying (on Facebook) to what you actually purchase. With Amazon’s Alexa, it has an agent in your home that not only knows what you bought but when you wake up, what you watch, read, listen to, ask for, and eat. And Amazon is aggressively building up its meager ad sales, which gives it an incentive to exploit its data.

Data excite advertisers. Prowling his London office in jeans, Keith Weed, who oversees marketing and communications for Unilever, one of the world’s largest advertisers, described how mobile phones have elevated data as a marketing tool. “When I started in marketing, we were using secondhand data which was three months old,” he said. “Now with the good old mobile, I have individualized data on people. You don’t need to know their names . . . You know their telephone number. You know where they live, because it’s the same location as their PC.” Weed knows what times of the day you usually browse, watch videos, answer e-mail, travel to the office—and what travel routes you take. “From your mobile, I know whether you stay in four-star or two-star hotels, whether you go to train stations or airports. I use these insights along with what you’re browsing on your PC. I know whether you’re interested in horses or holidays in the Caribbean.” By using programmatic computers to buy ads targeting these individuals, he says, Unilever can “create a hundred thousand permutations of the same ad,” as they recently did with a thirty-second TV ad for Axe toiletries aimed at young men in Brazil. The more Keith Weed knows about a consumer, the better he can aim to target a sale.

Engineers and data scientists vacuum data. They see data as virtuous, yielding clues to the mysteries of human behavior, suggesting efficiencies (including eliminating costly middlemen, like agency Mad Men), offering answers that they believe will better serve consumers, because the marketing message is individualized. The more cool things offered, the more clicks, the more page views, the more user engagement. Data yield facts and advance a quest to be more scientific—free of guesses. As Eric Schmidt, then the executive chairman of Google’s parent company, Alphabet, said at the company’s 2017 shareholder meeting, “We start from the principles of science at Google and Alphabet.”

They believe there is nobility in their quest. By offering individualized marketing messages, they are trading something of value in exchange for a consumer’s attention. They also start from the principle, as the TV networks did, that advertising allows their product to be “free.” But, of course, as their audience swells, so does their data. Sandy Parakilas, who was Facebook’s operations manager on its platform team from 2011 to 2012, put it this way in a scathing Op-Ed for the Times, last November: “The more data it has on offer, the more value it creates for advertisers. That means it has no incentive to police the collection or use of that data—except when negative press or regulators are involved.” For the engineers, the privacy issue—like “fake news” and even fraud—was relegated to the nosebleed bleachers. [This fact should be obvious to all of us.]

With a chorus of marketers and citizens and governments now roaring their concern, the limitations of Math Men loom large. Suddenly, governments in the U.S. are almost as alive to privacy dangers as those in Western Europe, confronting Facebook by asking how the political-data company Cambridge Analytica, employed by Donald Trump’s Presidential campaign, was able to snatch personal data from eighty-seven million individual Facebook profiles. Was Facebook blind—or deliberately mute? Why, they are really asking, should we believe in the infallibility of your machines and your willingness to protect our privacy?

Ad agencies and advertisers have long been uneasy not just with the “walled gardens” of Facebook and Google but with their unwillingness to allow an independent company to monitor their results, as Nielsen does for TV and comScore does online. This mistrust escalated in 2016, when it emerged that Facebook and Google charged advertisers for ads that tricked other machines to believe an ad message was seen by humans when it was not. Advertiser confidence in Facebook was further jolted later in 2016, when it was revealed that the Math Men at Facebook overestimated the average time viewers spent watching video by up to eighty per cent. And in 2017, Math Men took another beating when news broke that Google’s YouTube and Facebook’s machines were inserting friendly ads on unfriendly platforms, including racist sites and porn sites. These were ads targeted by keywords, like “Confederacy” or “race”; placing an ad on a history site might locate it on a Nazi-history site.

The credibility of these digital giants was further subverted when Russian trolls proved how easy it was to disseminate “fake news” on social networks. When told that Facebook’s mechanized defenses had failed to screen out disinformation planted on the social network to sabotage Hillary Clinton’s Presidential campaign, Mark Zuckerberg publicly dismissed the assertion as “pretty crazy,” a position he later conceded was wrong.

By the spring of 2018, Facebook had lost control of its narrative. Their original declared mission—to “connect people” and “build a global community”—had been replaced by an implicit new narrative: we connect advertisers to people.[Indeed, connecting people on a global basis for human interaction really doesn’t make a lot of sense. A global gossip network? Unless, of course, you’re trying to monetize it.] It took Facebook and Google about five years before they figured out how to generate revenue, and today roughly ninety-five percent of Facebook’s dollars and almost ninety percent of Google’s comes from advertising. They enjoy abundant riches because they tantalize advertisers with the promise that they can corral potential customers. This is how Facebook lured developers and app makers by offering them a permissive Graph A.P.I., granting them access to the daily habits and the interchange with friends of its users. This Graph A.P.I. is how Cambridge Analytica got its paws on the data of eighty-seven million Americans.

The humiliating furor this news provoked has not subverted the faith among Math Men that their “science” will prevail. They believe advertising will be further transformed by new scientific advances like artificial intelligence that will allow machines to customize ads, marginalizing human creativity. With algorithms creating profiles of individuals, Airbnb’s then chief marketing officer, Jonathan Mildenhall, told me, “brands can engineer without the need for human creativity.” Machines will craft ads, just as machines will drive cars. But the ad community is increasingly mistrustful of the machines, and of Facebook and Google.[As they should be – the value has been over-hyped.] During a presentation at Advertising Week in New York this past September, Keith Weed offered a report to Facebook and Google. He gave them a mere “C” for policing ad fraud, and a harsher “F” for cross-platform transparency, insisting, “We’ve got to see over the walled gardens.”

That mistrust has gone viral. A powerful case for more government regulation of the digital giants was made by The Economist, a classically conservative publication that also endorsed the government’s antitrust prosecution of Microsoft, in 1999. The magazine editorialized, in May, 2017, that governments must better police the five digital giants—Facebook, Google, Amazon, Apple, and Microsoft—because data were “the oil of the digital era”: “Old ways of thinking about competition, devised in the era of oil, look outdated in what has come to be called the ‘data economy.’ ” Inevitably, an abundance of data alters the nature of competition, allowing companies to benefit from network effects, with users multiplying and companies amassing wealth to swallow potential competitors.

The politics of Silicon Valley is left of center, but its disdain for government regulation has been right of center. This is changing. A Who’s Who of Silicon notables—Tim Berners-Lee, Tim Cook, Ev Williams, Sean Parker, and Tony Fadell, among others—have harshly criticized the social harm imposed by the digital giants. Marc Benioff, the C.E.O. of Salesforce.com—echoing similar sentiments expressed by Berners-Lee—has said, “The government is going to have to be involved. You do it exactly the same way you regulated the cigarette industry.”

Cries for regulating the digital giants are almost as loud today as they were to break up Microsoft in the late nineties. Congress insisted that Facebook’s Zuckerberg, not his minions, testify. The Federal Trade Commission is investigating Facebook’s manipulation of user data. Thirty-seven state attorneys general have joined a demand to learn how Facebook safeguards privacy. The European Union has imposed huge fines on Google and wants to inspect Google’s crown jewels—its search algorithms—claiming that Google’s search results are skewed to favor their own sites. The E.U.’s twenty-eight countries this May imposed a General Data Protection Regulation to protect the privacy of users, requiring that citizens must choose to opt in before companies can horde their data.

Here’s where advertisers and the digital giants lock arms: they speak with one voice in opposing opt-in legislation, which would deny access to data without the permission of users. If consumers wish to deny advertisers access to their cookies—their data—they agree: the consumer must voluntarily opt out, meaning they must endure a cumbersome and confusing series of online steps. Amid the furor about Facebook and Google, remember these twinned and rarely acknowledged truisms: more data probably equals less privacy, while more privacy equals less advertising revenue. Thus, those who rely on advertising have business reasons to remain tone-deaf to privacy concerns.

Those reliant on advertising know: the disruption that earlier slammed the music, newspaper, magazine, taxi, and retail industries now upends advertising. Agencies are being challenged by a host of competitive frenemies: by consulting and public-relations companies that have jumped into their business; by platform customers like Google and Facebook but also the Times, NBC, and Buzzfeed, that now double as ad agencies and talk directly to their clients; by clients that increasingly perform advertising functions in-house.

But the foremost frenemy is the public, which poses an existential threat not just to agencies but to Facebook and the ad revenues on which most media rely. Citizens protest annoying, interruptive advertising, particularly on their mobile phones—a device as personal as a purse or wallet. An estimated twenty per cent of Americans, and one-third of Western Europeans, employ ad-blocker software. More than half of those who record programs on their DVRs choose to skip the ads. Netflix and Amazon, among others, have accustomed viewers to watch what they want when they want, without commercial interruption.

Understandably, those dependent on ad dollars quake. The advertising and marketing world scrambles for new ways to reach consumers. Big Data, they believe, promises ways they might better communicate with annoyed consumers—maybe unlock ways that ads can be embraced as a useful individual service rather than as an interruption. If Big Data’s use is circumscribed to protect privacy, the advertising business will suffer. In this core conviction, at least, Mad Men and Math Men are alike.

This piece is partially adapted from Auletta’s forthcoming book, “Frenemies: The Epic Disruption of the Ad Business (and Everything Else).”

 

I would guess that the ad business will be disrupted further as we find new ways to connect consumers with what they want. This will reduce the power of the Math Men at centralized network servers.

I also suspect search will become a regulated public utility. A free society cannot tolerate one or two private corporations controlling all the information data that flows through its networks.

 

From Disruption to Dystopia

Very interesting article by Joel Kotkin, who researches the economics and politics of cities. It portrays a future that resembles feudalism more than free market democratic capitalism. I’d optimistically venture there will eventually be a more humanist backlash against the future dominance of technology.

From Disruption to Dystopia: Silicon Valley Envisions the City of the Future

The unaffordable Bay Area, Google’s new neighborhood ‘built from the internet up,’ and China’s police state each offer glimpses of what the tech giants plan to sell the rest of us.

by Joel Kotkin

The tech oligarchs who already dominate our culture and commerce, manipulate our moods, and shape the behaviors of our children while accumulating capital at a rate unprecedented in at least a century want to fashion our urban future in a way that dramatically extends the reach of the surveillance state already evident in airports and on our phones.

The drive to redesign our cities, however, is not really the end of the agenda of those who Aldous Huxley described as the top of the “scientific caste system.” The oligarchy has also worked to make our homes, our personal space, “connected” to their monitoring and money machines. This may be a multibillion-dollar market soon, but many who have employed such devices at home—appliances that track our activities and speak to us like loyal servants—find them “creepy,” as they should, given that their daily activities are fed back to enrich the high-tech hive mind. Both the city and house the future may owe more to Brave New World than Better Homes and Gardens.

This is a vision of the urban future in which the tech companies’ own workers and whatever other people with skills the machines haven’t yet replaced are a new class of urban serfs living in small apartments, along with a much larger class of dependent persons living on “income maintenance” and housing or housing subsidies provided by the state. “Bees exist on Earth to pollinate flowers, and maybe humans are here to build the machines,” observes professor Andrew Hudson-Smith, from University College London’s Centre for Advanced Spatial Analysis. “The city will be one big joined-up urban machine, and humans’ role on Earth will be done.”

Read more

The Death of Culture?

Designing a Sustainable Creative Ecosystem

Too Much information = The Death of Culture?

The major creative industries of music, photography, print, and video have all been disrupted by digital technology. We know this. As Chris Anderson has argued in his book Free, the cost of digital content has been driven towards zero. How could this be a bad thing? Well, TMI (Too Much Information — in this case, Too Much Content) is the curse of the Digital Age. It means creators make no money and audiences can’t find quality content amidst all the noise.

The end result will be a staleness of content and stagnant creative markets, i.e., the slow death of culture. So, how did this happen and what do we do about it?

View the rest of the story on Medium.

Streaming Content and Trickling $$$

 

How Much Does YouTube Pay? We Asked Nicki Jaine of Revue Noir.

Nicki Jaine of Revue Noir

My Song Got 1.254 Million Views on YouTube. I Got Paid $42.56  [Link]

How much does YouTube really pay?  A top executive at the company claims a $3 CPM.  But most of the royalty payments shared with Digital Music News are a tiny fraction of that.

We want to believe YouTube executive Lyor Cohen when he says YouTube pays a $3 CPM to artists.  The only problem is that there’s zero evidence to support his claims.

And lots of evidence that artists are earning an infinitesimal fraction of that amount.

The latest proof comes from Nicki Jaine, one half of the duo Revue Noir.  That group is signed to Projekt, who shared the royalty breakdown with Digital Music News.

(Quick aside: in online advertising land, ‘CPM’ stands for ‘cost per thousand’.  It’s a calculation of how much gets paid for every 1,000 views.  So, a ‘$3 CPM’ means you get paid $3 every 1,000 plays.  That is, assuming those 1,000 plays had ads on them, which is another story entirely.)

Here’s a quick snapshot of those royalty payments from various streaming services.  Keep in mind that these copyrights are 100% controlled, meaning that all publishing and all recording royalties are reflected in this breakdown.

As you can see, a lion’s share of Revue Noir’s payments are coming from free, ad-supported YouTube plays.

Despite 1,254,626 streams on the free platform, Revue Noir only earned $42.56.

Other streaming platforms are clearly paying better, but this group’s largest audience is on YouTube.  Strangely, YouTube Red’s payments are far higher, but barely anyone is paying for Red.  (The premium service was initially called ‘Music Key,’ and apparently not updated in this royalty statement).

Other platforms like Rhapsody, Tidal, and Spotify pay far better.  But the group hasn’t been able to secure favorable playlist inclusion or amass a serious audience on those platforms.  At least not yet.  So it basically sucks to be them right now.

As a result, the group earned about $130 in total from nearly 1.3 million streaming plays.

In terms of the YouTube CPM calculation, that boils down to a 3.34 cent CPM.  Which is about 1/88th the $3 CPM claimed by executives like Lyor Cohen.

Projekt CEO Sam Rosenthal is obviously disappointed with this result.  “Spotify has 1.3% of the plays of YouTube, and yet it generates 40% more money,” Rosenthal told DMN.

“Well — that’s shitty!”

Rosenthal was also careful to clarify that this is a 100% copyright-owned composition.  Meaning, all the revenues are reflected in this statement.

“And because somebody will say, ‘Oh, that’s because the label is screwing the artist out of their fair share’:

(1) I am the label
(2) The numbers above are the raw data from my digital distributor, before anyone takes their cut!”

The sad payout is even worse than a detailed breakdown we received in August.  That YouTube statement showed an artist making 1/50th the rate claimed by YouTube and Cohen.

All of which is seriously eroding the credibility of executives like Cohen, and YouTube more broadly.

Unsurprisingly, the music industry is strategizing ways to minimize YouTube’s power over artists.

Just recently, Republic Records-signed rapper Post Malone decided to withhold his latest single from the video platform.  Instead, Malone uploaded a looping chorus of his track ‘rockstar,’ while directing fans to check out the full song on other platforms.

Malone’s little idea worked.  So far, the song has more than 50 million plays on YouTube — and more than 150 million on Spotify.  Other platforms like Apple Music were also prominently featured as redirect options, leading to millions in diverted royalties.

Post Malone is easily one of the biggest rappers in the world right now.  That makes this a noteworthy experiment, and one that could start a trend among other artists eager to divert fans to better-paying platforms.

Separately, a number of companies are also assisting artists to realize revenues elsewhere.  That includes upstarts like Flattr, Songtradr, and Patreon, all of whom are focusing on dramatically improving artist incomes.

[Blogger’s Note: The exact same thing is happening with Kindle authors on Amazon who enroll their ebooks in the Kindle Online Lending Library. Subscriptions accumulate to Amazon, royalties trickle to authors.]

Reining in Technology

From Simon Jenkins in The Guardian:

I assume that nations will one day revolt against the commercial banditry of the internet companies. Governments will find the guts to expel, jam or fine them when they misbehave. I assume that the curse of online anonymity will end, and users of the internet will have to register their identities. Search engines still pretend to be “platforms not publishers” – or, as others put it, sewers not sewage.

But just as the idea of Uber and Airbnb not being “real” service providers is crumbling, so is the idea of Google and Facebook as not “real” publishers, and thus not responsible for any damage done by their content. We await the first class action suit for a Facebook-induced suicide.

The worms are turning. Schools in Silicon Valley have taken to banning digital devices from their premises. Hi-tech parents know what harm too much screen time can do to their children. In addition, David Sax’s Revenge of Analog declares that the revolt of “real” is at hand. As we pass “peak stuff”, the post-digital economy will be about “play”, not objects.

 

This is the trend tuka anticipates and hopes to serve. Technology is a tool to serve human needs, not the other way around. Create-Share-Connect!

Vampire Squids?

 

likenolike

I would say this essay by Franklin Foer is a bit alarmist, though his book is worth reading and taking to heart. We are gradually becoming aware of the value of our personal data and I expect consumers will soon figure out how to demand a fair share of that value, else they will withdraw.

Technology is most often disrupted by newer technology that better serves the needs of users. For Web 2.0 business models, our free data is their lifeblood and soon we may be able to cut them off. Many hope that’s where Web 3.0 is going.

tuka is a technology model that seeks to do exactly that for creative content providers, their audiences, and promoter/fans.

How Silicon Valley is erasing your individuality

Washington Post, September 8, 2017

 

Franklin Foer is author of “World Without Mind: The Existential Threat of Big Tech,” from which this essay is adapted.

Until recently, it was easy to define our most widely known corporations. Any third-grader could describe their essence. Exxon sells gas; McDonald’s makes hamburgers; Walmart is a place to buy stuff. This is no longer so. Today’s ascendant monopolies aspire to encompass all of existence. Google derives from googol, a number (1 followed by 100 zeros) that mathematicians use as shorthand for unimaginably large quantities. Larry Page and Sergey Brin founded Google with the mission of organizing all knowledge, but that proved too narrow. They now aim to build driverless cars, manufacture phones and conquer death. Amazon, which once called itself “the everything store,” now produces television shows, owns Whole Foods and powers the cloud. The architect of this firm, Jeff Bezos, even owns this newspaper.

Along with Facebook, Microsoft and Apple, these companies are in a race to become our “personal assistant.” They want to wake us in the morning, have their artificial intelligence software guide us through our days and never quite leave our sides. They aspire to become the repository for precious and private items, our calendars and contacts, our photos and documents. They intend for us to turn unthinkingly to them for information and entertainment while they catalogue our intentions and aversions. Google Glass and the Apple Watch prefigure the day when these companies implant their artificial intelligence in our bodies. Brin has mused, “Perhaps in the future, we can attach a little version of Google that you just plug into your brain.”

More than any previous coterie of corporations, the tech monopolies aspire to mold humanity into their desired image of it. They think they have the opportunity to complete the long merger between man and machine — to redirect the trajectory of human evolution. How do I know this? In annual addresses and town hall meetings, the founding fathers of these companies often make big, bold pronouncements about human nature — a view that they intend for the rest of us to adhere to. Page thinks the human body amounts to a basic piece of code: “Your program algorithms aren’t that complicated,” he says. And if humans function like computers, why not hasten the day we become fully cyborg?

To take another grand theory, Facebook chief Mark Zuckerberg has exclaimed his desire to liberate humanity from phoniness, to end the dishonesty of secrets. “The days of you having a different image for your work friends or co-workers and for the other people you know are probably coming to an end pretty quickly,” he has said. “Having two identities for yourself is an example of a lack of integrity.” Of course, that’s both an expression of idealism and an elaborate justification for Facebook’s business model.

There’s an oft-used shorthand for the technologist’s view of the world. It is assumed that libertarianism dominates Silicon Valley, and that isn’t wholly wrong. High-profile devotees of Ayn Rand can be found there. But if you listen hard to the titans of tech, it’s clear that their worldview is something much closer to the opposite of a libertarian’s veneration of the heroic, solitary individual. The big tech companies think we’re fundamentally social beings, born to collective existence. They invest their faith in the network, the wisdom of crowds, collaboration. They harbor a deep desire for the atomistic world to be made whole. (“Facebook stands for bringing us closer together and building a global community,” Zuckerberg wrote in one of his many manifestos.) By stitching the world together, they can cure its ills.

Rhetorically, the tech companies gesture toward individuality — to the empowerment of the “user” — but their worldview rolls over it. Even the ubiquitous invocation of users is telling: a passive, bureaucratic description of us. The big tech companies (the Europeans have lumped them together as GAFA: Google, Apple, Facebook, Amazon) are shredding the principles that protect individuality. Their devices and sites have collapsed privacy; they disrespect the value of authorship, with their hostility toward intellectual property. In the realm of economics, they justify monopoly by suggesting that competition merely distracts from the important problems like erasing language barriers and building artificial brains. Companies should “transcend the daily brute struggle for survival,” as Facebook investor Peter Thiel has put it.

When it comes to the most central tenet of individualism — free will — the tech companies have a different way. They hope to automate the choices, both large and small, we make as we float through the day. It’s their algorithms that suggest the news we read, the goods we buy, the paths we travel, the friends we invite into our circles. [Blogger Note: As computers can’t write music like humans, algorithms cannot really define tastes. Our sensibilities are excited by serendipity, innovation, and surprise.]

It’s hard not to marvel at these companies and their inventions, which often make life infinitely easier. But we’ve spent too long marveling. The time has arrived to consider the consequences of these monopolies, to reassert our role in determining the human path. Once we cross certain thresholds — once we remake institutions such as media and publishing, once we abandon privacy — there’s no turning back, no restoring our lost individuality.

***

Over the generations, we’ve been through revolutions like this before. Many years ago, we delighted in the wonders of TV dinners and the other newfangled foods that suddenly filled our kitchens: slices of cheese encased in plastic, oozing pizzas that emerged from a crust of ice, bags of crunchy tater tots. In the history of man, these seemed like breakthrough innovations. Time-consuming tasks — shopping for ingredients, tediously preparing a recipe and tackling a trail of pots and pans — were suddenly and miraculously consigned to history.

The revolution in cuisine wasn’t just enthralling. It was transformational. New products embedded themselves deeply in everyday life, so much so that it took decades for us to understand the price we paid for their convenience, efficiency and abundance. Processed foods were feats of engineering, all right — but they were engineered to make us fat. Their delectable taste required massive quantities of sodium and sizable stockpiles of sugar, which happened to reset our palates and made it harder to satehunger. It took vast quantities of meat and corn to fabricate these dishes, and a spike in demand remade American agriculture at a terrible environmental cost. A whole new system of industrial farming emerged, with penny-conscious conglomerates cramming chickens into feces-covered pens and stuffing them full of antibiotics. By the time we came to understand the consequences of our revised patterns of consumption, the damage had been done to our waistlines, longevity, souls and planet.

Something like the midcentury food revolution is now reordering the production and consumption of knowledge. Our intellectual habits are being scrambled by the dominant firms. Giant tech companies have become the most powerful gatekeepers the world has ever known. Google helps us sort the Internet, by providing a sense of hierarchy to information; Facebook uses its algorithms and its intricate understanding of our social circles to filter the news we encounter; Amazon bestrides book publishing with its overwhelming hold on that market.

Such dominance endows these companies with the ability to remake the markets they control. As with the food giants, the big tech companies have given rise to a new science that aims to construct products that pander to their consumers. Unlike the market research and television ratings of the past, the tech companies have a bottomless collection of data, acquired as they track our travels across the Web, storing every shard about our habits in the hope that they may prove useful. They have compiled an intimate portrait of the psyche of each user — a portrait that they hope to exploit to seduce us into a compulsive spree of binge clicking and watching. And it works: On average, each Facebook user spends one-sixteenth of their day on the site.

In the realm of knowledge, monopoly and conformism are inseparable perils. The danger is that these firms will inadvertently use their dominance to squash diversity of opinion and taste. Concentration is followed by homogenization. As news media outlets have come to depend heavily on Facebook and Google for traffic — and therefore revenue — they have rushed to produce articles that will flourish on those platforms. This leads to a duplication of the news like never before, with scores of sites across the Internet piling onto the same daily outrage. It’s why a picture of a mysteriously colored dress generated endless articles, why seemingly every site recaps “Game of Thrones.” Each contribution to the genre adds little, except clicks. Old media had a pack mentality, too, but the Internet promised something much different. And the prevalence of so much data makes the temptation to pander even greater.

This is true of politics. Our era is defined by polarization, warring ideological gangs that yield no ground. Division, however, isn’t the root cause of our unworkable system. There are many causes, but a primary problem is conformism. Facebook has nurtured two hive minds, each residing in an informational ecosystem that yields head-nodding agreement and penalizes dissenting views. This is the phenomenon that the entrepreneur and author Eli Pariser famously termed the “Filter Bubble” — how Facebook mines our data to keep giving us the news and information we crave, creating a feedback loop that pushes us deeper and deeper into our own amen corners.

As the 2016 presidential election so graphically illustrated, a hive mind is an intellectually incapacitated one, with diminishing ability to tell fact from fiction, with an unshakable bias toward party line. The Russians understood this, which is why they invested so successfully in spreading dubious agitprop via Facebook. And it’s why a raft of companies sprouted — Occupy Democrats, the Angry Patriot, Being Liberal — to get rich off the Filter Bubble and to exploit our susceptibility to the lowest-quality news, if you can call it that.

Facebook represents a dangerous deviation in media history. Once upon a time, elites proudly viewed themselves as gatekeepers. They could be sycophantic to power and snobbish, but they also felt duty-bound to elevate the standards of society and readers. Executives of Silicon Valley regard gatekeeping as the stodgy enemy of innovation — they see themselves as more neutral, scientific and responsive to the market than the elites they replaced — a perspective that obscures their own power and responsibilities. So instead of shaping public opinion, they exploit the public’s worst tendencies, its tribalism and paranoia.

***

During this century, we largely have treated Silicon Valley as a force beyond our control. A broad consensus held that lead-footed government could never keep pace with the dynamism of technology. By the time government acted against a tech monopoly, a kid in a garage would have already concocted some innovation to upend the market. Or, as Google’s Eric Schmidt, put it, “Competition is one click away.” A nostrum that suggested that the very structure of the Internet defied our historic concern for monopoly.

As individuals, we have similarly accepted the omnipresence of the big tech companies as a fait accompli. We’ve enjoyed their free products and next-day delivery with only a nagging sense that we may be surrendering something important. Such blitheness can no longer be sustained. Privacy won’t survive the present trajectory of technology — and with the sense of being perpetually watched, humans will behave more cautiously, less subversively. Our ideas about the competitive marketplace are at risk. With a decreasing prospect of toppling the giants, entrepreneurs won’t bother to risk starting new firms, a primary source of jobs and innovation. And the proliferation of falsehoods and conspiracies through social media, the dissipation of our common basis for fact, is creating conditions ripe for authoritarianism. Over time, the long merger of man and machine has worked out pretty well for man. But we’re drifting into a new era, when that merger threatens the individual. We’re drifting toward monopoly, conformism, their machines. Perhaps it’s time we steer our course.

Digital Monopoly

Digital platforms force a rethink in competition theory

 

Economists need to provide regulators with tools to deal with market concentration

by: Diane Coyle, FT.com

Anxiety about the health of competition in the US economy — and elsewhere — is growing. The concern may be well founded but taking forceful action will require economists to provide some practical ways of proving and measuring the harm caused by increasing market power in the digital economy.

The forces driving concentration do not affect the US alone. In all digital markets, the cost structure of high upfront costs and low additional or marginal costs means there are large economies of scale. The broad impact of digital technology has been to increase the scope of the markets many businesses can hope to reach.

How will investment in physical networks or content get funded if an incumbent using the network and content captures all the profit downstream?

In pre-digital days, the question an economist would ask is whether the efficiencies gained by big or merging companies would be passed on to consumers in the form of lower prices. Another key question was whether it would still be possible for new entrants to break into the market.

Digital platforms make these questions harder to answer.

Read more… (Paywall – see comment below)

Digital Futures

Here are four NYT opinion articles written by or about Jaron Lanier, who has been on the forefront of digital culture for at least the past 25 years. He presents much of the challenges and failures of technology when it butts up against humanism. The last two are reviews of his book, Who Owns the Future?  Definitely worth a read.

Fixing the Digital Economy

Digital Passivity

Will Digital Networks Ruin Us?

Fighting Words Against Big Data