The Disconnect Between Love and Profits: A Pandora Story

This weekend I came across a Business Insider article that described why buying Pandora stock doesn’t make financial sense. The key takeaways? More listeners are using Pandora on mobile, which in turn hurts ad rates, Pandora won’t be making much money on ads anyway, and the costs of paying music royalties are getting higher and are eating away half of Pandora’s revenue. The outlook is bleak and as music label royalty rates increase through 2015, and possibly beyond, one can only imagine the difficulties lying ahead for Pandora to turn a profit.

As Hypebot pointed out in a recent post, analyst Rich Greenfield of BTIG had some sobering remarks regarding the impending Pandora IPO:

“As consumers we love Pandora. It is free, incredibly easy-to-use, works across a growing array of platforms in/out-of-home, and has a de minimis amount of advertising compared to terrestrial radio…Investing in Pandora is a whole different story. While Pandora is creating a large active user base, its reach/frequency continues to pale in comparison to terrestrial radio, as does its profitability….We recommend investors do not participate in the Pandora IPO.”

Ouch! With every article I come across, people question the future of Pandora and its ability for financial success. They almost went under in 2007 and we don’t know what’s in store in the coming years. While there is still the possibility that Pandora finds its way into more devices and even into every new car, there are no guarantees that Pandora will be able to penetrate the market to the extent it needs in order to become a profiting juggernaut.

This disconnect between the love people have for the product and its ability to monetize is a problem faced by many digital companies in recent years. Facebook struck gold with their ad platform and other strictly online sites have been able to succeed off a freemium model (meaning free for most users with the premium, paid accounts carrying the financial burden for the rest). Unfortunately for Pandora, not enough users are willing to pay $36 per year for a premium account to make the freemium model work on a large scale.

For many digital companies, if you build a compelling enough product then you can expect a small but meaningful percentage of your users to pay to use it. By allowing people to try it your product for free and only upgrade if they want premium features, you can build a large enough userbase while still getting enough loyal subscribers on the premium side. With Pandora, on the other hand, the users tend to be listeners who are passively listening rather than engaging in multiple ways (as you would find on other more social sites). Most listeners expect music to be free and don’t gain much utility from the product otherwise, so it’s harder to get them to pay when they can look elsewhere for music (Grooveshark, Spotify, etc.).

The lesson from all of this: no matter how many people love and use your product, you don’t have a guaranteed road to financial success unless you can find a model that works for both the company and its users. With Pandora fighting an uphill battle against increasing royalties and content costs, the future remains shaky. Until then, many will probably hold off on purchasing Pandora’s stock when IPO time rolls around. Of course in a hot market like we’re in right now, many won’t be able to resist.


AC/DC Shuns Online Downloading (At a Cost)

Sky News recently posted an article explaining AC/DC’s firm stance on online downloading and how the legendary rock group would never allow their songs to be available for download.

Says guitarist Angus Young:

"I know the Beatles have changed but we’re going to carry on like that... For us it’s the best way. We are a band who started off with albums and that’s how we’ve always been… We always were a band that if you heard something (by AC/DC) on the radio, well, that’s only three minutes. Usually the best tracks were on the albums."

It’s interesting to note that AC/DC’s stance on making music available for download is based on the idea that they want their listeners to hear the album all the way through from beginning to end. While this makes perfect sense if you’re listening to Pink Floyd’s Dark Side of the Moon, a concept album, or any progressive rock band, AC/DC’s music strikes me more as the short rock single that makes for a perfect radio spot.

Either this hard-line position on legal online downloading signifies a severe lack of economic judgment and willful ignorance to the way the music world currently operates or it represents a principle that the band wants to keep at any cost. Prince claimed that “the Internet’s completely over” in what appeared to be a streak of sheer stupidity. AC/DC, on the other hand, might be less afraid of technology and are just purists when it comes to the consumption of their music. Obviously they know that many people will just download their music illegal anyway, but they prefer to remain steadfast nonetheless out of respect for themselves and the music they created.

On the other hand, I think an artist should pick their battles and this doesn’t seem like a battle that needs to be fought. People who buy AC/DC albums the conventional way, in a store or online and in CD form, will often listen to the music on a track-by-track basis with no adherence to song order or album flow. For something as commonplace as an iTunes store or other online download location, AC/DC could be raking in a lot more money while providing their fans and would-be fans a convenient way to consume their music without resorting to illegal measures. At the very least, that appears to be the courteous thing to do in the current music industry climate and in a time where everyone carries around their iPod or smartphone to download and listen to music.


Earn $8 For 250K Plays on YouTube

Ever wonder how much ad revenue you can make by going viral on YouTube? Well the actual stats are disappointing, to say the least. As Digital Music News revealed, you’re not going to strike it rich by reaching a million views on YouTube. David Renzer, chairman & CEO of Universal Music Group Publishing, stated at the forum held by the Association of Independent Music Publishing (AIMP):

"For every 250,000 streams on YouTube, that is the equivalent of one credit of ASCAP performing rights value. One credit is less than $8, it's about $7.60. You do that math and it's pretty depressing, but that's the world we live in today, and it's causing a lot of consternation and a lot of discussion amongst the industry."  

Between licensing and other ad revenue sharing plans, even bigger name artists will have a tough time monetizing YouTube videos. For most, it seems like the goal now is more about gaining exposure through YouTube than actually using it as a platform for making big bucks.

Even Rebecca Black, who has a billboard in Hollywood to celebrate her 100+ million YouTube views, is not a millionaire from her recent stroke of viral success. The 100+ million views will get her about $60,000 in ad revenue, but the majority of the money will come from iTunes and other digital sales.

Unless you’re Lady Gaga, Eminem, Justin Bieber, or the new Internet meme ala Rebecca Black, use YouTube as your promotional tool and not your get-rich-quick scheme.

Don't Hold It Against Me – But Product Placement Will Not Save the Music Industry

Product Placement

Credit to Kyle Bylin of MusicThinkTank and Hypebot for the clever new title (who doesn't like some good word play?).

The new Britney Spears video for ‘Hold It Against Me’ got me thinking about product placement and monetization possibilities for the music industry. The video has overt references to Britney’s fragrance Radiance, Makeup Forever, Sony, and the online dating site PlentyOfFish. I have no idea how much it costs to get into a video that will most likely garner tens of millions of views over time, but I can imagine it is not insignificant (UPDATE: it's $500K, not insignificant by any means). Britney Spears isn’t the only one to include product placement in videos either—Lady Gaga didn’t shy away from video advertising in Telephone and even some rock musicians are starting to go with the trend to make up for lackluster CD sales. Clearly it’s becoming a staple of the music industry just as it has been in television for a long time. I always enjoy a good product placement bit on 30 Rock.

As Youtube increases video traffic more and more by the day, you can expect product placement to become more prevalent in the music industry and to start getting money from all those eyeballs that never seem to look down at their own wallets to fork over the dough. While advertising and product placement will help some get a few extra dollars for the stars, it won’t save the rest of the music industry from starvation.

Unlike Google Adsense or other advertising opportunities offered to people with only a small number of hits on their videos, product placement requires a calculated inclusion of an object in a video—something clear enough to get the message across without seeming too obtrusive to the actual content (the degree to which that is possible is subject to argument). The smaller artists who won’t be able to negotiate product placements with a  brand’s sales team simply won’t be able to incorporate products in their videos for small amounts of money. An efficient marketplace for product placement in music videos just isn’t feasible at this point (note: if such a marketplace exists and I’m just ignorant, please email me at and I will eat my words).

Even if product placement was possible for the more middle-class artists, that doesn’t mean it actually makes sense in a video’s context. Some artists would consider product placement to be selling-out and others would not be able to incorporate it into the style of video they produce. Could you imagine a Tool video with product placement?

No matter how much it makes me cringe, I can deal with product placement in pop music videos to the extent I can deal with pop music itself—just a little bit. However, it’s not right for everyone and certainly won’t save the music industry. For now it’s just one small tool in the arsenal of big artists. It will not save the music industry or the record labels.


Defending Pop Music: The 8 Hour Challenge and The 4 Chord Song

Every so often, someone comes along and writes a song, makes a witty t-shirt, records a video, writes an article, or uses some other medium to poke fun at pop music and how simple it is to write a hit song.

“All you need to know is four chords to write a hit song!”

“Pop music is formulaic!”

“Pop stars don’t even write their own music.”

Many of these assumptions are completely true, and I can’t even begin to name all the horrible pop music out there. Nevertheless, I’d like to argue that pop music gets a bad rap sometimes. There is plenty of music in any genre that doesn’t make the cut as “listenable”. With pop music, however, some of it ends up floating around on the airwaves so it’s a little more visible for the 15 minutes it gets on our nerves.

A couple more comedic videos make light of the straight-forward structure of pop songs.

You can make a hit pop song in eight hours, apparently:

Does every pop song use the same four chords?:

For all the people who decry the popularity of some of the more simple hit songs on the Billboard charts and iTunes Top 10, I sympathize. I too see the beauty in the technicality of progressive metal, the musicianship and melody of jazz, and the soul in a blues guitar lick. But in pop music, there is something that separates a song that is a hit for a month with a song that stands the test of time as a pop classic (no matter how cheesy it is). There is an elusive catchiness that is often missing in the genres that many artistic folks consider more reputable or refined.

If you can make something appealing to the masses with just four chords, you’re doing something special to those four chords that someone else couldn’t do with the same resources at their disposal. Sometimes pop stars who already have had a hit song get by with another hit that is mediocre at best, but their careers don’t usually last long.

Abba, Michael Jackson, Britney Spears, and other pop sensations are remembered because they transcended the typical duration for a pop career. Why? Because sometimes a persona mixed with just the right hook, over and over again, is just enough for us to keep coming back for more.


The Future of Electronic Music, DJ’ing, and the Immersive Concert Experience

This blog, more like a stream of consciousness, is an attempt to bring out the futurist in me. It is fun to speculate as to how the music experience can be a collaborative one, especially since deejay culture and music often invokes almost tribal-like sentiments.

Technology to sync songs, beats, and various tracks in a live setting is integral to the often seamless electronic music experience we enjoy at our local discotheques. Mashups and remixes are standard fare for your average house deejay who can put together the latest and hottest tracks in beautiful succession, with tight overlaps and timely bass drops.

I wonder when technology will get so advanced that the deejay is no longer the only one in on the craft. Imagine a concert experience where there is reciprocity between the deejay and the audience – while this already exists in some intangible sense through audience feedback and the deejay adjusting tracks accordingly, it would be a step further for the rhythms of the crowd  to be algorithmically calculated and fed back into the deejay’s equipment for further manipulation. Whether this is done through rhythm sensors or other technology, the room or environment itself would be able to calculate the intensity and motions of the crowd and feed the information back to the deejay to help provide music that would fit in unison with those dancing.

Usually it is the deejay who adjusts the rhythm and the crowd dances to the predetermined beat. In our little thought experiment though, once the general beat is established for a given track, the room would then pick up the nuances taking place on the dance floor and then help to mold the music to the specific circumstances at that moment. If a person in the crowd shouts, maybe the room picks up on it and throws out an effect or noise that would not normally be there. When many people start jumping up and down at a more bouncy section of the song, then maybe the bass increases its focus on a given frequency and really pounds at the speakers. A deejay could manually react in a similar way, but one person would not be able to keep up with the number of calculations a computer could automate in real-time and simultaneously across the entire environment.

To take this idea to another level, we could incorporate sensors throughout the music environment that have corresponding musical sounds. You lean against a wall or jump on the ground and then the force is measured and adds a musical embellishment synced to the beat of the song that is already playing. If a cluster of people form in one specific area of the room, the intensity of the sound is magnified in that area or there is an increased bass resonance filtered and targeted to that place in the room.

An environment that incorporates such advanced technology would be very expensive, but might also make for the most interesting club or concert environment one could immerse themselves in. A place where like-minded people dance the night away as if they too are on stage with the deejay. Check out the Emulator for Traktor Pro, arguably the coolest thing at the 2011 NAMM convention (according to popular house deejay Kaskade). The inspiration for more thinking on the future of electronic music and the live experience:

Why Artists Should Be Compensated for Their Work

While perusing the latest articles on Digital Music News, I came across a new article that discussed why artists should be compensated for their work. Executive director John Simon’s departure from SoundExchange brought up the question of artist compensation. His statement explained public sentiment in regards to artists today:

"I am very concerned about the apparent disrespect shown by many in our culture to those who pursue artistic endeavors… One recent survey showed a surprising number of Americans who believe that artists should have a second job to support themselves – as they should not expect to be paid for their art!  We must educate the public and eradicate these extremely destructive beliefs."  

I would like to bring up the old argument that claims that teachers should make just as much as professional athletes. People think teachers make a difference in other people’s lives and have a hard job, so they should be rewarded for their efforts – athletes, on the other hand, get to have an arguably fun career with many perks and a fat salary. Why should they be rewarded disproportionately?

The reasons athletes get (and even deserve) more is because only a select few make it to the upper echelons of sports stardom. People love watching sports and a small number, that is the best, are rewarded for their abilities, their hard work, and the industry they create around their jobs. The same is true for musicians, although one of the music industry’s primary business models is being destroyed by digital piracy. Therefore, fewer and fewer artists can make it to the elite class of well-paid musicians who are disproportionately compensated for their work. That does not seem fair to the many musicians with talent who are looking just to make a small living, not a seven-figure stipend.

Although my personal stance on the music industry might shift over time, I remember having a discussion about copyright with a former college friend in which I was arguing on the pro-copyright side. I argued that copyright was important to ensure artists get what they deserve, partly because I knew how hard artists worked to create their art. I wanted my favorite artists to spend all their waking hours worrying about their craft rather than worrying about paying rent by working at Walmart or Home Depot.

Regardless of the ethical questions surrounding the consumption of pirated music, I wonder if the quality of music will diminish over time because artists will be spending more time searching for money elsewhere than honing their performing and recording chops. I think it is too early to tell from a macro perspective – there is still good music coming out every day – but I am sure piracy has an effect on the length of a musician’s career as well as the ability to output music in the most effective way possible. The problems are already too pervasive…


Streaming Music Services and Your Privacy


A few days ago I covered a news story about a pending lawsuit against Apple and how some big name apps like Pandora sell personal user information to third party ad networks. Instead of just repeating the news story, I would like to analyze some of the ramifications that go along with using apps that contain your personal information and whether it is acceptable and necessary for app-makers to sell information in order to make the finances work out for their companies.

For music services specifically, it is hard to create a profitable business even if you are as big a name as Pandora. Former CEO and founder of Michael Robertson did a guest post on the popular tech blog TechCrunch in which he described Pandora’s financial situation for the 2010 year. One interesting tidbit, and possibly sobering piece of information, is that “the per user royalty rates Pandora has agreed to pay will go up 10% per year for the next 4 years,” making it tough for Pandora to hit and sustain breakeven or profitability in the coming years.

While I do not know all the financial particulars of all the various companies selling personal consumer information to third party ad networks, because there are many, I think it is safe to say that many of these companies need that extra money to help make their budget balance (or at least be less in the red). So the conclusion that consumers need to think about is whether their apps are worth the extra loss in privacy; that is to say, in order to keep their favorite services running, people have to give up a little bit on their end. We give up our privacy when we have our bags checked at the airport or we cross the border into another country, but this behind-closed-doors selling of our personal information is more subtle, and for some, it borders on nefarious.

Facebook ran into problems with their privacy policy and the same can happen with other services that carry data for a variety of consumer characteristics and preferences. Companies will claim that they are using your information irrespective of your name, but that does not mean they are not still using personal information without your explicit consent.

As consumers we can easily say we do not want our personal data compromised, but it is a whole other story when it comes down to sacrificing convenience and pleasure. If you took away all the capabilities of companies to store and use your information in ways they see fit, then it might also stop you from getting the best recommendations for products and services you are looking for – personalization would be much harder and you would have to go through a lot more legal hoops to set everything up as fast as you can now with your online networks.

Personally, I usually opt for convenience over privacy, but that is probably because I am not a very private person with specific things I want to keep hidden. However, some people in some circumstances have reasonable needs for privacy in everything they do online (even those not using the Internet for “sketchy” purposes). Just because I want my convenience – sometimes at the expense of my privacy – that does not mean others are not entitled to the full extent of their privacy. It is not a clear-cut case of right and wrong and in the future there will hopefully be more concrete opt-in and opt-out policies online to maintain consumer privacy and security.

So Is It Time to Ditch the Instruments?

A couple months ago a band by the name of Atomic Tom played their song “Take Me Out” live on the NYC subway using just their iPhones. The video went viral and the performance seemed like a fun use of tech gadgets. But is this just a novelty?

I’m going to go out on a limb and say music performed on gadgets will become the norm at some point. Maybe not in the next decade, but what about in the next century? The next 50 years? Twenty years? We already have electronic and dance music that strays from using conventional instruments, so now all we have to do is make the jump to playing all other types of music with electronic gadgets as well.

The new Gorillaz album was composed mostly using apps on the iPad—although they are not a normal four-piece rock group with a guitar, bass, and a person behind the kit, they are certainly more mainstream than many electronic artists that don’t use “normal” instruments. I don’t see why many other artists won’t follow suit with similar production styles, if they are not starting to do so already.

So what is currently stopping people from ditching the instruments? Well, the technology is still ways away from mimicking guitars and violins to perfection. Nothing can replace the sound of a real stringed instrument, although in a couple decades, who knows how good digital modeling technology will be. It will probably be pretty darn good.

There is also the heartfelt connection one has to their instrument that digital gadgets have a hard time competing with. However, just as consumers forgot their tradition of waiting outside of stores to buy a new record, they are also probably willing to forget about conventional instruments (over time).

Moore’s law says that the number of transistors that can be placed on an integrated circuit will double approximately every two years. Even if this law does not hold true forever, we experienced exponential progress in technology over the last several decades and will experience similar technological growth in the near future. Growth in technology means progress in electronic music potential. The technology will get better and slowly replace regular instrumentation, at least to some significant degree if not entirely.

More and more people will forego learning conventional instruments like the violin, piano, guitar, and bass because they can model those instruments using digital technology. With increasingly cheap recording software at the disposal of the average garage musician, most people will eventually have a band in their pocket ready-to-go and unconstrained by any sort of lack of daily practice. Maybe the moms and dads  of the future won’t be shouting at their kids to keep practicing ‘Für Elise,’ but instead their children will be learning how to sequence MIDI files and picking just the right reverb tail to make their Steinway grand piano modeler sound like its in Carnegie Hall.

Does Hardship and Depression Create Musicians or Kill Them?

The music blog at did a piece on musicians and depression, looking into the idea that musicians are more likely to experience depression than people in other professions. In fact, creative artists are actually fifth on the list of top 10 professions with high rates of depression. The question then turns to whether people inclined to depression are more drawn to music or the profession itself brings about depressive illness. One might also want to think about whether depression translates into the creation of more emotional and memorable music or whether it stifles creativity.

Let’s use the example of the homeless street musician Daniel “Homeless” Mustard to explore these questions. Daniel Mustard went on the Opie & Anthony Show and delivered an emotional performance of Radiohead’s “Creep” in a video that went on to receive 1.7 million views on Youtube. As Hypebot point outs, Mustard even scored a record deal off that performance. Although the story itself is very uplifting – being that Mustard was an alcoholic who went through his fair share of hardship – a second video and sneak peak of his EP debut does not seem to have the same sense of urgency or poignancy that the original Opie & Anthony performance had. There might have been a shift in Mustard’s performance based on his emotional state. One may argue that depression itself creates a void that later envelops itself into very heart-wrenching, but effective, songwriting or performing. Without those tough feelings, the music might take on a different form, for better or for worse.

The original blog post I mentioned argues that “the reality for the sufferer is that depression is so debilitating it’s impossible to create anything at all.” While depression can outright stop creativity in the average individual, for some it might be the dark impetus to musical exploration. I am not trying to encourage or romanticize the idea of depression in any way. Depression is an unfortunate and hopefully treatable illness in many cases. However, there is always the curiosity in music lovers of whether their idols would have created the same music had they not been depressed. Kurt Cobain is an obvious example of this given his drug addiction and clinical depression that ultimately led to his suicide. How did it affect the music? What would have Nirvana sounded like had Cobain embraced his stardom and enjoyed the limelight with all its perks? Maybe the music would have been worse or maybe he would have lived to create even better music – we’ll never know.

If nothing else, one should be aware of the potential hazards of a lifestyle that glorifies artists in a way that can encourage activities that lead to depression. Hopefully one artist’s hardships, expressed through music, can encourage others to seek help or make it through their own difficult times. If people who are more susceptible to depression are also more inclined to enter a creative field, then maybe that artistic profession can act as an outlet that helps to cure (or cope with) depression.