Wednesday, November 24, 2010

Europe's Spotify & The Long Tail of the Music Industry

The Guardian {UK} is reporting that the European startup that legally streams music may launch in the US without the 4 major labels on board. Currently, Spotify has 10M users {see above image for the countries} and while streaming functions like radio, it offers the advantages of the web—metrics and trackability, which lead to data mining opportunities in Web 3.0.

While the record labels want to get paid for their content, where is the tipping point that forces them to ease restrictions in order to increase exposure of their artists—particularly those in relative obscurity, often defined at sales under 10,000 {see this TechDirt article for more on the long tail, obscurity, and sales}.

What I'm interested in is how can music in the long tail, i.e., bands on small labels and unsigned bands, leverage sites like Spotify and data mining in Web 3.0 to find their audiences—globally. The "theory" of the long tail is that there is a "head" of popular titles and a long "tail" of relatively unpopular ones. Typically, the head represents the titles that bricks and mortar retailers will stock, i.e., have enough inventory turnover to warrant stocking in stores.

image:: heads {hits} & tails {niche products}, Elberse {2008}

The long tail has its detractors, including Harvard's Anita Elberse, who in her 2008 HBR article found, using Rhapsody, Quickflix {Australia}, SoundScan, and VideoScan data::
"Although no one disputes the lengthening of the tail (clearly more obscure products are being made available for purchase every day), the tail is likely to be extremely flat and populated by titles that are mostly a diversion for consumers whose appetite for true blockbusters continues to grow."
I think it would be unfair to criticize her work and her recommendations to producers and retailers, as it examines the industry as social media was rising and while it may capture the dynamics of the industry of the mid-2000s, it may not be providing an accurate picture of what the long tail truly offers as technologies mature. Nevertheless, Elberse found that the demand for entertainment media isn't fattening, but flattening, with more demand for the hits and the tail populated with many, many unpopular titles. While this doesn't bode well::
"When I differentiate between artists on smaller, independent labels and those on major labels, I find that the former gain some market share at the tail end of the curve as a result of the shift to digital markets. However, that advantage quickly disappears as we move up the curve: A more significant trend is that independent artists have actually lost share among the more popular titles to superstar artists on the major labels. (These results hold when I control for the number and type of titles that artists brought to market.) Thus digital channels may be further strengthening the position of a select group of winners."
there are assumptions here that market share and sales are the holy grail. Losing share in digital channels may not necessarily be a bad thing for artists, producers, and retailers—costs and profits matter. Plus, music is increasingly the loss leader, as licensing, touring, and merch become increasingly important across the board.

So, what are the implications here for the long tail, particularly for indie and unsigned artists? Spotify, Grooveshark, and YouTube {social media, in general} are all tools in the arsenal of the indie artist—ways to help artists cut through the immense clutter of the Internet. Not everyone will be able to make a living this way, but it's an opportunity. I agree with Elberse that indie producers and artists need to keep the costs down {taking the Robert Rodriguez work ethic of getting the most out of every production buck}, but I suspect the future of music will be a handful of large companies handling the head {in terms of marketing and distribution} and a large cadre of smaller, nimble companies handling the tail. Data mining and resultant recommendation algorithms can be a huge gamechanger {See, e.g., screenshot from Last.FM of artists similar to Neko Case}. I'll concede that purchases of the popular titles will persist and sociologists would attribute this to status and legitimacy in the market, along with the Matthew effect {the rich get richer}. Nevertheless, with social media and recommendation algorithms, consumer purchases may shift towards artists that share characteristics of the stars, but have more cachet and an alternative status and legitimacy based upon perceptions of authenticity, i.e., more art, less commerce. 

While there could be consolidation to try to gain economies of scale in the tail, I'm not sure if it will be efficient to do so with large corporate enterprises handling literally dozens of regional and niche markets. It might be time to re-examine the history of Rough Trade, which may offer insights into developing collaborative arrangements or even marketing and distribution coöperatives for entertainment in the long tail. Rough Trade faltered when it couldn't scale operations to handle artists moving towards the "head", e.g., The Smiths in the mid-1980s.

Twitterversion:: [blog] Euro ♫ streaming site Spotify to launch in US w/out major 4 record labels. Implications 4 indie and the long tail? @Prof_K

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