Almost two years ago, I wrote an article “The Broken Model of Music Streaming” that predicted the demise of iHeart Radio. Today the company filed for bankruptcy and it’s just the first of many DotCom 2 bubble bursts to come.
Here’s the article I posted in April 2016, prompted in fact by the death of Prince. Till then, I’d never formally streamed music online. Thing is, once there I couldn’t for the life of me work out why I wasn’t being charged even a cent for the ride?
As I soon fathomed it, the nutshell was this:
In business there is no such thing as “disruption”. There’s just corner-cutting. iHeart’s music-streaming business model in competition with mainstream music retail was premised on woefully diluting artists’ royalties and selling users’ metadata. Just as Uber’s is circumventing taxi regulation, Airbnb’s is loop-holing tenancy norms, and Airtasker’s is obviating trade certification (currently being addressed after recent media attention).
Unfortunately, models like these, the so-called “disruptors” of the Millennial Age like music streaming and social media, are simply quirks of the venture capital mind.
Remember Enron that said, “Ask why?” All along, as iHeart has finally learned today, the profit was always in the “how?” Here’s what I mean.
Dateline: April 22, 2016.
Here I sit listening to a Prince music tribute connected to a website called iHeart Radio streaming the artist’s entire hits catalogue to my computer’s stereo speakers. And I’ve yet to fork over a cent.
It’s free; my melancholy at the artist’s death yesterday is nowhere near assuaged—yet his estate hasn’t earned any revenue directly from me in this endeavor. And for that matter nor has anyone else.
I’ve been bombarded by a total of one 15-second ad on loading the website up, from a telecom company I don’t think much of and will never use. In the meantime, Prince is talking to me via interviews interspersed with his life’s work—and were I not mature enough to recognize it otherwise, my attitude to all this would be:
Why should I ever have to pay for this stuff in the first place? Life is free for the taking is it not?
I was told that iHeart is part of a “commercial radio network”. I was told that iHeart collects my interactions with the company when I call or deal directly with it. I was told that it keeps tabs on my computer’s model, browser’s version, and interactions with its website. I was also told that it keeps tabs on any information offered by me in promotions it runs that I’ve elected to be a part of.
Well you’re not wrong if you didn’t hear any cash registers ringing in all that. That first revelation alone spurred my greatest curiosity.
iHeart is associated with a number of “commercial” radio stations, whose normal purpose would be attracting listeners, tuning them in, swaying them by advertising (hence “commercial”), and like the good consumers they are making them buy stuff.
Oh, but that’s so passé in a world where supermarkets sell insurance, airlines sell cell plans, and cable TV companies sell cell phones. In all things Millennial, someone thought it a great idea to blend mainstream commerce with an Internet platform that takes customers out of the revenue stream altogether.
But we need to move from the realm of empirics into hardcore numbers to gauge the true veracity of this model.
What I’ve called “iHeart Radio” is in fact a subsidiary of a much larger international radio streaming conglomerate known as iHeartMedia Inc.
You wouldn’t know this unless you looked right at the bottom of the website’s footer for the About page gives you the impression that your streaming service is a local brew.
And according to Bloomberg Business, the corporation currently groans under USD $20 billion in debt. Said Bloomberg’s Lucas Shore and Laura Kellar:
IHeart’s sales have never fully recovered from a pre-recession high in 2007, the last time the company reported a profit. Since then, the company has lost between $219.5 million and $4 billion every year.
iHeart puts the bulk of its massive shortfall at interest burdens carried over from its USD $24 billion buyout by a consortium including Bain Capital back in 2008.
But how is iHeart servicing this debt? Nothing I’ve been able to garner online has given a clear answer.
I did, though, see claims by the company that it’s making “hundreds of millions” in revenue each year.
It’s just that when you try to pry open this story, you find that the bulk of revenue has not come from radio-streaming. Rather iHeart has a stake in various external advertising mediums in addition to ad sharing arrangements with mainstream media conglomerates like NBC.
In other words, as we’ve guessed, Prince’s free radio stream today is a cost drain rather than a profit center.
Thing is, what does this mean for musicians, like Prince, so streamed? Not oodles of cash either. In 2015 The Guardian put a labelled music artist’s earnings at $0.001128 per stream.
Rather, it’s the entrenchment of a new market belief that indeed, life is without restraint and unless instant gratification is found, nothing holds material value.
It’s a validation of selfishness that wins here.
It’s the same Catch 22 that the news print industry dug itself into: the mistaken belief that people don’t want to read anymore, ergo the reason why physical paper sales have declined.
Its remedy thus far has been a blind eye to online news aggregators (in the old days we’d call them pirates), the creation of free news websites under each paper’s banner, and job cuts: the rationale being that, “If we don’t provide what the masses want and for free, we’re gone for good.” Forget any analysis of the newspaper product itself with its dumbing down of content owing to a misplaced editorial groupthink that so off put readers in the first place.
So here I sit.
Prince is screaming “let’s go crazy” and I have no inclination whatsoever to go to a music store and buy a Prince CD nor hop over to iTunes and download one because I’m sated.
Nor for that matter, do I want to buy anything that iHeart dares to offer. Why? Well, I’m not looking at its website am I? I’m typing while its free music bops along in the background.
Music streaming is a massively flawed business model. As robust as Enron’s power supply. As risky as a subprime loan.
It’s a pure bubble-driven fad. And once it pops, it’s the music fan who’ll fall its ultimate victim, to yet another American pie.
© 2016 and 2018 Adam Parker. You’ve just read a Parkerpinion.
Main picture credit: Live music, New Orleans. Author’s photo.