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Un-Freaking-Believable! Spotify: We ‘Overpaid’ Songwriters And Their Publishers In 2018, And We Would Like Our Money Back 

Un-Freaking-Believable! Spotify: We ‘Overpaid’ Songwriters And Their Publishers In 2018, And We Would Like Our Money Back

Courtesy of Music Business Worldwide

If you hadn’t noticed, tensions between the music publishing community and Spotify have taken a turn for the sour in recent months. 

This all began in March when Spotify, alongside other music streaming operators like SiriusXM/Pandora, Google and Amazon, lodged an appeal against mandated pay rises for songwriters and publishers in the US.

The headline news about that pay rise, decided by the US Copyright Royalty Board, was that mechanical streaming payouts from the likes of Spotify would rise by 44% or more between 2018 and 2022. 

It turns out, however, that there was some additional and under-reported complexity to the CRB decision concerning Spotify’s student discount offers and its family plan bundles – which allow up to six family members to stream Premium Spotify for a single price of just $14.99 a month. 

“ACCORDING TO THE NEW CRB REGULATIONS, WE OVERPAID MOST PUBLISHERS IN 2018… RATHER THAN COLLECT THE 2018 OVERPAYMENT IMMEDIATELY, WE HAVE OFFERED TO EXTEND THE RECOUPMENT PERIOD THROUGH THE END OF 2019.” 

SPOTIFY SPOKESPERSON

Because of this additional complexity, Spotify has now calculated that, retrospectively, according to the CRB decision, many music publishers actually owe it money for 2018, due to an overpayment based on the prior rates. And guess what? It wants that money back. 

Spotify told the publishers the news this week and, as you can imagine, these companies – already up in arms over Spotify’s CRB appeal – are fuming about it. 

One senior figure in the music publishing industry told MBW: “Spotify is clawing back millions of dollars from publishers in the US based on the new CRB rates that favor the DSPs, while appealing the [wider CRB decision]. This puts some music publishers in a negative position. It’s unbelievable.” 

Spotify isn’t expecting the publishers to hand over the money that it’s owed right away; instead, this negative balance will be treated as an advance by the company, which will be recouped from its 2019 royalty payouts to publishers (and, by association, their songwriters).

“I FIND IT SO HYPOCRITICAL FOR A DIGITAL SERVICE THAT IS APPEALING THE CRB DECISION TO THEN TAKE ADVANTAGE OF THE PARTS OF THAT DECISION THAT BENEFIT IT. I GUESS WE SHOULDN’T BE SURPRISED.” 

DAVID ISRAELITE, NMPA

A spokesperson for Spotify told MBW today (June 21): “According to the new CRB regulations, we overpaid most publishers in 2018. While the appeal of the CRB decision is pending, the rates set by the CRB are current law, and we will abide by them –  not only for 2018, but also for future years in which the amount paid to publishers is set to increase significantly. 

“Rather than collect the 2018 overpayment immediately, we have offered to extend the recoupment period through the end of 2019 in order to minimize the impact of the adjustment on publishing companies.” 

David Israelite, the CEO of the National Music Publishers Association who has consistently and publicly decried Spotify’s CRB appeal, told MBW in response to Spotify’s request for reimbursement from the publishers: “I find it so hypocritical for a digital service that is appealing the CRB decision to then take advantage of the parts of that decision that benefit it. I guess we shouldn’t be surprised.” 

The CRB rules that the annual streaming royalty rate in the States between 2018 and 2022 will be determined by the highest outcome across one of three different models: (i) a percentage of a streaming company’s total revenue; (ii) a percentage of what that streaming service pays to record labels each year; and (iii)  a flat fee per subscriber in the US. 

Within the new CRB-approved regulations for streaming payouts, it says: “A Family Plan shall be treated as 1.5 subscribers per month, prorated in the case of a Family Plan Subscription in effect for only part of a calendar month. A Student Plan shall be treated as 0.50 subscribers per month, prorated in the case of a Student Plan End User who subscribed for only part of a calendar month.” 

The NMPA announced last week that the US music publishing industry generated a record $3.33bn in 2018, up 11.8% year-on-year, and up 55% when compared to 2014.

Spotify Invests $10M In Facebook's Libra Cryptocurrency  

Spotify Invests $10M In Facebook's Libra Cryptocurrency

Spotify has officially joined Facebook's new Libra global cryptocurrency initiative. Spotify stands out as the only music or media company among 28 A-list players ranging from Visa to Uber to Andreessen Horowitz that each invested $10 million. 

Here's of Techcrunch describes Libra: "Facebook wants to make Libra the evolution of PayPal. It’s hoping Libra will become simpler to set up, more ubiquitous as a payment method, more efficient with fewer fees, more accessible to the unbanked, more flexible thanks to developers, and more long-lasting through decentralization." 

All that delivered locally on a global scale and with bitcoin tracking built in, and you get some idea of what a massive project this is. 

Why Spotify? 

For Spotify, Libra offers a chance to more easily receive payments globally, including from the many outside the banking system.  Someday soon, Libra could facilitate payments to artists and rights holders, as well. 

Alex Norström, our Chief Premium Business Officer, explains: 

“One challenge for Spotify and its users around the world has been the lack of easily accessible payment systems – especially for those in financially underserved markets. This creates an enormous barrier to the bonds we work to foster between creators and their fans. In joining the Libra Association, there is an opportunity to better reach Spotify’s total addressable market, eliminate friction and enable payments in mass scale.”

GOLDMAN SACHS UPS INDUSTRY FORECAST – SAYS 1.15BN PEOPLE WILL PAY FOR MUSIC STREAMING BY 2030 

GOLDMAN SACHS UPS INDUSTRY FORECAST – SAYS 1.15BN PEOPLE WILL PAY FOR MUSIC STREAMING BY 2030

SEE Goldman Sachs' Music In The Air Report Here

Guest Post By BY TIM INGHAM

The last time Goldman Sachs issued a report on the recorded music industry, it caused a wave of fiscal confidence in and around the global business. 

The investment bank’s ‘Music In The Air’ dossier, from August 2017, forecast a booming future for record labels, and set in motion a series of escalating valuations for Universal Music Group which have since hit $50bn (in the case of JP Morgan). 

In that report, Goldman forecast that trade revenues from paid streaming would reach $28bn by the year 2030, with the overall recorded music industry pulling in a whopping $41bn in the same 12 months.

To put Goldman’s optimism in context: according to IFPI data, in 2018, the recorded music industry generated $19.1bn globally – of which 37% (circa $7bn) was derived from paid streaming services. 

Today (June 5), Goldman has issued an update to ‘Music In The Air’ – obtained by MBW – in which it raises its forecasts for the years ahead. 

Goldman now predicts that, by 2030, the global recorded music industry will be pulling in $45bn annually (up on a restated prior forecast of $44bn). 

It also believes that paid streaming will generate $27.5bn for labels and artists in that year (up on a restated prior forecast of $27.1bn), and that the overall annual global trade streaming revenues (including ad-funded) will reach $37.2bn.

Perhaps the most exciting prediction within Goldman’s figures, however, is its forecast for the number of paying music streaming subscribers around the world. 

The financial firm now believes that, in 2023, this stat will rise to 690m (up on a previous forecast of 528m) – more than double the number of users of paid music streaming accounts (255m) confirmed by the IFPI for 2018. 

Goldman further predicts that, in 2030, there will be 1.15bn paying streaming subscribers globally (up on a previous forecast of 901m). 

Within this 1.15bn number, Goldman believes that over two thirds of subscribers (68%) will come from ’emerging markets’, rather than ‘established markets’. 

Partly as a result of that growth in emerging markets, Goldman predicts that global annual ARPU (Average Revenue Per paying User) from music streaming services will continue to fall significantly, down from $32.70 in 2018 to $27.30 in 2023 and $24.60in 2030. 

It notes a current valuation for Universal Music Group of €25.1bn – €35.2bn (approx $28bn – $40bn). 

Goldman’s ‘Music In The Air’ update also predicts that, in 2030, Spotify will remain the global market leader in audio subscription streaming, with 32% market share of global streaming subscribers, down from the 38% it registered in 2018. 

The timing of Goldman’s new report is certainly good news for Universal Music Group owner Vivendi – which is looking to sell up to 50% of UMG this year. 

A recent report from Bloomberg suggested that UMG had held talks with Tencent over a potential deal, but that some in the investment community were growing impatient. 

It quoted one source as saying that “some private equity investors balk at the high price [of UMG] and slow pace of the deal”. 

Potential buyers for Universal Music Group mooted to date have included Tencent, Alibaba, KKR, Apple, Verizon, Amazon and Liberty Media.

Apple Reportedly Ending iTunes 

Apple Reportedly Ending iTunes

The file organization system you've been finding ways to work around for over a decade is about to be no more. According to a report from Bloomberg, Apple is hoping to phase out iTunes in the near future. Apple CEO Tim Cook is expected to announce the decision to move away from iTunes as part of a push away from the iPhone in coming years. 

Guest Post By Alex Galbraith

Unveiled in 2001, iTunes originally functioned as a music library and marketplace for iPods, iPhones, and Mac computers. As the company shifts its focus to other arms, the iTunes library will be replaced by separate desktop apps: Music, Podcasts and TV. iPhones and iPads already separate out libraries in this manner. 

The company's Worldwide Developers Conference is a closely watched event for fanboys and journalists. At this year's iteration, the company is also expected to announce greater freedom for their Apple Watch, which currently only works if it is connected to an iPhone. 

While the company is looking to roll out a new iPod soon, the move away from iTunes is probably a savvy business move given the recent raft of bad press attached to the brand. The company is currently being sued by users who allege that their iTunes data was sold to third parties who connected the data to personal information to sell to marketers. 

“None of the information pertaining to the music you purchase on your iPhone stays on your iPhone," the $5 million lawsuit alleged, per Billboard. “The data Apple discloses includes the full names and home addresses of its customers, together with the genres and, in some cases, the specific titles of digitally-recorded music that its customers have purchased via the iTunes Store and then stored in their devices.”

It's An Indie World After All  

It's An Indie World After All 

If there was still any doubt in your mind that you didn't need to be signed to a major label in order to succeed in the music industry, wonder no longer, as new data reveals just how much of market share indies have gained in recent years. 

Guest post by Bobby Owsinski of Music 3.0 

If you thought that you needed to sign with a major record label or publisher in order to have success, that’s no longer true and there’s a lot of data to prove it. No metric is more valuable in seeing this picture as market share. Indies have made great strides in this area in recent years and continue to do so. Let’s take a look: 

Record Label

Physical Product

Digital Product

Physical/Digital 

Universal

23.4%

32.4%

29.8% 

Sony

19.2%

20.2%

19.9 %

Warner

13.4%

17.7%

16.5%

Independents

44.0%

29.7%

33.8% 

The big takeaway here is how well the indies stack up against the majors. When it comes to physical product, the indies are way ahead, and when it comes to total product they are as well. 

Something similar happens with publishing. 

Record Label

2017

2018

Change

Sony

27.3%

26.0%

-1.3% 

Universal Publishing

19.5%

20.2%

0.7 %

Warner Chappell

12.0%

12.3%

0.3 %

Independents

41.2%

41.4%

0.2 %

Once again, the indies are way ahead of the major publishers and its’ not even close. 

This goes to show that everything in the music industry has been turned on its head. A decade ago and for nearly 100 years, the major labels and publishers dominated the industry. Today indies have a major share of the industry, and while no single company is as strong as a major (yet), they are as a group. 

Artists and songwriters are leery of major corporations in general, and that’s who run the major labels and publishers. They know that the majors have shareholder interests in mind more than theirs. It’s also now a safer bet to sign with a indie, since success is no longer a long shot by going down that path. 

The data was compiled by the Music & Copyright Blog.

21st Century Marketing 101: Reach is overrated  

21st Century Marketing 101: Reach is overrated

I received a timely email from Seth Godin this morning and want to share it with you. (No, Seth and I are not BFFs. I chose to be on his daily mailing list because, when it comes to marketing and a number of other topics, he "gets it!"

So I'm sharing Seth's brief words of wisdom. Enjoy!

Reach is overrated

From Seth Godin

It might be the biggest misconception in all of advertising. 

The Super Bowl has reach. 

Google has reach. 

Radio has reach. 

So? 

Why do you care if you can, for more money, reach more people? 

Why wouldn’t it make more sense to reach the right people instead? 

To pick an absurd example, you can use a giant radio telescope to beam messages to the billions or trillions of aliens that live in other solar systems. Worth it? 

I read an overview that pointed out that one of the cons of Amazon advertising was that they didn’t have the reach of Google. 

This is wrong in so many ways. 

Reach doesn’t matter, because your job isn’t to interrupt people on other planets, with other interests. Your job is to interact with people who care. 

Running an ad on the most popular podcast isn’t smart if the most popular podcast reaches people who don’t care about you. 

Perhaps it makes sense to pay extra to reach precisely the right people. It never makes sense to pay extra to reach more people.

8 Important Web Resources Designed For Musicians  

8 Important Web Resources Designed For Musicians 

As social media promotion becomes increasingly difficult for artists to to do for free, band websites have now become one the most important marketing resources you have. That said, maintaining and customizing a website can be touch trickier than social media platforms - luckily there are a number of great resources out there designed specifically to help artists do just that. 

________________________________ 

Guest post by Patrick McGuire of Soundfly's Flypaper 

With social media promotion becoming trickier and harder to do for free, band websites are more important now than ever. From selling merch with no middleman to promoting a new release and upping your SEO game, personalized music websitesare crucial in helping get the job done right. But how exactly do you “personalize” a website? Social media platforms are great for promotion because they’re so easy to use, but websites are much tricker to customize and update. 

To help you navigate the vast world of music-related website resources out there, we picked out eight of our favorite web tools that are made specifically for musicians, so you know you’re in good hands with each of them. 

1. Bandzoogle 

If you’re like me and want to quickly maintain and update a solid website for your band so you can get back to making music ASAP, check out Bandzoogle. They’re a website-building platform built by and for musicians. For a low subscription fee, they offer tools to help musicians build great websites in minutes. They also give artists access to commission-free merch, ticket, and download sales through their online store feature. 

In fact, we like this service so much that we partnered with them to make a free online course called How to Create a Killer Musician Website. Check it out! 

2. Spotify Artist Insights 

Streaming platforms have long been a source of controversy because of how little they pay artists, but some offer other advantages. Spotify’s Artist Insights feature is a powerful analytics tool designed to help musicians understand who’s listening to their music the most over the platform. It tracks listener information like gender, age, location, and through what source someone discovered your music. 

How does this relate to your own website? By discovering detailed information about your listeners, you can tailor the content on your website to better reach the parts of your audience that are most engaged and likely to buy your merch, see your live shows, and check out your new releases. 

3. Bandsintown 

Bandsintown offers a set of high-powered tools aimed at helping musicians promote shows, engage fans, and upload videos. Their events widget is designed to sync up show listing information across the web, so adding it to your site will help your fans stay up to date with accurate information about your performances. Show announcements can be automated and sent out through their platform, which is also a big plus. But Bandsintown’s biggest advantage comes with their comprehensive show listing page, which shows fans which artists are playing shows near them, in case you wanted to pitch your band for a support spot! 

4. GigMailz 

GigMailz is similar to Mailchimp, but is geared towards musicians and other entertainers. For a low monthly subscription, users get services like a 45-minute design consultation, unlimited lists, and analytics. By adding the GigMailz widget to your website, you can bring new fans into the fold with show and music release updates, sales on merch, and other band happenings, with a few clicks. 

5. Songkick 

If you’re looking for an easy way to post show information in one place and have it show up all over the internet, look no further than Songkick’s Tourbox API feature. It functions through a widget that you can add to your website and across your social media accounts, as well as a mass automated updater that reaches Spotify, Shazam, Bandcamp, Pandora, Hype Machine, and loads of other sites. Fans with the Songkick app installed on their phones will receive notifications when you announce shows near their location. 

6. Bandtraq 

Bandtraq, another company formed by musicians, creates digital tools to help artists and fans alike. The musician-oriented tools they offer include a handy customizable widget that lets artists present social media feeds, videos, music, and more, all in one place. The unique Bandlink feature helps bands design smart landing pages to promote and present new releases through a single short link, which is ideal for rolling out new music over a website in a quick and easy way. 

7. SoundCloud 

You’re probably well aware of SoundCloud by now, but its widget feature is worth mentioning. Because SoundCloud is completely free and typically reliable, it’s the perfect place to host music over your site. Yes, you’ll lose some royalty money by not linking up to your Spotify or Apple Music account, but going with SoundCloud is the best option because it doesn’t force those visiting your site to sign up with yet another service. Plus, it’s essentially social media for track releases. 

8. Metablocks Widgets 

For musicians looking to integrate sophisticated retail capabilities with their sites, Metablocks is a good option. Through their widgets, you can sell music, accept email addresses, and even integrate Spotify’s Pre-Save campaigns. They’re able to link with hundreds of music retailers, and offer analytics in real-time about who’s clicking, when, and why. 

Bonus: Google Analytics 

And for a bonus, because it’s not strictly designed for musicians, Google Analytics is worth checking out if you’re obsessed with learning more about the fans who visit your website. This platform is designed to help businesses (if you sell music, then you’re a business) better understand and serve their customers, and that makes it perfect for you.

Your Network IS your Net-Worth 

Music industry veteran, Bob Lefsetz shared about the essential nature of building and nurturing a fan community in his blog this week. i can't agree more with his insight. Building, engaging, and nurturing community is central to my messages to my clients and my students. Enjoy Bob's post below.

You've got to build it from scratch. 

And you have to know each and every member and how to reach them. 

Remember the MTV era? Instant heroes who soon became zeros. The faster you make it, the faster you lose it. 

In other words, if you're depending on the label, the corporation, to bring you to the top, you're in trouble. 

I know this is antithetical to everything you've been taught, but the mentality of the music business exists in the twentieth century, while we're living in the twenty first. Grass roots. Credibility. Honesty. All these things are going to grow your career in today's era, and it's gonna happen slowly. You might never break through to the big time, but your fans will support you. Fans will house you, promote you and give you all their money. All they want in return is respect and access. It's the best deal in history. One e-mail, one tweet can motivate them into taking action. 

No candidate is better known than Joe Biden. But he's living in the last century, he had no mailing list, except for the one from when he ran for Vice President, and they say those mailing lists are only good for two years. 

Biden said he raised $6.3 million in his first day of fundraising, more than Bernie's first day, which netted the Vermont Senator $5.9 million. 

But the devil is in the details. Biden raised the money from 97,000 donors. Bernie raised his cash from 225,000. It's about fans, not grosses. Which is why you'll see big bands limiting ticket prices, selling tickets to fan clubs, doing everything to maintain their base which will sustain them through the thin times. 

Furthermore, Biden got $700,000 from fat cats, at a fundraiser. And in today's era, all the little people hate the big people. 

It's happening in music too, it's just that the big people don't want you to know it. The imprimatur of the label, the push at radio, these are things the true fans have no sympathy for. The labels and radio are in the hits business, the fans are in the career business, and there's so much more money in that. 

The press is behind Biden. As are the corporate donors, lobbyists and the Party. You'd think he's a winner until you look at the actual voters. This is how the Republican fat cats lost control of their party, when Trump swooped in and appealed to the little people who felt ignored. 

A big publicity campaign won't tell you who you're reaching, won't give you hardly any information at all. And today it's all about the data. Spotify will tell you where you're hot and where you're not. But even more important is the rank and file, the fans. They want to hear from you, but with so many media messages your effort gets lost and stops before it reaches them. No one catches everything, it's impossible. Even the biggest of publicity campaigns don't reach everyone. 

It's all about targets. Efficiency. 

And there's a nerd in your fanbase who will coordinate all this. Someone savvy, who'll do it for the love. 

You've got to be organized, you're managing yourself. If you're handing off responsibility to someone else, you're missing the point. Fans want you, and they can tell when it's fake. 

Of course it's a lot of hard work, but the dividends are paid in the future. 

Bernie could only raise this much money because he ran in 2016, he had an infrastructure. 

The era of the vapid instant superstar is done. It only resonates with the media and the brain dead. True fans want to feel like they belong, they want to channel their energy, they want to know they're important. 

So we've got two music businesses today. Actually three. 

One is the oldsters who made it before the internet coasting on their hits, never to have another one. 

Number two is the Spotify wonders. Propped up by the machine. Hyped. Sure, some of them will sustain, but most of them will not. Come on, you know that fans want to own the act themselves before everybody else does, they want to say they were there first, they don't want to be a number, they want to be known. They want to say they saw you in a club. That they bought a t-shirt from you at the merch table. And when you break through, they'll still support you. 

Number three is the vast majority. Those who the machine doesn't want. Those who do not rap or sing pop to an 808 beat. Their time is coming. Stop bitching about recording revenue, everybody can hear your music essentially for free, that's a good thing! You used to have to depend on radio and sales for traction, now your music is just a click away and there are so many ways to monetize, be encouraged, not discouraged. 

The media can't cope with numerous genres. It's all about winners. But in the internet era there are tons of winners. And the more different you are from the hitmakers, the greater the chances that you'll succeed. 

But it's a slower process than before. 

And you have to do most of the work yourself. 

But your fanbase will support you through thick and thin. And no one is as rabid as a fan in spreading the word, they'll drag friends to a gig, which is why you've got to be great every night even if there are only ten people in the audience, because one person today has more power than any newspaper if they believe. 

The world has become inverted. We're going from the macro to the micro. And the truth is there's plenty of money in the micro. And if you hang in there long enough, you can go macro. The machine is throwing things against the wall. You're making music containing your heart and soul, humanity emanates from the grooves, it's not for the good times, but for all time. 

The old game is dying. 

You're in charge of the new game. But you must use the new game paradigm. And that starts with ones and twos, fans. Know who they are and activate them, it's the only way to win in the music game today. 

If you want to sell perfume and have a clothing line that's a different path. 

But if you're a musician, your time has come. 

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Here comes Amazon! 

Here comes Amazon!

Courtesy of Music Business Worldwide

Less than a week after the online giant launched its first fully free music streaming service, MBW has caught wind of the company’s next big plan to challenge the likes of Spotify. 

We understand that Amazon is currently in discussion with various large music rights-holders regarding the upcoming launch of a high fidelity music streaming platform – and that at least one major record company has already agreed to license it. 

I've heard this whisper from several high-placed music industry sources, who say the price of Amazon’s new tier will likely be in the region of $15 per month. It’s expected to launch before the end of 2019. 

“It’s a better bit rate, better than CD quality,” said one source. “Amazon is working on it as we speak: they’re currently scoping out how much catalog they can get from everyone and how they’ll ingest it.” 

The best known existing hi-def music streaming offering comes from TIDAL, whose TIDAL Hi-FI subscription tier costs $19.99 per month and offers CD-quality lossless streams at 44.1 kHz / 16 bit. 

In addition, TIDAL also offers a ‘Masters’ quality offering for pickier audiophiles, which presents thousands of albums at 96 kHz / 24 bit via desktop. 

“WITH AMAZON MAKING THIS MOVE, IT FEELS LIKE A POSITIVE STEP FOR PRICING FLEXIBILITY. SPOTIFY HAS JUST BEEN OUTMANEUVERED.” 

SENIOR INDUSTRY SOURCE 

TIDAL’s ‘Masters’ range is made possible by its partnership with digital hi-def music company MQA. It’s understood that Amazon has not partnered with MQA for its own HD tier. 

Meanwhile, Deezer offers a HiFi tier at a standard price of $19.99 per month, which, like TIDAL’s equivalent, streams music at 44.1 kHz / 16-bit via FLAC files. 

The world’s two biggest music subscription streaming platforms – Spotify and Apple Music – are yet to venture into the world of high fidelity audio. 

Will Amazon’s exploration of a launch in the area trigger their interest? 

A further senior US-based music industry source says, “Think about it: Amazon will have every tier of recorded music covered, from free streaming through to limited catalog via Prime, a full ‘Spotify rival’ in Music Unlimited and a hi-definition service – in addition to vinyl, CD, merch and more. We haven’t seen anything near what they’re capable of in music yet.” 

They added: “So far, Spotify and Apple have resisted launching a higher-price streaming tier, and [the labels] have resisted giving more away for the same [$9.99 a month] price. 

“With Amazon making this move, it feels like a positive step for consumer pricing flexibility, and good news for streaming ARPU generally. Spotify has just been outmaneuvered.” 

The launch of Amazon’s free music service on Alexa last week introduced an entry-level tier Amazon’s music streaming ecosystem. 

Amazon customers wishing to hear on-demand music without ads can upgrade to a Prime membership, which will offer them more than 2 million songs to choose from. And if an Amazon customer wants full, on-demand access to more than 50 million songs, they can sign up to Amazon Music Unlimited – for which a subscription locked to a single Echo device will cost $3.99 per month. 

For access to Amazon Music Unlimited across multiple devices, customers pay a $9.99 per month subscription, although those who already pay to be Amazon Prime members only need pay an additional $7.99 per month.

Amazon’s Ad Supported Strategy Goes Way Beyond Music 

Amazon is reportedly close to launching an ad supported streaming music offering. Spotify’s stock price took an instant tumble. But the real story here is much bigger than the knee-jerk reactions of Spotify investors. What we are seeing here is Amazon upping the ante on a bold and ambitious ad revenue strategy that is helping to reformat the tech major landscape. The long-term implications of this may be that it is Facebook that should be worrying, not Spotify. 

Guest Post By MIDiA analyst Mark Mulligan from his Music Industry blog 

In 2018 Amazon generated $10.1 billion in advertising revenue, which represented 4.3% of Amazon’s total revenue base. While this is still a minor revenue stream for Amazon, it is growing at a fast rate, more than doubling in 2018 while all other Amazon revenue collectively grew by just 29%. Amazon’s ad business is growing faster than the core revenue base, to the extent that advertising accounted for 10% of all of Amazon’s growth in 2018. 

"Spotify builds audiences to deliver them music (and then monetize), Amazon is now building audiences in order to sell advertising" 

Amazon is creating new places to sell advertising 

The majority of Amazon’s 2018 ad revenue came from selling inventory on its main platform. This entails having retailers advertise directly to consumers on Amazon, so that Amazon gets to charge its merchants for the privilege of finding consumers to sell to, the final transaction of which it then also takes a cut of. In short, Amazon gets a share of the upside (i.e. the transaction) and of the downside (i.e. ad money spent on consumers who do not buy). This compressed, redefined purchase funnel is part of a wider digital marketing trend and underlines one of MIDiA’s Four Marketing Principles. 

But as smart a business segment as that might be to Amazon, it inherently skews towards the transactional end of marketing, and is less focused on big brand marketing, which is where the big ad dollar deals lie. TV and radio are two of the traditional homes of brand marketing and that is where Amazon has its sights set, or rather on digital successors for both: 

Video: Amazon’s key video property Prime Video is ad free. However, it has been using sports as a vehicle for building out its ad sales capabilities and has so far sold ads against the NFL’s Thursday Night Football. It also appears to be poised to roll this out much further. However, Amazon’s key move was the January launch of an entire ad-supported video platform, IMDb Freedive. Amazon has full intentions to become a major player in the video ad business. 
Music: Thus far, Amazon’s music business has been built around bundles (Prime Music) and subscriptions (Music Unlimited). Should it go the ad-supported route, Amazon will be replicating its video strategy to create a means for building new audiences and new revenue. 

It’s all about the ad revenue 

Right now, Amazon is a small player in the global digital ad business, with just 6% of all tech major ad revenue. However, it is growing fast and has Facebook in its sights. Facebook’s $50 billion of ad revenue in 2018 will feel like an eminently achievable target for a company that grew from $2.9 billion to $10.1 billion in just two years. 

To get there, Amazon is committing to a bold, multi-platform audience building strategy. Whereas Spotify builds audiences to deliver them music (and then monetize), Amazon is now building audiences in order to sell advertising. That may feel like a subtle nuance, but it is a critical strategic difference. In Spotify’s and Netflix’s content-first models, content strategy rules and business models can flex to support the content and the ecosystems needed to support that content. In an ad-first model, the focus is firmly on the revenue model, with content a means to an end rather than the end. (Of course, Amazon is also pursuing the content-first approach with its premium products.) 

Amazon is becoming the company to watch 

So, while Spotify investors were right to get twitchy at the Amazon rumours, it is Facebook investors who should be paying the closest attention. Amazon’s intent is much bigger than competing with Spotify. It is to overtake Facebook as the second biggest global ad business. None of this means that Spotify won’t find some of its ad supported business becoming collateral damage in Amazon’s meta strategy – a meta strategy that is fast singling Amazon out as the boldest of the tech majors, while its peers either ape its approach (Apple) or consolidate around core competences (Google and Facebook). Amazon is fast becoming THE company to watch on global digital stage.