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CMU Trends Digital
Trends: Seeking alternative ways to stream – the SupaPass approach
By Chris Cooke | Published on Monday 25 July 2016
Whether it’s the increasingly vocal war of words between Spotify and Apple, or the music industry’s full on attack against YouTube, much of the debate of late over streaming has been about the freemium versus premium challenge.
Paid for services bring in the vast majority of the money, but the ad-funded free-to-access platforms have way more users. While that is, perhaps, inevitable, the music industry needs to convert as many freebie streamers into paying subscribers as possible, and some worry that the freemium and premium set-ups are just too similar to assure enough conversions.
But that is not the only debate to be had on the future of streaming. Beyond growing the digital pie, there remains the tricky issue of how to slice it. How big a slice should different stakeholders receive?
The digital pie debate has several elements to it. We’ve discussed at length how streaming income is split between the two sets of music rights – recordings and songs – and how the former get a significantly larger allocation. And we’ve discussed how labels then share streaming income with their artists.
The ‘Dissecting The Digital Dollar’ report that we produced for the Music Managers Forum summarises both of those discussions in detail, and part two of that report will dig even deeper into how streaming income is divided between the different stakeholders.
However, there is one other discussion to be had about the way streaming income is shared – this one focused not on how the stakeholders in any one track divvy up the money, but on how streaming monies in general are shared across the music industry. And it’s this discussion that has been brought to the fore by digital start-up SupaPass, which formally unveiled its service earlier this month.
STREAMING DEALS
While Spotify and Apple Music may differ on quite what a streaming service should be offering to users free of charge, the two services, and most audio streaming services, operate more or less the same business model. Their deals with the music rights owners – labels, publishers and collecting societies – are usually revenue share arrangements at heart.
At the end of each month, the streaming service works out how much money it made in the previous period, how many tracks were streamed over all, and what percentage of those streams were of recordings or songs from any one rights owner’s catalogue.
It then allocates the money it made between the different rights owners based on that percentage, and then splits that allocated money with said rights owner based on whatever deal they have done. So if 10% of all listening came from one label’s catalogue, 10% of all income is allocated to that label. If the label is on a 58% deal, it then gets 58% of that 10%.
There are various complications layered on top of that, of course. The streaming service likely does that calculation separately for each territory and each service type (premium, freemium, mobile bundle etc).
Most streaming services are also obliged to pay a minimum rate per stream, and if the revenue share arrangement pays out less than that minimum, the streaming platform makes up the difference. Which is why, although the streaming services in theory should get to keep 25-30% of their income overall, none do, which is why the streaming firms are all loss-making enterprises.
But, crucially, the business model is ultimately a revenue share arrangement, and the hope is that eventually the platforms will start to always pay out on a revenue share basis, either because the rev share payments will always out-perform the minimum guarantees, or because minima will eventually be cut from the deal, or both. Each streaming service then needs to work out how many paying users it needs overall in order to survive on 25-30% of the money.
PROBLEMS WITH THE STREAMING MODEL
Even if that business model ultimately works, the streaming sector becomes secure, and with it so does the record industry’s main growth revenue stream, there is arguably an inequity with that approach.
At the end of every month all the subscription money is basically put into one pot and shared out based on overall consumption share, with no acknowledgment of the consumption habits of individual users, some of whom will listen to lots of music and some of whom will listen to a little.
Which possibly skews against certain individual artists and labels.
For example, if I pay £8 a month to a streaming service (after sales tax) and only listen to the music from one singer-songwriter, for a few hours each week, I might expect that one singer-songwriter – and his or her business partners – to get at least 70% of my subscription money.
But they almost certainly wouldn’t. Because my £8 is combined with everyone else’s £8 and then shared out across the industry. After that process is complete, the singer-songwriter I am exclusively streaming will likely see a much smaller cut of the money.
What if, each month, my subscription money was exclusively shared among the artists I actually streamed, so that consumption share was calculated on a user-by-user basis rather than industry wide. Ignoring the minimum guarantees, the value per stream would vary greatly depending on how many tracks I listened to over the month. But it would mean if 25% of my streams came from one artist, they would see 25% of my subscription money.
THE SUPAPASS APPROACH
SupaPass – by combining streaming with direct-to-fan – operates a business model more akin to the latter approach. From a user’s perspective, rather than signing up to the service, you sign up to individual artist channels via the SupaPass app. For each artist channel you sign up to, you get access to that act’s catalogue, their social media output in one place, and – if the artist decides to go this route – VIP content not available anywhere else.
From an artist’s perspective, you put all of your content – music, videos, chatter – in one place and put a monthly price on it. That monthly subscription fee then entirely belongs to you and your various business partners, oblivious of what happens across the wider platform. And, indeed, oblivious of how much content the fan consumes in any one month.
In among all of the aforementioned debating about the streaming music future, one question that is sometimes raised is “what is the value of one stream?” The conclusion is usually “more than we’re getting now”. But there is an argument that this is the wrong question to ask in the first place. A stream has no intrinsic value. What has value is the fan. And that is the basis of the SupaPass model.
“The revenue is not paid per stream, it is paid per fan per artist each month”, explains founder and CEO Juliana Meyer. “So the artist – and the rights holders – know that they will be receiving their share of the £1 each month, irrespective of whether the fan has streamed the artist once or a thousand times”.
From the fan perspective, she continues, “one of the exciting differences about the SupaPass revenue model is that a fan knows that their £1 per month is going solely to that artist that they want to support instead of being split between thousands of other artists they never stream”.
CHALLENGES
Obviously the challenge of combining direct-to-fan with streaming is that there will be multiple stakeholders involved, so it’s not as simple as artist and manager taking the lead.
Even a self-releasing artist will likely be a member of a collecting society on the songs side who will control at least the performing rights, and many artists will have labels and publishers who need to be cut in as well. So even though the basic model here is a lot simpler than with the big audio-streaming services, there are still some complexities in how revenue is distributed.
Which is something SupaPass has had to navigate. “For each artist channel we split the income between the different rights holders of that artist’s music catalogue”, Meyer explains. “We send royalty reporting and payment distribution to labels and publishers and they distribute to the artists and songwriters. We also share data with the artists and pay artists directly for ‘VIP’ content”.
“If an artist has split catalogue, where different albums are on different labels – and perhaps some is owned by the artist directly – we calculate and pay each label separately for each part of the catalogue, according to how much the fans listened to their tracks that month”, she continues.
The business model employed by the other audio streaming services arguably skews in favour of superstar artists and big rights owners; and a cynic would argue that that’s hardly surprising, given that the major labels negotiated their deals first when the initial streaming start-ups were first evolving their businesses. Though Meyer thinks that the alternative approach employed by SupaPass is attractive to bigger artists and labels too.
“The big artists and rights holders are keen to use this model for a number of reasons”, she claims. One spin is that, with a £1 a month subscription, an artist and label can earn something akin to an old fashioned album income, while providing the fan with the simple, multi-device, streaming experience they increasingly demand.
“The big players have also said that they like that SupaPass re-establishes the emotional and monetary connection that they had when a fan went to a store to buy a specific artist’s music”, she says. “SupaPass makes that possible again in an exciting new way”.
The fact that Meyer is mixing direct-to-fan with the alternative approach to streaming income certainly helps. Which is to say, if you set up a Spotify-type business tomorrow that paid out based on each individual subscriber’s monthly consumption, as described above, you’d probably get push back from the majors. Not to mention the fact that, with minima still standard in streaming deals, that start-up probably couldn’t make it work, even if they could get sign up from enough labels.
However, while Meyer sees SupaPass more as a streaming product than a direct-to-fan platform, she also reckons her business complements rather than competes with Spotify et al. Referencing feedback from current users, she says: “For those that subscribe to £10 per month models, they also subscribe to an artist on SupaPass because they get more than just the music, plus they feel they are supporting the artist. In fact, over 80% of our existing subscribers said one of the top reasons they subscribe is to support the artist”.
For those not currently paying to stream, Meyer reckons, “SupaPass may offer a way to encourage those fans to start paying for music. Whilst they are discovering music or listening to friends’ playlists they possibly don’t mind being interrupted by ads; it’s more like the radio experience. But when they are listening to their favourite artist’s music they perhaps don’t want to be interrupted by ads, and SupaPass gives them a way to start paying for that music at a more attractive price point”.
She adds: “We were also interested to see that some of our users don’t yet use other streaming platforms at all. We are excited about the potential that SupaPass presents to engage some fans digitally that are not yet engaging in that way. We are able to do this because of the direct connection artists have with their fans”.
Another benefit of the direct-to-fan/streaming hybrid, is that it makes it easier for Meyer to get her service off the ground; the minimum guarantees the rights owners demand from Spotify-type services can be crippling, and would arguably be more so with any alternative approach to royalty distribution.
“A benefit to us of this model is that each channel is a product in its own right” she agrees, “whereas on some other platforms the product is ‘all the music in the world’, which means their models are very dependent on all rights holders being on board. For us each artist channel is a standalone product for fans to subscribe to, therefore we are not dependent on all the catalogue in the world for the platform to work”.
Though, she adds, “we are doing blanket licences with a number of labels, as they see this as a great way to earn a different kind of revenue from their music and so they are sending us all their catalogue. But the difference is that we don’t depend on those deals and can focus marketing around promoting individual artists and driving strong engagement with their fans”.
Of course, any new digital music business faces many challenges ahead. SupaPass has two revenue models for itself – it either takes a cut of subscription income or artists can pay a monthly fee – and, while not saddled with the liabilities of a standard streaming service, a certain amount of critical mass will be required for it to work long-term. Plus, while basic artist channels can be created with just the music and some social media feeds, you sense that to really work, for both SupaPass and individual channel operators, you need acts willing and able to create some compelling extra content.
Beyond the Spotify v Apple bickering, and industry v YouTube griping, it’s worth remembering that it’s still early days for streaming music, and no business or business model is as yet assured to last the distance. And it’s not really in the music community’s interest for just one model to thrive anyway. Therefore start-ups like SupaPass are definitely worth watching.
THE PITCH
CC: Tell us the SupaPass basics.
JM: SupaPass is a streaming app where fans subscribe from £1 per month to a specific artist or label channel.
For channels where the artist is not directly involved, fans will find three things: ‘stream’, so the artist’s music catalogue with features like offline streaming; ‘buzz’, with all the artist’s social media content in one place; and an exclusive community where fans can hang out with each other and share their passion for the artist with like-minded fans.
When the artist is actively involved, they may choose to also add ‘VIP’ – so videos, photos, blogs, archives, competitions and more – plus they will also be able to integrate with their merchandise and ticketing partners.
An artist can choose to offer their fans a range of different things. They can customise the channel to make it theirs with their own colours, artwork, features and even naming their fanbase, for example Imogen Heap’s fans are “Heapsters” – a name crowdsourced directly from her superfans.
Features offered vary from artist to artist, since the relationship between musician and fan is different every time, and there are endless variations in the way an individual artist may want to engage their audience.
CC: Do you see SupaPass as a direct-to-fan business or a streaming service?
JM: We see SupaPass as a streaming platform. We think there should be choices for consumers in the market place: different options and prices when paying for music. Music fans have many different types of listening habits and we believe SupaPass adds value and caters for superfans in various ways that they are looking for.
CC: What kind of VIP content do you recommend artists create?
JM: SupaPass provides a powerful set of tools, with many different features on offer. It is up to each artist how they use it. In addition to the regular catalogue, artists can add archives of unreleased live tracks or remixes. And SupaPass gives them a home where they can include all their videos and photos, including archives which may not have been released before, or ones that have been “collecting dust” for decades.
Superfans want the detail, so things which an artist may not consider special or valuable is often gold-dust to the fans. So we help artists realise that much of what they already have is valuable and can make for a rich engaging fan experience. Most artists are already creating great assets for fans, whether it’s pre-release tickets, exclusive merch, meet and greets or competitions. We simply provide a technology toolset to enhance all this existing activity by making it easy to do and easy to monetise.
CC: You are now actively reaching out to the music industry, what’s the pitch?
JM: The proposition is simple. SupaPass gives artists and labels a new and potentially very lucrative model for monetising their music and social engagement online. We’ve seen that artists and their teams are interested in finding new ways to engage more deeply with their fans, whilst generating regular growing revenue streams. This is what the SupaPass model is designed for. Our differentiator is the revenue model we offer.
In addition to the money, SupaPass gives artists powerful tech tools to increase their reach and grow their fanbase. Central to our message is SupaPass gives artists an app where they can “let their fans support them, make a fan their VIP, and give their superfans a home”.
We have been researching and developing this model for five years, iterating, improving and perfecting, and are excited to have created a solution that we believe adds real value for all in the chain. We are now working with exciting artists and labels at all levels of the industry, and have licenses for thousands of artists – and our current licences include one of the major labels.
