Monetizing Digital Music: What You Need to Know About Music Platforms

With today’s music platforms, everything about the music industry moves to a faster beat given the rise of new mobile technologies. It doesn’t matter if you are an artist, have your own private label, radio station or online music channel. Almost everything about music since the advent of radio has and continues to change. It’s not just about making music people like but delivering it to them. It’s the distribution now where music platforms and mobile apps bring new challenges and radical opportunities.

Who are music platforms for?

For starters, any platform or mobile app involves a significant investment. Today, mobile app development cost starts around $50,000 and can go into six figures depending on its features and functions. This financial commitment narrows the field. The best business cases can be made for the following scenarios:

• Owners of music stores, record labels, and radio stations.
• Entrepreneurs keen on and connected with the music industry.
• Successful bands, artists, and musicians.
• Talent searchers like television’s X-Factor or America’s Got Talent.
• Businesses looking to add music as a new vertical in a unique way.

These are not presented in any specific order as each has a different competitive advantage that scales differently across the likely monetization models.

What are Music Platforms?

Simply, as used here, it refers to a means of distributing music, digitally.  It could be a website, software or a mobile app. New ones are popping up almost every day. Some are massive, household names like Spotify, iTunes, Google Play and Amazon Music Unlimited – with millions of titles and a market reach into the hundreds of millions. But there are countless others like Nugs.net, Bandcamp, Tidal, Rhapsody, Pandora and iHeart Radio.

Defining your Competitive Edge

It would be difficult to compete with Spotify, Amazon, iTunes or Google Play on variety or quantity of artists and titles. Niche, local and specialized content can sidestep their advantage. The app for Nugs.net, for example, focuses on streaming of live shows – specialized content.

Your advantage could be tied to an active, local music scene (city or state, possibly region). Maybe you already have a successful band or brand name with loyal listeners or customers and want to expand upon it. There’s also the possibility that you see a way to add music as a vertical to your existing business like Urban Outfitters did, combining apparel with vinyl.

There’s a lot of space for music. There are over 10,000 radio stations in the United States. Each has its own geographical market and niche. Over 2,000 of these stations cater to different varieties of country music, alone. You’ll find another 1,400 playing four different styles of Adult Contemporary music and 300 jammin’ to Modern Rock. The market segments even further with 500 stations playing Spanish.

Top 10 Benefits of Music Platforms

Digital Music Platforms offer more differences compared to radio and television than you can shake a drumstick at – especially as concerns monetization models, revenue streams, and market reach.

1. Fewer geographical constraints (except international distribution rights can be very expensive).
2. Access to 1 platform = Access to many platforms; each with their own economies of scale.
3. Few platforms require exclusivity agreements.
4. Multiple monetization models and revenue streams.
5. Convenient payment options – mobile wallet, credit card, Paypal, even in-app currencies.
6. Nearly all digital content can be converted into any other digital format (mp3, m4v, FLAC, etc.).
7. Ease of format conversions makes your music available to all digital devices.
8. Not limited to serving a single niche (Hip Hop, Rock, Country, etc.).
9. Server and bandwidth costs replace physical inventory requirements, no need for storage, shipping or reproduction costs associated with records or CDs.
10. More customer options and exponentially better customer analytics.

The list of advantages continues beyond these, but become increasingly specific to the nature of the platform involved. Simply put, with Digital customers can play it on any device, anywhere, anytime while also being able to engage and interact with it in many more ways than provided by traditional media.

 How do Music Platforms make money?

Odds are you know about all of the traditional monetization models. The beauty is that all of them can come into play with your music platform. Of course, this depends upon what your platform is ultimately designed to do. Your platform could generate advertising revenue, sell content, offer pay per view options for single events and ongoing subscriptions. Diving in deeper, rights and licensing of content, syndication, and royalties can be a huge boost to its revenue potential, too.

Additionally, having a music store in your platform does not limit you to selling just music – other verticals could be what sets you apart. Amazon started with books and moved into digital media, then into mobile devices (and everything else). That’s not to say that you should try to compete with Amazon – just to help you identify additional verticals with a natural fit.

Just as a quick example, if you are selling music in a digital format, you could also sell the electronics, too. We’ll get to some particularly innovative examples, shortly.

Music Platforms, Rights, Licenses, and Royalties

“Yesterday,” by the Beatles, has earned over $30 million. Michael Jackson paid $47.5 million for the rights to all but one song by the Beatles. Royalties on Sting’s “Every Breath You Take” earn over $750k per year.  There’s big money in finding the next big hit – before they become the next big hit.

That’s called getting in on the ground floor and it is not exclusive to stocks. Nor is the ground floor the Initial Public Offering (IPO). Let’s investigate this a little deeper. If you invested just $100 into Facebook in September 2004, it would be worth about $1.75 million today. Had you invested in its IPO at $38 per share in 2012, your $114 would be worth about $375.

That’s the whole basis of Venture Capital, where relatively small amounts of money can have a hugely disproportional impact for a business… or a band.

Enter Simon Colwell, X-Factor, and similar serial talent television shows. America’s Got Talent (AGT) is in its twelfth year. Look at X-Factor’s and AGT’s monetization model.  They are a money-making machine with advertising revenue, sponsorships, licensing agreements with talented artists plus a share of royalties on signed artists.

For a few examples, we can look at the UK’s “One Direction” boy band and America’s singer-comedian-ventriloquist, Terry Fator. Both have netted over $100 million since their first appearances. Opera-singer, Susan Boyle, has taken in over $33 million. Opera. $33 million.

These TV shows are ready-made business models and a natural fit for music platforms. Rights, licenses, and royalties add so much to the financial spectrum that it would be folly to dismiss them.

Blockchains for Rights & Royalties

The ease of copying and converting digital content also makes it easy for others to completely sidestep intellectual property laws. Whether we are talking outright piracy or titles having insufficient or conflicting ownership data, the net result is the same. Artists and record labels are not getting paid all of the royalties they are due. That’s a huge problem, even if accepted as a natural hazard of the music industry. It is an issue that blockchain technology, made famous by Bitcoin, and widely used in finance apps, for example, has the potential to correct.

Music files making use of blockchains record every instance it is played, by whom, chronologically and permanently. If a segment of the blockchain is somehow removed, the music file becomes unplayable. So, all of the security it provides financial transactions makes it attractive for tracking music rights and royalties, too.

Presently, the music industry is still in the early stages of exploring and using blockchains for tracking music royalties. A few companies are leading the way, like BitTunes, PeerTracks and PledgeMusic, each with their own unique use and adaptation.  Being far from any sort of standard, blockchain implementation is likely to proceed piecemeal by individual companies.

Blockchain is not a cure-all as it is not backward compatible. Each music file needs to be encoded with a blockchain to realize its benefits. That’s easily done for new releases, but not for all of the files already in circulation. Audiam, a company that monitors digital distribution, for example, found 803 different files of Bob Dylan’s “All Along the Watchtower” on the Internet. File conversions would be easy, but distribution to “erase and replace” all other instances of a given music file could be quite laborious.

LISNR and Ultrasonic Data?

Another technology worth watching is the ability to send data via ultrasonic audio technology. This approach perfected by LISNR, stores machine-readable data in sounds outside the range of human hearing. Prominent usage includes contactless point of sales, transactions, and ticketing, but can also be used to encode intellectual property data.

This article covers a lot of ground, but barely scratches the surface of the potential afforded by music platforms and mobile technology. We are no longer looking at individual technologies, but how different technologies can combine to do things in radically new ways. Stay tuned, we will be diving in deeper to more business applications for music platforms and the technologies driving them!