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Old 12-29-2012, 02:03 PM   #35
Kali Yuga
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Quote:
Originally Posted by Top100EbooksRank View Post
Which is why Spotify is opting for GROWTH GROWTH GROWTH instead of PROFITS PROFITS PROFITS.
I'm not saying it's a bad strategy. I'm saying that they are struggling to convert those individuals from free to paid.


Quote:
Originally Posted by Top100
How would you know Rhapsody with 5 millions subscribers would only be a tiny bit better off than 1 million subscribers?
"Economies of scale" only apply when your costs go down as your size increases.

Each song streamed costs them a fixed amount; more users = more royalties. They also have to add servers, bandwidth and other overhead costs.

They currently have a profit margin of 0.8%, not 30%. Again, they cleared about $1 million in profit off of $1 million paying subscribers. So if they grow to 5 million users, the increase in profit will probably be linear.


Quote:
Originally Posted by Top100
There is a reason why Spotify is valued at $3 billion.
Myspace was valued at $12 billion when Murdoch bought it (2007). He sold it in 2011 for $35 million.

Spotify has a high valuation because a few people with big bucks are willing to speculate on its future success. They might be right, but that doesn't change the fact that right now, music subscription services are struggling.


Quote:
Originally Posted by Top100
I'm just saying 30 million paying subscribers will generate about as much money for the music industry as Itunes does.
You're talking about completely different economic models.

Apple intentionally sacrifices profits from iTunes music sales because they make money off of hardware sales. For them, selling music is a loss leader -- it's a way to keep people buying iPhones and iPods and Macs and Apple TV's.

So if you put these two models into competition, you have companies with only two means of generating revenues (subscriptions and ads) going up against a nimble company with a massive war-chest with a lock on the market, who doesn't need to profit off of music.


Quote:
Originally Posted by Top100
Subscription music is increasing at a very high rate.
Downloads are relatively mature. The thing is, no one knows how many people are willing to pay for music subscriptions.

Terrestrial radio -- a prime competitor for streaming, really -- still has hundreds of millions of listeners around the globe. It isn't as deep of a catalog, but it's cheap to produce, ubiquitous, established and free for the listeners. Subscriptions have to offer one heck of a value proposition to beat radio.


Again, this is not to say that "subscriptions are a total failure," or have no merit, or are doomed. It's only to point out that even as they add listeners, they are currently struggling just to survive. Crossing an arbitrary number of subscribers doesn't mean success, if they can't fix their business model.

Proclaiming that they will eventually win the day is, to put it mildly, optimistic.
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