in music

VRL – The Virtual Record Label

Most of us know what an MVNO is. For those who don’t, an MVNO is a Mobile Virtual Network Operator – a company that doesn’t known any mobile phone network of it’s own, but piggybacks on someone else’s network and simply puts their own branding on top of it. US MVNOs that I am aware of are FreedomPop, Boost Mobile and Cricket Wireless. They all resell AT&T or Sprint’s network under their own labels. This is a good business because it fosters competition while still providing best-in-class facilities to consumers. Of course, the profits of the MVNOs go in part to the parent Network Operator, because they are essentially leasing out their network to these smaller companies.

We’ve looked at online music streaming companies as libraries of music. In our minds, Spotify, Rdio, Pandora and Google Play are subscription services where users pay a monthly fee to listen to any music in the entire collection, instead of buying the music personally. Of course, the trade-off is that you never own the music, no matter how long you pay for the service. Thus, the ‘library’ analogy works and we tend to think of these services as places to ‘borrow’ music. Obviously, since we’re ‘borrowing’ music, we’re not paying full price for it and so the music industry has this big complaint that streaming doesn’t pay the bills. That makes sense. Where they were selling CDs at ridiculous profit margins and the only ‘free music’ people ever heard was on the radio, record labels are now contending with super cheap single-song sales and even cheaper streaming services.

But is the next step forward or back? Will record labels clamp down on streaming services and force them into either paying more (like Netflix) or risk losing their collection or will they force companies to reduce user choice in a Pandora’s Box scenario (pun intended)? I’d say the ball is in the streaming services’ court. Those companies will need to recognize that if they’re the only player left in the music-sales game, the costs of playing music are going to increase. The best step forward would be for streaming services to become virtual record labels, pushing sales of genuine goods (music) instead of tertiary goods like merchandise. The streaming companies would then be responsible for reeling in interested users to buy music instead of just renting it, much like MVNOs push people to using the same mobile networks by changing the branding.

This model is starkly different from the library model because by default libraries are looked at as places that reduce the need for personal purchases of books. This is great if the books cost a lot (as hard covers do) or if there’s community value being derived from the establishment. But this is no longer the case for music. iTunes and Amazon Music have reduced the cost of buying music by a huge margin and the next step in the game is to increase profits. This can only come if music streaming goes hand in glove with music sales, instead of opposing it. As usual, Apple is slightly ahead of the curve and their iTunes Radio service seems like an interesting solution (where you are encouraged to buy the tracks you enjoy listening to). But like I pointed earlier, Pandora (and FM Radio) are steps back, not forward. All streaming services need to recognize that people who stream music could also be convinced to buy high quality versions of those tracks and that is the best way forward.

Note: This post was driven by the topic and links provided in this post on the TeleRead website, where the author Juli Monroe was trying to decipher if streaming services hold some kind of lessons for eBook sales and subscription services.