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Jay-Z's Radical Idea To Upend The Streaming Music Business

Rapper and business mogul Jay-Z has an old idea that he’d like to try out on the new music business.

Prior to the official announcement of his acquisition of the Swedish streaming music service Aspiro, the magnate held a giant pow-wow with some of the movers and shakers of the music business during Grammy week in February.

According to a post on Showbiz 411, guests at the meeting were literally a who’s who of music creators, including MadonnaKanye West, Daft Punk, Nikki Minaj, Chris Martin of Coldplay, Jack White, Beyonce (Mrs. Jay-Z), two unnamed country music stars and about 20 other non-musicians ranging from attorneys to music execs.

The reported reason behind the meeting was to gather information about how Jay-Z could turn his upcoming streaming network into something along the lines of the old United Artists film studio, where the artists themselves had control of the business and reaped more of the rewards than in the current mostly-corporate owned system.

Jay-Z (real name Shawn Carter)‘s company Project Panther Bidco Ltd completed its purchase of Aspiro on March 13th. The company owns the WiMP and TIDAL streaming networks, one of the few services to currently provide CD quality streaming. The network is small with only 512,000 paying subscribers with only about 20,000 of those subscribed to the high-def tier. Upon relaunch the network reportedly will be renamed TIDALHiFi.

The purchase seems like a good one from Jay-Z’s perspective. Paying only about $56 million for a service that already has infrastructure and subscribers seems like a steal compared with the estimated $300 million that Apple paid for the Beats Music service as part of last year’s $3 billion Beats acquisition. Still there’s plenty of challenges, with services like Pandora and Spotify already with a huge head start and deep pocket competitors like Apple (with its new service built around the Beats Music infrastructure) and Google (with its YouTube Music Key) set to relaunch later in the year.

What’s interesting is that even though artists complain about the royalty rates of services like Spotify, the fact remains that streaming is a very small margin business, with 70 percent of the revenue or more paid to the rights holders. It’s not like these services are drowning in profits (Aspiro lost $5 million in the last three months despite the fact the high-end tier is priced at $19.95 per month, for example). In fact, it’s the record labels that these stars are signed to that take the lion’s share of the money earned.

And that leads to interesting point #2. Most of the artists at the meeting (except for Madonna, who’s unsigned at the moment) are signed to Universal Music, so any discussion of increased royalty rates may end up being moot at the hands of the label. Not only that, because of their association with former Universal head honcho Jimmy Iovine and uber-producer Dr. Dre (both former principles in Beats and now Apple executives), one wonders just how many of the attendees would actually test their loyalties and join a collective that goes up against a powerful competitor like a relaunched Apple Beats Music.

The biggest plus in Jay-Z’s purchase of Aspiro is that the company already has licenses in the U.S., Canada, and many European countries, which would be nearly impossible to quickly acquire if he tried to build a streaming network from scratch. TIDAL also offers more than 75,000 high-definition videos, which makes it different from other audio-only networks, at least until YouTube Music Key shows up.

Yet another interesting possibility is that a big reason for this acquisition could actually be based on ego, with the driven Jay-Z trying to keep up with Dr. Dre, who obviously scored large when Apple purchased Beats.

Jay-Z is one smart businessman, but launching a streaming music network in this competitive environment without a big marketing budget may prove to be more than even he can handle. Even with the help of his superstar friends, it may prove to be impossible to leapfrog Spotify in the market, let alone even catch up to it, and the deep pockets of Apple and Google could eclipse both a flash under the right circumstances.

As we’ve seen in the past, high-quality audio is almost never a mass consumer choice, so TIDAL may be up against some long odds regardless of who’s involved.

forbes.com

 
 

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