Anthony Bay is guffawing down the phone line from San Francisco, after Music Ally uses the traditional British phrase “fighting like cats in a sack” to describe the current state of the music industry.
“Cats in a sack? I’m going to use that myself!” says Rdio’s CEO, before applying the metaphor to his own company. “Well, we are a cat sitting outside the sack watching the bag, and the claws coming through it from the inside, and thinking ‘thank goodness’.”
Bay is currently one of the most entertaining interviewees in the digital music world, perhaps because of that distance from the industry’s key squabbles.
Rdio has never said how many users it has – leading most observers to conclude it has relatively few – but since its launch in 2010 it has punched above its weight in areas like design and social features, while in recent times Bay has used his underdog’s freedom to speak candidly when asked about rivals and the wider rows around streaming music.
That’s certainly the case when he talks to Music Ally, shortly after Rdio announces ambitions to bring its mid-tier Rdio Select service to Europe, following its launch in the US, Canada, Australia, New Zealand, India and South Africa in March.
Select charges listeners $3.99 a month for access to Rdio’s personal-radio tier, as well as the option to download 25 songs a day, swapping tracks in and out as they wish. The model is reminiscent of Bloom.fm, which launched in the UK in 2013, but shut down the following year after its investors pulled out. Bay is confident that Rdio Select can avoid such a negative fate.
“The basic premise for Select is that 9.99 in any currency is a really good deal [for unlimited on-demand streaming music] but that’s simply more than a lot of people are prepared to pay. Just like an unlimited mobile phone plan is a great deal, but more than everybody is ready to pay,” he says.
Bay claims that in the main western markets, the average person traditionally bought three or four albums a year, and notes that the average iTunes spend in 2013 “was in the mid-$40 range, which is about the same thing”.
Rivals like Spotify have talked up the difference between those figures and the $120-a-year they earn from subscribers, but Bay says there’s another angle: a missed opportunity to capture the people who see that as too big a leap.
“That price point is historically what an average person spent on music. And no other subscription business has only a single price: television, mobile, even airlines are not priced that way: you have business class and coach class,” he says. “We needed a coach class for music.”
Unsurprisingly, there are no public figures for Rdio Select yet, although Bay says that 90% of its users haven’t subscribed to Rdio before, while most of the remaining 10% were lapsed subscribers – “only a very small percentage” have downgraded from the service’s premium tier.
‘Free should be a radio-style experience’
Rdio Select also fits into the current trend for streaming music services to be going after the mainstream music audiences that are currently more likely to be radio listeners than streaming subscribers.
That’s certainly the strategy of Apple Music and Spotify, with Bay pointing out that radio has “maybe five billion listeners” globally, and four or five times the revenues of the recorded music market – making it a tempting pool of potential customers.
“Our basic view is that free should be a radio-style experience, and you need an interim price point, which is Select. And then you go out there and grow the business,” he says. “The principles seem pretty sound.”
It’s no surprise that traditional radio broadcasters are looking a little nervous about this trend – sharpened here in the UK by Apple’s recruitment of DJ Zane Lowe and several producers from one of the BBC’s flagship stations, Radio 1, to staff its new Beats 1 station.
If industry rumours that the Beeb is working on its own Pandora-style personal-radio service are true, this battle could get even more interesting in the coming years. For now, though, Bay says the radio industry has some thinking to do.
“I think they’re all a bit spooked in the radio industry, although whether Beats 1 itself is going to be as transformational as Apple thinks with this idea of ‘wow, it’s live radio!’. Well, yes, people have been doing live radio for 100 years, and they’re quite good at it actually,” he says.
Bay adds that US radio broadcasters are less spooked, because they’ve been co-existing alongside Pandora and its large audience for years already. Some have also made moves into the streaming world, from Clear Channel’s iHeartRadio to Cumulus Media’s investment in and partnership with Rdio.
“People like the BBC have to figure out what they’re going to do: but they are brilliant at what they do: they’re the original source of trusted programming!” says Bay. “When you talk about programming, that’s what stations do. But stay tuned, we have a lot of interesting news coming up about radio over the next 6-8 weeks.”
Last year, when the dispute between Taylor Swift and Spotify was in full swing, Bay entered the debate wearing a (metaphorical) Team Swift t-shirt, issuing a press release to remind the world that Rdio still had her back catalogue, and backing her anti-freemium stance when interviewed on-stage by Music Ally at the Web Summit conference in Dublin.
“She didn’t think her music should be free. She doesn’t want her music played on an unlimited, on-demand free service with ads. It wasn’t anti-streaming: it was anti that type of streaming,” he said at the time. “The fundamental thing here is it’s art. It’s the artist’s choice. It needs to be the artist’s decision as much as possible.”
How does he feel about freemium now, half a year on? “Our free tier is like Pandora: you pick the station, you don’t pick the song,” says Bay. “Free, on-demand is not a good model for the industry, and not a sustainable model. The premise that if you give something away people will pay for it is ridiculous.”
“If 300 million people are paying for iTunes now, by the time Spotify is done with them, we will have 75 million paying and 225 million listening for free. That’s not good,” he continues. “The right model for free is some form of radio. Pandora has proven it’s appealing to consumers, and whatever arguments there are with Pandora are about rates, not about whether it cannibalises ownership.”
‘This is a retail business… not an internet business’
Is there even a right model for streaming music, as things currently stand? Whenever we think about the economics of streaming, from Spotify’s heavy losses to the gory details of that service’s contracts with rightsholders, it’s tempting to fall into pessimism or outright cynicism.
Could streaming simply be a market of companies whose main skills involve raising venture capital and handing most of it over to music rightsholders while racking up heavy losses, rather than building sustainable, long-term businesses?
“Cats in a bag. This is a retail business, and that’s the first thing you have to remember. It’s not an internet business. What we do, what Spotify does: it’s a retail business not an internet business,” is Bay’s response.
He suggests that the big internet businesses, from Google, Facebook and Twitter to Snapchat, have no content licensing fees, so can afford to have a very large cost structure thanks to their high margins – even once data hosting and transmission costs are taken into account.
“But this [streaming music] business is more like retail: your margins are not high, but they’re understood – they’re in the high 20s to 30s and that’s not moving a ton. It’s been that way since downloads came out, and it’s the same for digital movies, about 70/30,” he says.
“That’s where you have to design your business model around that structure, and learn to be incredibly efficient in terms of your cost structure. And figure out how you eventually make money. I feel good about our trajectory towards making money, where others are struggling. Which is not to say we’re profitable now.”
It’s hard not to read the talk about internet and retail businesses as a direct jab at Spotify, the largest player in the streaming subscriptions market if you leave out YouTube and SoundCloud.
“Look, where Spotify is concerned, I give them a massive amount of credit. They built a very large audience, they are clearly the largest player in the market, and they built a category where one didn’t exist before,” says Bay.
But is his criticism that Spotify is a retail business trying to be an internet business, with the race for reach over profits – and the ultimate exit via sale or IPO – that this entails?
“Taylor Swift was right: this whole concept of a free, on-demand model as a stepping stone to subscription is an experiment. Spotify has an audience of 75 million, so wow, they have 20 million people who pay. You could also say that they have 55 million people who are getting music for free,” says Bay.
“So they have successfully converted 55 million people to ‘free’. They appear to be behaving like an internet company with internet margins, which is not this business. But whatever anyone says about Spotify, YouTube is worse.”
‘With YouTube, we can’t leave that one elephant in the room’
This is a sentiment being aired more widely within the music industry in 2015: the sense that Spotify may have been a lightning rod for criticism of the freemium streaming model, but that YouTube may be just as worthy of scrutiny.
“It lets everyone listen to whatever they want for free, and makes it very hard for people to remove their music, citing fair use,” says Bay.
“There’s a general consensus that to make the whole [streaming subscriptions] ecosystem work, you have to deal with the YouTube issue. At least with Spotify their goal is to convert to paying subscribers, whatever everyone says… With YouTube, we can’t leave that one elephant in the room. That has to be managed as well.”
When Music Ally talks to Bay, it’s at the height of independent labels’ protests about Apple’s plans to not pay royalties during the three-month trial of its new Apple Music service – although before Taylor Swift’s intervention in the row, and Apple’s subsequent u-turn.
Rdio has been on the wrong end of indie anger before, when it launched in 2010 without a deal with licensing agency Merlin – a decision blasted by the latter as “incredibly disappointing”. The pair struck a deal early in 2011 under Bay’s predecessor Drew Larner.
In 2015, Bay cites Merlin CEO Charles Caldas’ claims that its members have a higher share in streaming than they do in the physical and download markets as proof of the importance of indie labels to services like Rdio.
“Yes, we believe an independent label should not be treated worse than a major label. It’s pretty simple. Seriously, it’s as simple as that! In principle, it’s hard to argue with his premise that indies should be treated equally in the streaming world,” says Bay.
Rdio aligning itself with independents may be another strategically plucky-underdog move from the company, with Bay comparing his company to the independent record stores that were a key sales channel for music 20 years ago.
“They were passionate about music, and that’s all they did. But then the distribution of music moved towards companies for whom music is a feature, like Wal-Mart and Best Buy, or Tesco. ‘Come in to grab some lettuce and maybe grab a CD on the way out!’,” he says.
“The distribution changed, and in the digital world, that’s Apple: they offer music, but they offer music in the same sense that Tesco offers music. It’s not bad, but it’s a means to an end.
“What we and other people represent is a return to that vibrant independent focus of a company really trying to innovate with music. We can do things and try things that others might not be able to do. I do think we punch above our weight in that sense.”
‘We’re not going to go at Vice and South Park’
So where will the next punches land? Rdio isn’t planning to follow Spotify’s move in adding video, with Bay suggesting that feature-bloat is a real risk for streaming music services.
“We’re not going to go at Vice and South Park. If you look at where the world is headed in mobile, apps are narrower and more focused, not broader. You don’t see Facebook turning into Yahoo. It’s the same with Twitter: Periscope and Vine are separate apps,” he says.
“Apple and Spotify are going the other way: they’re trying to make this one app that does all these other things, and that’s inconsistent with how people on mobile like to work. It’s the ‘one app that does everything’ approach, and that age is behind us.”
In another area, though, Bay is in full agreement with Spotify CEO Daniel Ek, who has recently talked up the importance of thinking of music consumption in terms of “listening” rather than sales or downloads.
“What you’re really trying to do now is increase your share of listening, because you get paid for listening: streaming revenues look like an annuity, and it matters a lot. In the past, it was about getting a bunch of sales then touring,” says Bay.
“Now it really changes the dynamic, and you will have artists that figure this out, and management companies that figure this out, and they will be able to do very well. And as to how they influence listening… well, you’ll see us announcing something along those lines very soon.”
The cutting response to Bay’s views would be to suggest that he’d have a stronger case if Rdio was signing up millions of users (and publicly saying how many). In a market full of bigger, richer competitors, questions about Rdio’s survival are valid – recent industry gossip suggesting it might be a merger target for Tidal played in to that view.
Yet being a niche player brings freedoms – to pose questions about those bigger rivals’ strategies and business models, and also to take some risks on the product itself. The upcoming announcements hinted at by Bay may yet give all those other cats something to think about.
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