Cord Cutting And The Future


The traditional cable plan has been hit hard by the consumer driven term “cord cutting”. The Internet has thrown curve balls to a number of industries since its creation and cable TV is currently up to bat. Cord cutting is the word used to describe a consumer ending their relationship with traditional cable packages and turning towards internet-based alternatives. The cable industry has always been dominated by a few powerful players. High barriers to entry, mainly hefty start up costs, meant there was largely little competition.   The internet, however, took down most of the walls and gave consumers easy access to content on a number of different sites.


Cable TV packages offer consumers a bundle of content for a monthly price. Included in these content bundles is a range of different programming. While consumers may only watch a select few of the channels included, they must pay for the entire bundle. When cutting the cord, or at least considering it, consumers cite four main reasons. Over half of the respondents cited convenience and flexibility as the main reasons, with advertisements and price also regularly cited according to ComScore’s “The U.S. Total Video Report.”


As a result of the internet, and a response to consumer needs, a number of streaming services have popped up giving consumers more freedom in their viewing experiences and a cheaper alternative. In terms of cord cutting, streaming has led “5 percent of U.S. TV subscribers to cut their subscriptions between 2008 and 2013, with 1.25 million (1.3 percent of the total subscriber base) snipping the cords in 2013. The researchers predicted that U.S. TV cord-cutter households will hit 6.23 million (6.2 percent) by the end of 2014.” – Convergence Consulting Group


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While streaming has seen success, it hasn’t completely taken out cable, leaving the future of TV still somewhat up in the air. Cable still has many things going for it and has the upper hand on streaming in a few areas. If cable is able to adapt to the consumer in the ways streaming has, the future of TV could be one of cord shaving, not cord cutting. The competition between these two content distributors is complex and simply cutting the cord may not be so easy. The TV landscape while certainly shifting is not shifting towards a single alternative. Rather, the industry is opening up to many alternatives, including the original players, leaving it up to consumers to create their own bundle of content providers.


Streaming took the opportunity to capitalize on cable’s mistakes and in turn was able to fix the four most prominent consumer complaints. Cable TV has been the same for quite some time and until now hasn’t had to change. While the cable TV model hasn’t been a consumer pleasing one for a while, few alternatives had kept people paying for the service. The internet opened the industry up to alternatives and left the old pay TV model to play catch up as consumer tailored streaming services began attracting customers. Content streaming sites such as Netflix and Hulu have risen to success relatively quickly because they are consumer focused. Netflix recently reach over 50 million subscribers in 2014. The first problem streaming solves is price, as most of the services are offered for around $10 a month. Though consumers may choose to subscribe to a number of different sites, increasing costs, streaming gives the consumer more control over how much they pay. The lower prices also open the market to consumers who aren’t avid TV watchers. For the consumer who only wishes to watch TV on occasion, close to a hundred bucks a month is a hefty price tag with cable.

Back in 2011, when Netflix was just starting to become popular, CEO Reed Hastings was quoted as to why Netflix was successful. “The streaming service is priced so that people who use it once or twice a month will still find value and come back. And those who use it once or twice a week will rave about it to friends.”

The low prices take the pressure off utilization and in turn have increased the market for subscriptions. The price structure takes TV out of the luxury product category and places it closer to that of an impulse purchase or an easy buy. Netflix has stated that their core principle is “personalization and user choice” and with this principle they have given the consumer the power.


The power doesn’t just stop with pricing either, streaming gives users access to a database of content available to be used at any time. The eight PM television slot used to be the heyday of the daily TV schedule but, over time the American lifestyle has evolved, and people are busier than ever. Cable gives viewers access to content only when it is scheduled and this model no longer fits with the on demand lifestyle the American consumer is living. With the digital age, instant gratification has become a consumer necessity and streaming has given users just that with TV they can choose to watch at any time.


Lastly, streaming has solved the problem of advertisements. As the American lifestyle gets busier and busier, consumers have less and less patience for unnecessary time suckers like commercials. The distaste for commercials has led to a number of inventions, starting with recording devices such as TiVo. Sites like Netflix have taken it one step further by deleting commercials completely. With the cable model, commercials are what make money as advertisers pay hefty prices to promote their product alongside hit shows. The more viewers watching a show, the more an advertiser will pay, meaning it matters how much and how often a user watches TV. Netflix has changed this model with its subscription fee. Regardless if a user watches one show or fifty a month, the site makes the same amount of money. This means Netflix’s only concern is the number of subscribers. So instead of shoving mixed content bundles down consumer’s throats, Netflix only has to focus on the consumer experience. It doesn’t matter what you use of Netflix content, just that you sign up. Because of this, Netflix has created an extremely attractive consumer experience.


While there are a number of things the streaming industry is doing to win customers over, live TV isn’t one of them. Streaming offers content to consumers when they want it, except if they want it live. Although this isn’t a problem for TV shows and movies, it poses a major problem to the passionate sports fan. Many in the TV industry have labeled sports the glue of the cable bundle. A Harris Interactive Poll recently conducted, found “43 percent of U.S. adults naming live sports as the reason they won’t cancel cable.” Sports are a major TV event for many households and because of this, cable TV hasn’t been completely overrun. Though many consumers would want to pay for sports alone, cable TV is sold in bundles meaning sports are package alongside a hundred other channels.   While the price tag for the bundle to only watch a fraction of the channels is large, to many sports fans it is still worth it.

USA Today contributor Jennifer Jolly speaks on why sports and streaming haven’t quite worked.

“The trouble with online streaming services for sports is that most of them are subject to media blackouts, meaning broadcasters have exclusive rights to live games. So the home team, which you’d see broadcast on a local station, won’t be available to watch on any online streaming service. So it’s pretty tough — but not impossible — to watch live sports online, legally.”

Sports are certainly a major part of the cable equation, and the way access to live games is handled will be a major factor in cable TV’s future. If cable providers are able to keep exclusive access to sports content, then they will slow the cord cutting movement. With sports, many people have questioned why cable networks don’t offer a sports only bundle, which could save certain customers’ money. While this idea in theory sounds like a good one, it doesn’t work in cables current model. By the time all the fees are added up in order for the networks to make money, the price would still amount to a hefty $50 dollars plus for only about 13 channels.

More so, the large bundle of channels allows cable companies to package worthless channels with expensive ones that users are willing to pay for. An all sports bundle would mean people would no longer be paying for the worthless channels and it would result in lost revenue across the board. Sports give cable positioning power in this new market space. If cable is able to find a way to leverage that power in a consumer pleasing way, there is a space for them to be successful in. The expensive standardized channel packed bundle has lost its appeal, as consumers now want a custom experience with their content. While currently an all sports bundle does not economically work, cable companies need to find a way to make smaller more curated bundles. A smaller bundle that included sports would appeal to many levels of sports fans, including those who only put the game on occasionally. With sports in their pocket, it is not too late for cable companies to make changes to better compete is the consumer tailored market.


Sports however, aren’t the only reason people are choosing to stay plugged in. Comscore found “that 24 percent of TV viewers ages 18 to 34 don’t subscribe to a traditional pay TV service”. Nearly 46 percent of those viewers never had cable to begin with, while the rest simply cut the cord. While the numbers cited here seem large, they are only large for the younger generation. In the same study, Comscore found that, “generally speaking, the older the viewer the greater percentage of time spent watching on traditional”. The cable alternatives, such as streaming, are all recently developed digital platforms that to many older viewers seem “incredibly complicated”. So while cable may seem like a hassle, to some the internet seems like a far more complicated alternative. On top of the generational gap, the cable providers are often a homes broadband subscriber as well. As a result, cable companies often offer combined internet, phone and TV packages. To many users cord cutting means changing more than just their cable package and the hassle isn’t quite worth it. The younger generation, more specifically the millennial generation, has grown up with the internet and streaming is a much more natural progression. Several studies have reported a rise in people who have never even had a cord. While cord cutting seems to be on the rise with the youngest forth of the population, many of the generations that grew up with TV have held out. Though cable companies are going to have to change, many consumers are still plugged in and a consumer-focused change may be enough to stop the cutting.


Streaming has solved many of cables problems but, to many users this hasn’t been enough to cut the cord and as a result, streaming has had to go one step further. With many users choosing to keep cable due to live TV and other reasons, Netflix hasn’t gotten its 50 million subscribers from cord cutters alone. In order to grow, streaming has had to position itself not only as a cable alternative but a cable addition. More so than a cable addition, individual streaming sites have had to make themselves standout amongst each other. Streaming’s success has led to a number of players entering the game and while different sites differ slightly, they all largely offer the same thing. Not only are new streaming companies arising but traditional companies are adapting as HBO and CBS just recently announced plans to offer streaming options. Due to competition, these streaming sites have positioned themselves as the subscription a customer needs to have, regardless if they already have cable or other streaming subscriptions. The most notable way this has played out is through original content. Sites like Hulu and Netflix have created their own shows and mini-series in order to appeal to customers. Netflix had huge success this year with their series Orange Is The New Black, a show exclusively available on Netflix. “Netflix Inc. (NFLX), posted second-quarter signups that beat analysts’ estimates as the women’s prison series “Orange Is the New Black” lifted users past 50 million.” – The original content is a draw for users, and the low subscription fee has led many users to sign up just for a single show. Original content has positioned streaming to be something users want no matter what their TV situation is, and it has allowed these services to grow tremendously.


The way streaming sites have diversified themselves has made streaming less about which site is the best and more about how added together a consumer could get the ultimate viewing experience. The cable industry is changing as the TV world becomes unbundled, however, nothing has stood out as a one-stop solution for TV. The different streaming sites out there now offer different content, different plans, and different benefits. There hasn’t been one yet that has been able to address all consumers’ needs in the way cable did in the past.   As a result, the unbundled world of TV may actually be a bundled world, just a curated bundle. The avid TV watcher is not happy with just one streaming site or just cable, and as a result, there have been many consumers subscribing to multiple services at once.   Following this trend, a few products have come out like Roku that allow users to display their many streaming services in an app like fashion on their TV. Instead of flipping through channels, users pick content from their subscription services, one night they may watch Netflix, the next it could be Hulu. Depending on the user’s budget and need for content, they could subscribe to any number of sites weighing which subscriptions they want to pay for. For many users, the totaled subscriptions have ended up looking very close to their original cable bill, however, the freedom to create their own bundle has left many customers more satisfied with their content. There have also been a number of users that choose to rack up subscriptions on top of their cable bill.  The number of people subscribing to streaming on top of their cable bill could grow tremendously if cable companies offer smaller personalized bundles. Bloomberg’s Lucas Shaw, using data from Hudson Square Research, states that “it would cost over $100 a month to subscribe to Netflix, Hulu, HBO, CBS, the Tour de France, WWE wrestling and three of the four major pro sports leagues. And that’s on top of what you’re already paying for Internet.”   Though consumers have been racking up subscriptions fees these fees are for hand picked content not a giant bundle. While streaming’s low prices may be a draw for some, for others, price is just a small part of the equation. The cable bundle leaves consumers to believe they are paying for unwanted content and therefore wasting money. Streaming bills that could total close to that of a cable bill aren’t seen as wasted money because each dollar is specifically and personally spent by the consumer. Together, these streaming sites have been able to give consumers what cable never has, a personalized experience.



If cable companies are going to survive in this shifting environment they need to focus on the consumer. Cables solution doesn’t lie in the little problems, but rather the fact that the average consumer is changing. The main reasons people cite for switching to streaming are price, access to content, convenience, and advertisements. All four reasons are part of the larger consumer trend, personalization.   The one size fits all model no longer works as the present day consumers expect personalization in almost all markets. Cables strategy of more is better by creating a massive bundle is no longer what the consumer wants. Streaming, while largely a result of technology and the Internet, it is more so a result of the evolving consumer. The internet has given marketers a way to access more consumer data than ever, and as a result, they can deliver customized advertisements and product deals. The present day consumer has not only become accustomed to this personalization, but wants and expects it. According to Forbes Insights, “more than three-quarters of consumers saw the benefit of trading personal information for more relevant discounts and offers, and 62% were willing to do so in return for personalized offers.”

Netflix is a prime example of the personal media experience. Netflix offers three ways to watch their content: instantly to a computer, instantly to a TV, or through mail in DVDS. Beyond the viewing experience, Netflix allows customers to rate content and the site offers tailored movie suggestions to the consumer. Netflix also keeps a database of what the user has watched and provides personalized movie ratings for new movies based on the user’s previous scores. Personalization is where TV is headed regardless of the viewing platform or subscription site. Users want control and that is what streaming has provided them.

“With social media, YouTube and Netflix serving up exactly what the user wants, it’s no wonder that personalization is no longer a luxury, but an expectation. Businesses that fail to understand this change are charged with the unenviable task of shoehorning old media into a market that demands change and adaptation.” – Eric Siu Contributor for Entrepreneur magazine

The consumer has changed and cable has remained mostly the same, but it is not too late for cable to catch up.


Streaming sites have been the first response to the changing consumer and while this has gained them interest, this interest hasn’t been enough to break down cable. The internet has left many companies behind but the TV industry isn’t quite there yet. Cable TV is not in the same position the CD was in a decade ago where technology overran it. Cable is still largely in homes across the country and has an upper hand to consumer access both with cable and internet services. The problem cable companies face is not getting consumers, but keeping them. If cable is able to offer consumers a chance to personalize their bundle they are well positioned to survive. Cables power over live TV and broadcast exclusive content means they already have the diversification these streaming companies have had to create. If cable companies can unbundle to some extent and position themselves as one of consumers many content sources, they have a chance. Traditional cable TV as an outlet is not what is outdated, the customer experience these cable companies provide is. The TV landscape is getting unbundled giving consumers the ability to put the bundle back together again. This new bundle may in fact include many of the original cable TV players and a well in tact cord. The decisions these cable companies make and how they change in response to the new consumer demands will prove to be vital. With the many content providers out there now, the industry isn’t looking at cord cutting, but cord shaving. Consumers have proven that they aren’t looking for an all-encompassing solution to TV but rather; they want the ability to create their own solution by piecing together many content providers. The story of cable may well not be one of competition against streaming but one of unity with streaming. While cord cutting is a very easy word to throw around, the TV industry isn’t just looking at a switch between cable and streaming, but rather a restructure of the entire consumer experience. The cable giants are still big players in the game with a strong lineup (live TV) and how they bat will be extremely important to the TV landscape.


Snapcash A New Win For SnapChat?


The online monetary transfer business is one that is growing rapidly as users continue to adopt sending their friends cash through their smart phones. There are two key players are in the market space currently, Venmo and Google Wallet. The peer-to-peer payment space however is not dominated by a single company yet and has a lot of room for growth. These companies allow users to easily transfer cash through mobile apps from friend to friend. This online cash transfer happens quickly and easily allowing people to easily split bills or pay someone back without taking out cash. Users simply enter the payment amount and the friends name and the money is simply deposited in the selected friends bank account. These applications are newly popular and their popularity has led to interest from other parties trying to gain access to the space.

Snapchat recently launched “Snapcash” and integrated cash transaction feature using Square Cash. By going through an outside party for the cash transactions Snapchat puts users at ease knowing they can trust their debit card information is safe. The new payment option is already apart of users existing Snapchat account giving millions of people the access without them even having to download a new app.   Users simply have to enter their debit card information into the application and with the click of a button can send payments to anyone on their friend’s lists. Just like sending a photo user now can send cash.

Payment exchange apps overall have had wide acceptance and praise with many people finding them extremely helpful.  Though there is an overall positive surrounding the applications none individually have gained widespread adoption. The previously existing applications, Venmo and Google Wallet have struggled to gain adoption as they are marketed as new business models and require users to both download and trust these new companies. When entering this space Snapchat has an advantage, as it is a consumer app that people already have friends list created on and would give the technology to people who may never consider downloading it.

While Snapchat has just launched the friend-to-friend payment system the idea behind the system could open many doors for the application. Snapchat along has recently launched advertisements on the application. The advertisements range from a number of products and they allow users to watch short commercials about the product on the application. With Snapcash now integrated into the app, users could potentially have the ability to instantly purchase a product they see in an ad. If Snapchat were to go this route not only would they have great appeal to advertisers but would also generate another efficient service to their customers.   Further than the instant payments, Snapcash could also potentially reference debit card information to better target users with advertisements.

Snapcash is still in its beginning phases but with its current user base and potential for growth it could quickly become the leader in this new monetary exchange space.

Taylor Swift VS. Spotify

Spotify has been in a long battle with the music industry over its controversial streaming business model. While the music industry has undergone a lot of change in the last decade it still hasn’t fully adjusted to the change, leaving the industry in somewhat of a standoff. Spotify, currently the leading streaming company, has been at the forefront of this stand off as they work to introduce the music industry to a new revenue model. Over the last several years Spotify has been making strides toward acceptance as they have worked to educate artists about their site and have steadily increased the royalties they pay out. This acceptance however hit a major hiccup 2 weeks ago, when Taylor Swift pulled her entire collection of music off the site.

On the subject Taylor stated, “I think there should be an inherent value placed on art. I didn’t see that happening, perception-wise, when I put my music on Spotify.”
Taylor has been vocal about her distaste of streaming services as she feels streaming sites are part of the reason album sales are shrinking. Though Taylor has voiced a negative opinion about streaming as a whole she has left her collection on both Beats Music and Rhapsody. Before pulling her collection off Spotify, Taylor had asked the site to make her content only available to paying users which Spotify responded was against their policy. Taylor also asked for her content to only be available outside the United States but this again was against Spotify’s policy. The two sites that still have Taylor’s content are sites that require a paid membership.

“With Beats Music and Rhapsody you have to pay for a premium package in order to access my albums. And that places a perception of value on what I’ve created.” – Taylor swift

While Taylor has made a very public separation from streaming, the real question is whether or not this will affect the Spotify. In response to the ordeal Spotify’s founder Daniel Ek released an open letter to the singer explaining why she made the wrong decision in pulling her music.

In the essay, “2 Billion and Counting” Daniel Ek wrote- “Taylor Swift is absolutely right: music is art, art has real value, and artists deserve to be paid for it. We started Spotify because we love music and piracy was killing it. So all the talk swirling around lately about how Spotify is making money on the backs of artists upsets me big time. Our whole reason for existence is to help fans find music and help artists connect with fans through a platform that protects them from piracy and pays them for their amazing work.”- Daniel Ek
This letter makes a very important argument, which is Spotify makes money where it didn’t exist by combating illegal downloading. In the same letter the founder explains that Taylor was on track to make 6 million this year had she left her collection on Spotify. Further than the 6 million the number was on track to increase significantly every year as the site grows. Daniel Ek made it clear in the essay that Spotify is not against artists; rather they are working very hard to make sure artists are properly compensated.

“Here’s the thing I really want artists to understand: Our interests are totally aligned with yours. Even if you don’t believe that’s our goal, look at our business. Our whole business is to maximize the value of your music,” he said. “We don’t use music to drive sales of hardware or software. We use music to get people to pay for music. The more we grow, the more we’ll pay you.” –Daniel EK
The Spotify battle is long over as it is a matter of educating both the public and those in the music industry on the business model of streaming. Spotify’s response to Taylor shows that the site is willing to fight back against artists to make streaming successful. While Taylors move to take down her music got a lot of buzz it, also got a lot of people stepping up to defend Spotify.  If Spotify is able to continue its efforts to educate artist on the benefits of streaming, it may have a fighting chance.  Spotify has proven that they can handle even one to the biggest pop stars dismissing their site. Though the future is not clear, it looks like the streaming site is here to stay.

Facebook In The Workplace


Facebook wants to enter the workplace and in a big way. In the next year Facebook hopes to launch a new side to its site that would allow colleagues to collaborate on projects, share documents and function as an in office communicator. In Facebook’s London headquarters the company says they have been developing the program for a long time.
The site would feature a very similar design to the existing personal site, but would strictly be for inner office collaboration. User’s personal profiles will have no connection to the work profiles. The site would feature similar news feed and group functions, allowing users to post content for the entire company as well as preform smaller team work. While much of what the site will feature is still speculation many have wondered how Facebook for work will rival preexisting office applications.
Forbes contributor Erika Morphy states- “that Salesforce Chatter is already a popular service used by thousands of users. Slack has also become a popular collaboration service that’s challenging Atlassian’s HipChat and Campfire, with its clean interface for chatting with colleagues or sharing documents and links.”
Further than just communication sites alone there has been speculation about Facebooks profile feature and how it could function in a very similar way to LinkedIn. If users are able to create a public business profile that moves with them from organization to organization as a user changes jobs the site could function as an online resume tool.
While there are many existing office communicator application out there already, there is speculation that Facebooks well-known name will lead it to success. Many offices have had to ban Facebook across the country as their employees are too addicted to the site. Facebook in the office could prove to be very popular among employees leading many companies to switch communicators. More so then popularity the familiar interface would mean little transition time for companies as the majority of employees are already accustomed with how the site works. The counter to this argument being that most employees have no say over their company’s communication systems as it is often a decision made in IT departments. With Facebook at work the site will only be available to employees if the company as a whole signs up for the service.
Facebook also faces another issue, privacy; can it get companies to trust the site? In today’s corporate structure much of what happens within the walls of a company is top secret. Posting and collaborating on sensitive documents on the internet would be worrisome to many.
Facebook has many issues that it must look at to become successful in this office space, however if done right it has the possibility to change the game. Facebook at work is currently in the testing phase at a select few organizations across the country. Though it is still unclear when Facebook will officially launch the site, it is definitely something to watch for.

The Digital Age and the Music Industries Recovery

The music industry has waged a tricky battle in its fight against the ever-changing ways consumers obtain music. The music industry was once a dominant force in the entertainment world; at its peak in 1999, 943 million CD albums were sold. While the industry was at its peak, it was also on the verge of a slippery slope it wasn’t prepared for. In the same year, Napster made its debut, not only changing the way music was distributed but slashing the price to free. Napster took off in popularity gaining over 60 million users and dramatically changed consumers’ mindset on what the value of music was. As a legal response to illegal downloads, iTunes was created in 2003, but many believe that the four year lag was the industry’s fatal mistake.

iTunes created a digital music option for consumers, allowing the purchase of single tack for around $1 but, compared to free, $1 doesn’t look so appealing. iTunes became the dominant legal option for music sales over the next several years as the iPod changed the way consumers listened to music. Apple, while still making some profit from its music sales, wasn’t concerned with large margins on the digital tracks as the company’s profits were in the hardware it sold to hold the music. The iPod was Apple’s main priority and the iTunes store was just a part of making the iPod marketable to consumers. By offering consumers low prices on music, the iPod grew in popularity and, though legal digital downloads meant some revenue for artists, it wasn’t much.

“In the popular digital realm, a $9.99 download on a program like iTunes nets artists a modest 94 cents — less than a 10% cut. The record company takes $5.35 and Apple keeps the remaining $3.70.” -Investing Answers
iTunes was able to create a digital revenue stream for artists; however it was still a dramatic drop from the money physical CDs netted.

iTunes affected the industry in more ways than just price shifts, it caused an unbundling of the industry. iTunes offered consumers the option to purchase individual tracks as well as the full album. This dramatically shifted the average purchase amount, as consumers no longer needed to spend the full $9.99 for the album but, rather could pick and choose the songs they liked. In an industry that used to rely on a few track hits to boost a whole album, this posed a major problem. In the traditional media packaging format seen in many other areas of the entertainment industry, mediocre content is bundled with prime content and consumers pay for the entirety, with the prime content carrying much of the value. This change meant a content shift in the industry and the pressure on artists to produce hit after hit.

“Steve Jobs said to us, ‘There’re two things you have to accept: 99 cents for every single song, and every song has to be sold as a single.’ And we went home and swallowed hard because that was tough for us to accept for us as a music industry…. If certain songs were really popular we should be able to set the price at whatever we thought was the right price as opposed to the $1 price. Steve said, ‘You know, you’ve got to keep it simple, you’ve got to keep it clean.’”
-Chief Strategy Officer for BMG Music Entertainment when the iTunes Music Store launched

Apple was the site consumers used for digital downloads and Apple’s high market share meant it set prices.

There is no doubt that iTunes and illegal downloading presented the music industry with a number of obstacles but, though less obvious, it also presented opportunity. The digital age gave music the opportunity to be present everywhere and the ability to expand to a global playing field. Though iTunes hadn’t created the profit stream the industry has hoped for, it forever altered music consumption. Digital downloads offered instant gratification at a time when consumers wanted to be able to receive what they wanted with a few clicks of the mouse. iTunes gave consumers accessibility and, as with most things, give the consumer what they want and they will continue to consume. In iTunes’ first year, it sold 25 million digital tracks and the number rose to an incredible 1 billion by 2006.


“Apple made music ubiquitous in a way it never was before. And they set music free from large PCs. Earlier MP3 players did that, too, but not like this. That ubiquitousness has driven a consumption of music that is unparalleled in the history of the world.”
-Jeff Price, founder of TuneCore and co-founder of spinART Records

Apple was able to make big strides in the digital music space but it never was able to fully bridge the gap the loss of physical CDs created. iTunes was thought of as the industries answer to illegal downloads but did not save the industry. However, it did start the process for the industry to reinvent itself. iTunes had two main problems it wasn’t able to solve. The first was as a distributer, it didn’t please the music producers and artists who received little revenue from the site. The second was iTunes was too late to the game, and was stuck fighting a consumer mindset that still remembered times of free music.

iTunes two main flaws opened the doors for a new business model to enter the game, streaming. Music streaming entered the industry offering consumers an all-you-can-eat buffet of music and the pay-for-song model crumbled. Streaming gave music to consumers for free and fulfilled the consumer ideals from the Napster days. A number of new music applications following the streaming model have popped up, with one of the most notable being Spotify. In 2011, Spotify launched its service creating a major new business model for the industry. With the creation of Spotify, consumers could now get access to unlimited music for free, or for $5-$10 dollars a month, if they paid for a subscription. The free version of Spotify is supported by ads, while paid users have access to a premium service that is ad-free. Spotify has been growing at a rapid pace the last two years and in May of this year it announced that it had reached 10 million paid users. While 10 million paid users may sound like a lot, the number is not even close to the 30 million users who use the site for free. Spotify’s rapid consumer approval meant it had the possibility to dramatically changed the industry once again. iTunes proved that consumers want easily accessible music for very little money; Spotify took this model one step further by offering a free option. Spotify though a hit with consumers, didn’t solve iTunes first problem, revenue to producers.

In Spotify’s business model, executives have stated that 70% of the revenue from the site goes to royalties, but even with this large percentage, many in the industry haven’t felt they are properly compensated. With this pay structure, artists end up receiving fractions of cents per song played ($.0033) on average. Spotify’s pay structure brought up a tricky problem for the company as the ($.0033) was per stream, meaning a single customer could rack up multiple royalties on the same song. In a more technical break down, the royalties are paid out to artists by taking an artists total streams compared to total streams for Spotify, with the largest artists getting the most money. While the multiple royalties could potentially add up to the same revenue per customer as a single iTunes track purchase, Spotify created the problem of sticker shock with its producers. Artists and music producers are given their earning figures on a per stream basis and fractions of a cent didn’t go over well with already frustrated musicians. Spotify’s problem, like many other streaming services, was that it had created a new business model in an industry that didn’t understand it. Spotify’s revenues, while reoccurring, look shocking next to the one-time revenue an artist gets from iTunes. Spotify came into the industry at a time when artist were already frustrated by the loss of the golden days of music, leaving it to fight an uphill battle from the start.


As Apple proved with iTunes the music industry must adapt to its consumers’ needs and Spotify has been able to just that. In 2013, digital sales dropped from $1.34 billion to $1.26, while the number of songs streamed continued to increase, reaching over 118 billion raising income from streaming by 51%. Spotify has proven to be something the industry cannot ignore, and streaming, while a contested model, looks like it’s around to stay. Though Spotify has been at the center on controversy since its start, as it entered a situation that was already a disaster, could it be the answer to illegal downloading that Apple wasn’t?

Spotify has the potential to do what Apple does on a much larger scale, which is dramatically increase the consumption of music. In Spotify’s few years of existence, it has already proven to be an extremely effective outlet to share music, not only boosting the amount of music consumers listen to, but the variety of music as well. The site spreads music very quickly and through playlists introduces new music to consumers. Consumers using the site can also generate playlists and share them, creating a social interaction with the music. Spotify goes even one step further with publicity as it offers the ability for users to share what they are listening to in live time on their other social media accounts like Facebook.

“Streaming is about access versus ownership,” says Fredric Vinna, Spotify’s vice-president of product. “Now you can have up to 30 million songs in your pocket. We want to connect fans and artists, fans and brands, fans with fellow fans,” he says.

In this way, Spotify has been able to create a music sharing space that goes past the traditional outlets of the past such as YouTube. Further then just allowing users to discover new music, Spotify is able to add personalization to the business model. Using complex algorithms the company can monitor and track consumers patterns, allowing the company to make personal music recommendations. Spotify is continuing to expand on this personalization model, adding new ways to benefit consumers by analyzing their use.

“We will even have movement sensors in Windows phones that will help us match a song list to the cadence of your exercise routine.”- Fredric Vinna

Spotify has to potential to greatly surpass Apple’s consumer reach and do what the music industry needs most, increase consumption. As a service that gives the consumer what they want, Spotify has been able to dominate music distribution. The only question left is, will this dominance equate to revenues?


Spotify offers fractions of a penny per stream, but fractions of a penny multiplied by millions of plays add up. With Spotify’s growth already and its potential growth in the future the streaming model might actually turn out to be one that is profitable. Spotify has not only seen growth in its free users, but has been growing largely with its subscription based users as well, surpassing 10 million. If this growth continues with subscription-based users, Spotify will not only see an increase in the number of streams, but will be able to raise royalty payments, further increasing profits for artists. In a study done by Russ Crupnick of NPD Group, a respected music consultancy. They found that looking at the U.S. internet population of 190 million, only 45% buy music of any form. The average annual spend of that minority is only $55.45, while the average paying Spotify user generates more the two times that amount. Spotify says it has paid out more than $1 billion in royalties since its launch in 2008 to the end of 2013. That is certainly some profit and while it mightnot be close to what the golden ages of the music industry brought in, Spotify has been able to create profit on consumer preferences. With every new user, Spotify increases revenues and in turn increase the amount of royalties they can pay out.

This chart shows Spotify’s total royalty payments per year-

“Last year we saw some growth in music industry revenues – the first time in ages,” says Gennaro Castaldo, spokesman for the BPI (2013). “We’re pointing forward again and streaming is helping with that recovery.”

While the industry was hit hard in 2011, it has since been on the track to recovery. Artists can no longer rely solely on album sales so they have diversified their revenue streams to compensate. The music industry which in 2004 could have been given up for dead has made a remarkable recovery and is continuing to head towards the direction of growth and profitability. Streaming sites like Spotify have changed the economics behind the music industry by changing the way money flows from consumer’s hands to the artists. Consumers have certainly benefited from these streaming sites in the form of lowers cost and better user experience and artists have seen benefit as well in the form of increased consumption. Though the industry has not been able to fully recover, the revenues it once generated, it is well on its way.




$6 Dollar Standoff

$6 Dollar Standoff


As a 20 year old college student I’ve just started my journey into the working world. On top of being a student, I work part time in the music industry. Like most industries, you start at the very bottom and that comes with a cents on the dollar paycheck known as minimum wage. My own minimum wage paychecks, however, weren’t my first experience with the low dollar amount. Growing up I watched my father start a company that employed many minimum wage workers. Coming from a upper class family, I have never had to put a value to my time, and money has never been something that was a daily worry. While I was living comfortably though, many people that worked for my family’s business were living pay check to pay check. Starting my first job made me look at that business from a different perspective. My job made me ask, was I only worth $9? This new evaluation of myself made me take a second look at what minimum wage meant and the difficulties it presents.


This debate is very relevant to me, as the minimum wage increase has both positive and negative effects on my life. On one side, my check could definitely use the boost as just the commute to work itself eats up a third of the money. If I needed to solely live off my pay check it would be nearly impossible, especially in LA. On the other side, however, business owners like my father see the minimum wage increase as a threat to their company. With the city of Los Angeles looking to increase the wage to $15 it’s not just a dollar here and there, but a substantial new cost a company must undertake. With a personal interest in myself, and a deep interest in the success of my family business, this issue has become one to make me think deeper into why the minimum wage exists.

The most obvious claim is that we must value our workers more than the national average wage of $7.25. Many recent strikes have workers demanding wages that support their families, something more than a “starvation wage.” I can resonate with their frustration and the disappointment when opening the checks in the mail. If I was in a minimum wage situation indefinitely and it was my only source of income, I would need more money, but there is a lot more to this issue.

In small businesses that employ minimum wage workers, the wage allows them to be successful through competitive prices for their customers. Raising that wage by $6 more means huge new costs that must be shifted somewhere. I discussed this issue with my father who blatantly put it, there’s only two places for the new costs to come from, raise prices or cut jobs. In this situation companies will be forced to raise prices by potentially 50% to 60% just to compensate. The other option, firing workers, from my father’s perspective means the first to go will be those with the fewest skills, the current workers at or near minimum wage. Wages are set by supply and demand for labor. Using a minimum wage artificially influences that balance. So now you will have minimum wage workers making more money, but they have to spend more to live because they purchase goods and services from places that use minimum wage labor. The LA Times put the numbers into perspective “overall unemployment at the height of the Depression was about 25%. Especially for low-skill workers and for young workers, the two groups of workers who will be disproportionately hit by a minimum-wage increase, ours is a labor market in crisis.” The minimum wage is a struggle for business across the board as low production costs are top priority, and affordable labor is a necessity for operations.


The minimum wage increase doesn’t just effect the bottom line workers pay in a company it also affects company moral. As a minimum wage worker I do feel less valued than other employees because I make the least amount possible. While many people think raising the minimum wage would help workers feel more valued, it in fact has the opposite effect. There is a negative psychological effect with raising the minimum wage. When people earn raises and their pay goes up from the minimum wage, they feel good that they are now more valued. I myself would love to be able to say that I make more than base pay. When the wage goes up and workers are again making just minimum wage then they aren’t happy, and they want even more. Why should someone that has taken 10 years to earn $15 now be happy that someone brand new to the company at an entry level will make just as much as them. They will want a $6/ hr raise too. So the domino effect happens and it destroys companies and workers moral. Raising the minimum wage affects salaried managers as well. To be salary you must make at least double the minimum wage, so when the minimum goes up not all managers are making enough and now they are reclassified as hourly workers. This lowers their moral as they are no longer in this higher category of management. This just happened at our family business when the minimum wage increased from $8 to $9 as a lot of the front line managers were making $16 to $17.

This debate certainly isn’t easily answered as it is a complex issue with two very different sides. The minimum wage increase is a perfect case of putting oneself in the others shoes, it is a debate with each side having very little experience with the others circumstances. This lack of understanding is what has created a standoff in Los Angeles over $6. My unique situation has allowed me to gain some insight into the differing perspectives and see why each side is willing to battle so hard.

Women As Economic Indicators

Women consumers are a driving force in the market place, constantly shaping market patterns and trends. While new fashion and beauty trends seem to constantly be surfacing, many of these fashion trends aren’t as random as once thought. Though the latest issue of Vogue many seem like a collection of designer ideas and fashion revolutions much of women’s style runs in cycles. Further research into these cycles has revealed economic ties to woman’s buying habits.

Lipstick_mainOne of the more widely talked about economic indicators tied to women is the lipstick index. Leonard Lauder argued “that during difficult economic times, women will increase purchases of lipstick and makeup and decrease purchases of higher priced goods like shoes and handbags”. There are two major theories that support why women would increase their makeup buying habits in hard economic times. The first of these theories looks at the self-esteem of women and the need to have luxury goods even when unaffordable. Women’s fashion is branded from a desire standpoint not a need standpoint therefore women view items like handbags and shoes as items that increase their self-value. While money may run short women’s opinions of their own self-worth does not diminish at the same rate. This leads to women seeking desire goods that fit their new price point, such as lip stick.
The second theory looks into the reasons why women buy makeup to begin with, with one of the main reasons being to increase their attraction level. A study conducted by a team of psychologists looked into this trend and noticed that as a recession occurred the number of men women found attractive decreased. This occurred for several reasons with the primary reason being women look for financial security in a partner as a major trait. Business Insider found that the “results of four separate experiments showed that women were likely to increase purchases of lipstick, perfume, and other products that might enhance their sex appeal.” While handbags and shoes might also enhance a women’s sex appeal, during economic downturn these expensive items fall into an unaffordable price range.

Women do not affect the market only with beauty sales but with fashion as well. George Taylor in the 1920s came across the Hemline Index. This index looks at the length of women’s garments juxtaposed to the state of the economy. In his research he found that the better the economy was doing the shorter the hemline fell on women’s clothing. Many economists have looked at this theory and found differing reasons. Some found that a longer hemline in economic downturn was a result of women wanting to appear more professional as they looked for jobs or tried to keep their jobs. This was backed up with dramatic length changes on women’s clothing during the 2008 financial crisis. On the opposite end other economist found that the shorter hemline in good economic times was a result of more disposable income being spent on partying and social use.

Women’s buying habits highlight a third economic indicator the High Heel Index. Dr. Trever Davis found that “Usually, in an economic downturn, heels go up and stay up – as consumers turn to more flamboyant fashions as a means of fantasy and escape”. While in the previous study it was shown that women tend to shy away from buying expensive items like shoes; this study has shown that those who still do purchase shoes purchase higher ones. The high heel has been correlated with a women’s confidence and an overall put together presentation. The association has led women to purchase higher shoes in harder times to in a way suppress reality.
Women have always been large consumers in the market place and studying their consumption patterns has given economist a different way of looking at the economy. While the standard economic statistics and figures are still used as the most credible way to gage the state of the economy looking at trends such as these provide a different perspective.