After all, how can a company like Spotify be worth $8 Billion but still hasn’t made a profit after 10 years in business?
Jeff Price (one of the original co-founders of Tune Core) may have the answer:
“Spotify’s goal is to attract a lot of people to its service and then translate this ‘market share’ into a financial value via an IPO. Spotify’s goal is not to make money off the direct sale/stream of the music.”
Said another way, their goal is to build a massive network that appeals to investors and the stock market, not necessarily build a service that profits from the distribution of music.
But it isn’t just Spotify that has profitability issues. Pandora and SoundCloud suffer as well. There’s also been a fair amount of buzz around the idea of Amazon and Apple offering music streaming as a loss-leader for hardware sales.
So why are all these highly valued companies not profitable?
The answer probably lies in the business model of streaming itself.
As we’ve detailed in our #stream2own whitepaper it takes 150 listens of the same song in Spotify to equal the earnings from a download. Not sustainable for artists and seemingly for the streaming services as well.
At first glance, instant access for nearly every conceivable recorded work seems great for consumers, but ultimately untethers meaning and value from the created work.
When inherent value is removed from a commodity, it’s quite difficult to imagine a sustainable business model for all concerned.
So why then are we so convinced Resonate will be different?
The answer lies with a better comparison.
In their report about 2016 they highlight their recent growth and the fact that they’ve had 17 straight quarters of profitability. Congrats Bandcamp!
We think the reason is fairly simple. They aren’t in the business of achieving monstrous growth leading to an IPO nor as a loss leader for selling physical goods. They’re in business to help indie artists reach an audience and have done a great job doing so.
We hope to do the same.
Given that our business model breaks away from paltry per stream rates, rewarding artists with more income on repeat listens, we think we have a truly unique opportunity to create a more sustainable system for all concerned.
Incentivized towards declaring a profit
There’s one other issue on the topic of streaming and profitability that is worth exploring – the fact that Resonate is a cooperative.
By their very nature, coops are incentivized to declare a profit and distribute dividends to their members. After all, it’s a validation of the business model itself.
Resonate is a multi-stakeholder coop where workers and consumers receive profit distributions based on their contributions. Just as a corporations primary aim is to return value to shareholders, the cooperative seeks to return value to its members.
For musicians + labels on the platform, that means receiving an additional bonus beyond the standard 70% cut that Resonate and other services pay out. For listeners it means being rewarded commensurate to their consumption. For volunteers the possibility of financial rewards for their time commitments.
Therefore we can see that it is in the cooperative’s interest to seek the shortest path to profitability. Help us achieve that goal by sharing this and other articles and together, we’ll reach our goals!