Rdio Embarks on Experiment to Gain Subscribers Through Artists
Rdio Embarks on Experiment to Gain Subscribers Through Artists

Music subscription service Rdio has launched a program Tuesday that pays artists directly for the new subscribers they bring to the service. The program is a creative attempt to solve two of subscription service's biggest problems: lack of subscribers and a reputation paying artists too little.

Details of the program, first revealed at Billboard.biz in May, have been kept simple. Any artist can sign up (and get a complimentary Rdio subscription). Artists will be paid $10 for every new subscriber they bring to the service. The payment is the same regardless of country, subscription tier and the subscriber's length of stay.

Exclusive: Rdio Working on Plan to Directly Compensate Artists

The program allows Rdio to grow while addressing recent criticism that the subscription business model pays too little to artists. Royalties paid by subscription services have been a hot topic since Spotify launched in the U.S. in 2011. Many artists and managers have complained the services undervalue music. Some artists, notably Adele and Coldplay, have delayed the release of albums to streaming services.

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While Rdio has the flexibility to pay a finder's fee to an artist, it has no flexibility when it comes to the licensing deals with content owners that form the basis of its service. "The deals are what they are," Rdio CEO Drew Larner tells Billboard.biz. "I think we're offering a good price point. The labels get fairly paid. The publishers get fairly paid."

The program could be a cost-efficient way to grow because it's performance-based. Rdio pays artists when it gets the guaranteed revenue of a new subscriber. That's a sensible way for a startup to approach customer acquisition when tradition advertising and marketing can produce an indeterminate return on investment. Rdio does have some costs associated with the program, however. Larner says the company has "committed internal resources and hired new people" to handle outreach to the artist community.

Using artists as brand ambassadors could also help an artist connect with fans. An Rdio account is similar to a social network profile. Followers can track an artist's favorite albums, songs and playlists and follow what music the artist is regularly enjoying. Like most social networks, Rdio offers web-based stats and tracking tools so artists can see activity related to their accounts.

Rdio's artist program could give the service an edge in windowing, the practice of having an exclusive time window on a new release. Artist manager Emily White of Whitesmith Entertainment says content could play an important role in the artist program. "I'm seeing real fan turner when they spotlight an album and things like that," says White, who manages musician Brendan Benson and Gold Motel. Benson was an early member of the artist program along with Snoop Dogg/Snoop Lion, Scissor Sisters and A-Trak.

The arrival of the artist compensation program coincides with a new marketing campaign. Larner says the new marketing push will allow the company to "put our stake in the ground about who we are" and provide a coordinate message. The company has hired Rogers & Cowen for public relations.

Regardless of its ultimate impact Rdio's compensation program makes, the scheme is important for two reasons.

First, Rdio is showing that a subscription service can be responsive to consumer and artist concerns. The subscription service business model has been severely scrutinized since Spotify's rise in Europe in 2010. There have been a handful of problems: lack of transparency for artists and their managers, low revenues due to low immature subscription markets and a tendency to compare streaming royalties to far larger royalties from download services in spite of the differences between the business models. Rdio cannot change what it pays labels - and, accordingly, what it pays artists - without jeopardizing their businesses. But it can pay artists by turning them into brand ambassadors and direct marketers.

Second, the scheme shows digital music services can be creative while working within the confines of their content licensing agreements. This kind of flexibility will be required if subscription services are going to find more subscribers while maintaining wholesale content rates. For example, there is clearly a limited market for a $9.99-per-month subscription service and a larger market for a $4.99-per-month service with the same features (such as mobile access). Labels are open to lowering royalties for deals that bring in large numbers of subscribers or subsidize the full price.

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