'It's Still Day One': Rdio CEO Anthony Bay on Artist Payouts, Crowded Streaming Field

Rdio is one of three music subscription services -- along with Spotify and Deezer -- that operate across a significant portion of the world. Rdio operates in 51 countries, offering a catalog of music 30 million songs deep (and nearly identical to its two main competitors). What differentiates Rdio is the user experience, which is widely hailed as the platform's defining feature, alongside an emphasis on albums and friends' activity as a means of discovery for users. (Both of these were directly addressed by Spotify in the last day, with the dominant platform announcing a new design and an emphasis on 'collections,' or a users' album selections.)

Even though Rdio seems to be in third place, CEO Anthony Bay is nothing but optimistic about the company's future as we head into a year that will see even more subscription streaming services enter the market (from YouTube to Apple to Deezer's U.S. entry).

We spoke to Mr. Bay on the phone about what the future may hold, the persistent problem of artist-streaming relations, algorithms and much more.

Billboard: When you look at the digital music landscape right now, what do you see?
Anthony Bay: I see opportunity. Seriously. It's one of the reasons I took this job. In the macro sense here, for the very first time in history, pretty much, you can offer consumers every song ever recorded, anywhere in the world, which is really remarkable. It's easy to forget about that, but from the consumer's point of view, for the very first time people have the ability to have access to everything -- in a legal way, without having to steal. So the biggest question is, if people are listening to more music than ever before, how does that turn into something that works for everyone?

Free music for consumers is great in one sense, but it doesn't, if you will, keep the business alive. So how does that all work?

If you go back and read articles about Netflix five years ago, it was the dark force that was going to ruin television and the movie business. But what happened was that Netflix introduced a new type of viewing, and for the most part people are watching more video. So I think the same type of phenomenon can happen in music. How to we activate catalog? How do we help artists better connect to fans? How do we help people discover more in an easier way?

So I look at this and I say 'Big opportunity.' In Jeff Bezos' terms, it's still day one. It's really early in figuring it out.

That brings up a couple questions. Netflix was so successful in part because they were, by far, the leader in that space, in the same way that the iTunes store is the leader in digital sales. But the streaming market is so fragmented, I'm wondering how you foresee this concluding -- in one sense the competition is good for consumers, but at the same time everyone has similar pricing and catalog.
The first thing I would say is that, in fact, if you take the U.S. market, Netflix Hulu and Amazon are all pretty big. So there isn't only one, there's three. And they're different. So the question I think is, over time, how do music services create a unique experience for customers? The other thing is that what you described is true in the United States, but not true anywhere else in the world. This is the only country of any scale that has statutory licensing. So in the United States you have a lot of noise, you have a lot of services which can't exist in other places because they are relying on statutory licensing. Pandora fits into that bucket, Songza fits there.

So when you go outside, on a global level, there's really only three. There's Spotify, Rdio and Deezer. So part of the question is how does this play out globally and so in that sense I think it's a simpler situation. But there are multiple ways to look at it. Right now we think there's a very narrow set of people who are competing on a global basis.

Rdio's acquisition of Dinghana plays into that as well. India will be a massive market with smartphone adoption on the rise --
Yes, that's exactly the logic.

What of China?
China is a very huge market, [but] it's got its own challenges. Music is an incredibly global business, in the sense of repertoire. Between 40-90% of the repertoire in most countries is local music. So although global catalogs are really important, they're not enough. More so than the TV business. Hollywood blockbusters are still the dominant movies.

So for us to expand into a country, we have to get the rights for the global catalog and then build up the local repertoire. We're big believers in respecting the rights of artists, copyright holders and composers. So getting the licenses and getting the local repertoire -- and in China you need government licenses, which are doled out carefully. So we will end up in China at some point, but it takes a higher degree of work and investment.

There's been much talk about artists' compensation from streaming services.
One of the things that we think is really important is: How do artists benefit from streaming?

Or do they?
They do. But the question is how. Let me first make the assertion that they do. Secondly, over time people will figure it out. Ten years ago people said iTunes was going to wreck the music business, literally. If you go back and look at the articles about iTunes, people said 'Oh my god it's going to ruin everything.' And now it's mainstream. Streaming is likely to go through a similar evolution. So much of the music business is geared around new releases. But you have all the other music that's out there, and it's very hard to ever economically promote your older records. It's hard to do that. The label won't do that.

So from a listener's point of view, if I hear a band I like I can go listen to the entire history of that artist. [But] how does this help let people learn more and get more deeply engaged with artists? And how do the economics of that work?

The argument is that scale will bring these artists' streaming earnings up to parity with download sales.
That may or may not be true, but I would describe it differently. I would say that, for the very first time, artists get paid based on people listening.

You're competing for a share of listening.

Which is a bitof a zero-sum game.
Well it's a zero-sum game in the record store too. People are not saying 'I'm going to buy every record.' It's a zero-sum game only in the sense of people listening for only one hour. But what's happening is that people are listening more.

But the point I'm trying to make is, first of all, you know what percentage of any artist's revenue is made up from recorded music? It's like 7%. Fifteen years ago recorded music was a much bigger piece. But in the last few years that piece has become much smaller. Touring is now the number one [revenue source]. Certainly recorded music is important, but if you're one of the huge artists, you make a lot of money out of recorded music. But you're the average, you're making your money on other stuff. So it's not that recorded music isn't important, it's just that the question then becomes: 'How can you use streaming to drive more engagement with your fans, how can you find ways for people to listen more to you?'

Again, remember, if people aren't streaming, they're stealing. The bottom line of it is, how to make streaming work for you. Not whether streaming is a good or bad thing. That's my opinion.

There was an artist, Zoe Keating, who posted her income from SoundExchange, Spotify, etc. The disparity between streaming and download sales was stark. Raising awareness in order to bring their income from streaming to parity with downloads won't happen -- there's a finite 'amount' of awareness.
I'm wondering what the opportunity, or problem, to be solved is here.

That there's only so much attention available in the world, and they will likely never reach the level to where streaming would ever match download sales.
That's one way to look at, which is the direct comparison, dollars to dollars. Did that band tell you how much they made from touring?

That wasn't provided.
It's an interesting point. Let's say that if you look at this like a business, you wouldn't just say -- Walmart wouldn't just ask: 'How are my sales of cereal?' So if you're a band and you're doing your overall business, you'd say 'Ok, how much money am I making from touring, how much money am I making from merch, how much am I making from recorded music, from publishing?'

If they make five times more money out of touring than they do out of recorded music [sales], which is not hard to believe, that would mean they made $375,000 in touring. So you'd say 'Ok, how many more people are they going to reach with streaming?' And how many of those people would be have to be new people for the $9,000 of streaming, which represents maybe ten times more people. So $9,000 is $180,000 in people. The question is how much of that larger audience to they have to get to go to their show before streaming overtakes downloads? I don't know.

The second link that comes up in an 'Anthony Bay' search is an article that says Rdio doesn't have the label connections of Spotify. Do you think that's a fair characterization?
There was a period in time where I think Rdio had a smaller catalog, but now we have at least as big a catalog as Spotify. I don't know if it's bigger or not bigger, but we're certainly right in the zone. Our goal is to have the best catalog and the largest global footprint, and Spotify is trying to do the same thing. But no, we have very, very good relationships.

It's super important -- I did an interview on CNN a while ago and a woman asked 'How do you feel about paying royalties?' And I said 'It's a privilege.' You're lisencing someone else's property, and you have to earn that right. We believe very strongly in respecting the rights of composers and artists and labels.

When I hear people talk about 'Don't you hate paying royalties?' I'm like, seriously?

How is navigating the major label system?
You know, it's relatively straightforward. It's a business based on trust and relationship. Labels and artists -- there's a dynamic, there's tension [on the artist side]. Labels and artists want to make great music and make it available, and we want to help with that.

Publishing turns out to be the much more complex one, frankly. When you're distributing a record or download, but publishing in the subscription and free radio business are incredibly complex. Not confrontational, it's just really really hard.

You mentioned tension...
Tension only in the sense that you have artists who want to have influence over what happens to their music. I have nothing new to contribute to the discussion, I'm just saying there's always a dance between the artists and the labels. It's important for us to work deeply with the labels, and important to us to work deeply with the artists.

When you look at a lot of the things we're trying to do, it comes down to: How can we be that channel for artists?

You spent eight years at Apple between 1986 and 1994. I'm sure you've kept abreast of their business developments since then. How you think they're going about the music game?
I would make a general statement about any company like Apple or Amazon or Google, all of whom have music services, and a company like Rdio. Apple uses music and other media as a way to bring in better product experiences, which they do really well. But they're in the business of making a better product experience, so music is a means to an end. In the same way as Target or Walmart.

There's been suggestions of them mulling a streaming service. Does that concern you?
Journalists write lots of things. [Laughs] Sometimes they speculate... Look, Microsoft and Google both have streaming music services. Rumors that Amazon might do one. Then Apple. If they do? God bless 'em.

iRadio is a good example -- it's cool, but it was just an additive thing. It didn't change the world.

Well no, but it did take over a significant share of digital radio listeners.
It isn't clear whether they took share or added listeners. In the U.S. it was Pandora then iHeartRadio then iRadio.

That's not too shabby for six months or so.
Well it's not shabby for having 500 million devices out there. My point is that it isn't clear what that means for everyone else. I think we're at the point where education and awareness is more important. The fact that I listen to iTunes Radio doesn't mean I wouldn't subscribe to Rdio or listen to Pandora. The fact that I have HBO doesn't mean I don't watch the History Channel.

I think what's going to happen out of all this is that people are going to listen more.

The basic takeaway is that people are going to listen to more and more music.

Do you think that they could complete their music picture by acquiring Rdio?
[Laughs] I learned a long time ago not to speculate on stuff like that.