3 Reasons Why Jay Z's Tidal Is Good for the Music Business -- Even If It Fails

Kevin Mazur/Getty Images For Roc Nation
Usher, Rihanna, Nicki Minaj, Madonna, Deadmau5, Kanye West, Jay Z, Jason Aldean, Jack White, Daft Punk, Beyonce and Win Butler attend the Tidal launch event #TIDALforALL at Skylight at Moynihan Station on March 30, 2015 in New York City. 

Jay Z's new streaming service, Tidal, has an advantage in starpower and exclusive content. But even if the service fails against Spotify and Apple, Tidal will end up having a positive impact.

The music business got a jolt Monday when a chorus line of celebrity musicians stood on stage for the launch of Tidal (a re-launch, actually, but its first launch under current ownership). From Kanye West to Daft Punk, the artists have chosen this artists-first platform as the home of their streaming content. They've been given equity, too. Nobody can blame Jay Z for not motivating his partners.

Tidal and its all-star cast of shareholders can only be good for the music business. Even if Tidal folds and Jay Z loses his $56-million investment -- an entirely plausible scenario given the high attrition rate of streaming services -- the new service and its new approach will likely have positive impacts on the market. Here's why.

1. The U.S. Subscription Market Needs A Swift Kick in the Butt

Last year's unimpressive growth rate of the paid music subscriptions has received scant attention since the RIAA released 2014 year-end numbers two weeks ago. Consumer spending on paid subscriptions increased 25 percent to $799 million from $639 million. The number of paid subscribers rose 25.6 percent to 7.7 million from 6.2 million. Both figures were lower than the growth rates for SoundExchange revenue (31 percent) and advertising-supported streaming (34 percent). Given the dependence the music business will have on paid subscriptions in the coming years, these numbers from 2014 should be sounding alarm bells from coast to coast.

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Why is the U.S. market so important? It's the world's largest music market and the leader in streaming revenue. Last year's 30 percent gain in the trade value of recorded music streaming revenue -- across all formats -- was $370 million. Other countries had higher rates of streaming growth but far smaller dollar gains. In France, 34 percent growth in streaming revenue amounted to a $24.5-million gain. Australia's 111 percent improvement in streaming revenue equaled an improvement of $13 million. Gains in subscription strongholds Sweden and Norway were less than $10 million each. No surprise here: big markets matter most.  

2. More Competition Is Better Than Less Competition

More players in the subscription market will help the market evolve more rapidly. For one, consumer awareness of the category can increase, thus helping subscription services with the significant problem of educating entire countries about the new, different business model. Not only will Tidal help attract attention to subscription services, the launch of Apple's subscription service later this year should carry the message even further.

More competition will lead to greater diffusion of innovation. For example, Tidal's catalog of over 75,000 high-definition videos could end up being a hit with consumers. Other services could then follow Tidal's lead and delve into video. (YouTube Music Key, currently in a quiet beta mode, is obviously video-heavy.) Less competition would accordingly result in fewer product innovations. Subscription services haven't come across the right mix of price, content and experience. Having more companies tinkering with their products increases the odds one of them hits a home run.

3. The Industry Will Sort Through Its Issues With Streaming Royalties Faster

Discontent with streaming royalties -- both per-stream payouts and the size of the overall pie -- needed to be addressed eventually. Feuding between artists and services was turning what should be partnerships into acrimony. Some attempts for cooler conversation failed. Spotify's artist-only meetings in New York, Los Angeles and Nashville held in October failed to bring the two sides any closer, according to sources that attended.

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Labels have become similarly vocal about royalties from ad-supported services. As they distance themselves from the ad-supported subscription model that has attracted most paying customers, labels are adding exclusive content to Vessel, a paid-only video subscription service led by former Hulu CEO Jason Killar, in hopes of attracting consumers to a service with higher per-stream payouts. From all appearances, labels' U.S. licensing deals with Spotify will be renewed this summer. Regardless of what Tidal does next year, its launch could cause this year's licensing negotiations. 

Tidal has been compared to United Artists, the movie studio created in 1919 by Mary Pickford, Charlie Chaplin, Douglas Fairbanks, and D. W. Griffith. Like the artists behind Tidal, the four Hollywood figures started their own company to have more power over their careers. And although United Artists originally produced movies, a handful of celebrities' content wasn't enough. United Artists also became a distributor for other movie producers. Some of the founders launched the United Artists chain of movie theaters.

Tidal needs far more than exclusive content to succeed. Success in music streaming requires a top-notch user experience, top-tier employees and telecom partnerships, among other things. And Tidal needs to recognize that few consumers care to bother with the model's underlying economics. But there's a chance Tidal will have made an impact whether or not it succeeds. Power has shifted back to the artist.