Last night (July 26), YouTube’s global head of music Lyor Cohen expounded on a range of topics impacting the music business, including comparing music streaming to UFC (Ultimate Fighting Championship), lamenting SoundCloud’s recent financial difficulties, the idea of combining the Google-owned YouTube Red and Google Play Music and likening the incubation period for streaming's monetization to the time it took for major labels to catch on to hip-hop.
Cohen's comments came on a music business power panel entitled “Where Does Ad-Supported Music Fit in the New Music Industry Ecosystem?” The panel was moderated and hosted by Tommy Boy chairman and New Music Seminar Tom Silverman and featured a number of high-powered music executives in addition to Cohen, including iHeartMedia’s chief programming officer, Tom Poleman, Warner Music Group’s chief digital officer and evp Ole Oberman, Pandora’s svp of the compnay's music industry group Lars Murray and SoundExchange’s svp of strategic initiatives Mark Eisenberg.
“I believe building a subscription service is like UFC,” Cohen said when describing the music streaming business. “It’s no-holds-barred, a very difficult business to build. A few people come in, some leave and it’s hard to get a $120 a year. And when I tell you to build a subscription service -- it’s in public documents -- [costs] well over a billion dollars of effort. You see what Spotify raised in capital and their burn rate, plus it has to be an international worldwide business, it has to scale and it has to populated with a bunch engineers -- it’s really a very complex and expensive business."
The comments came after Silverman raved about his experience using YouTube Red, but said that when he mentions to people how much he likes the service they “look at me like I have two heads. They didn't even know you can subscribe. How come people don’t know about it?”
“You probably don’t know there is Google Play Music either, and people really love that, too,” Cohen replied.
That exchange gets to the heart of the existential issue facing Google’s two streaming services: identity. Neither service has gained much traction in the music-streaming marketplace despite their best efforts and Google's massive user base. While Google hasn't released subscriber numbers,YouTube Red, which launched in Oct. 2015, was estimated to have 1.5 million as of late last year; Google Music Play has more than double that number. One industry source put their combined paid user numbers at 7 million -- far behind Spotify’s recently-announced 50 million and Apple’s 27 million subscribers.
The lack of identity for Google's music services in the marketplace may also be due, in part, to the runaway success and ease of use of both YouTube’s ad-supported tier, with more than 1.5 billion monthly users, as well as Google search’s ability to surface free music with minimal effort. So can—and will—Google try to distinguish its paid service so it can get out from under the shadow of its massively popular YouTube offering?
Logically, combining Google’s two paid streaming offerings, according to Cohen, is paramount to improving those numbers. “The first and most important thing is combining YouTube Red and Google Play Music and having one offering,” Cohen said. “And then going out there and being loud and proud about what they built, then getting the credibility of our partners and the music rights holders [and showing] that we actually care about building a subscription business. And to actually look in our funnel and see those that are most willing to jump over and spend $120 [per year]. That is the effort that is going on now.”
The so-called credibility issue Cohen mentioned, as well as the commitment to converting freemium users into paid subscribers, would seem music to the industry's ears and a direct response to the “value gap” criticism many in the music business often level against YouTube. In a nutshell, the music industry believes YouTube's massive base of freemium tier users are of much lower-value than premium subscribers and undercut revenues, particularly when compared to payouts from other competing services.
YouTube most often counters that argument by pointing out it that it has paid $1 billion to music copyright holders for the 12 months that ended last October, with that number continuing to grow. But having YouTube’s global head of music tacitly acknowledge the situation and looking to improve the model is among several major things for which the industry is clamoring.
Cohen also spoke about the music business’ poor track record in supporting new businesses. The music industry, he said, doesn’t have a “great reputation of being excellent partners and innovating new formats. We’re scared to death and we typically stomp them out. Look what's happening with SoundCloud -- what a sad experience they’re experiencing right now. To me, we needed to collaborate with them in order to help them build a business -- whether it’s an advertising business or whether it’s an opportunity for them to shepherd their consumers towards a potential subscription.”
In early July, SoundCloud laid off 40 percent of it staff and consolidated its offices into Berlin and New York, amid financial challenges.
Cohen's most illuminating comments, however, came in response to a question about how to achieve better and bigger ways to monetize ad-supported services. Here, the old school hip-hop exec invoked his own history working early at Def Jam. “It takes time," he said. "I remember there was at least a 7-year incubation period for Russell [Simmons], Rick [Rubin] and myself at CBS. Rap music was exploding, the supply outpaced demand and it was happening all over the city. CBS [which subsequently sold to and became Sony Music in 1988] was a New York-based company and all they had to was drive about 60 blocks and realize how many kids were trying to get into [hip-hop] venues and they would have said, ‘Oh my God, this stuff is really incredible and special, let’s invest in it."
Cohen noted that it took the head of the label seeing the behavior of his son to understand the power of hip-hop. "It was only when [then Columbia Records president] Donnie Ienner’s son wanted to go to a Public Enemy show and not a Bruce Springsteen show that the lights lit up in the building," he said. "So it takes time. It takes the observation of how your children are consuming media. I don’t think there’s a person in this room that doesn’t recognize that the advertising business is rapidly transitioning and the money is moving from traditional media to digital. It just takes time.”