How the first subscription-based music service was built online, and why it’s time to move on.

Posted by in entrepreneurship, internet, media, music

Nearly fifteen years ago I began hashing the plans for what would become, as far as I can tell, the first subscription-based music service online. What we built was pretty straightforward and, as a result, the initial business model was nearly identical to that model later adopted by services such as Spotify. (Aside: True old-timers will remember that Patronet would also launch, but it offered music from only one artist, Todd Rundgren—who built Patronet).

Importantly, neither technology nor copyright law were ever really the roadblock to opportunity, even back in the Web 1.0 days. What and How people—meaning artists, lawyers, owners, consumers, developers, and even policy makers—thought about these music services were the speedbumps that would prove to be large enough to block the road, even still today.

In the end, I am pretty certain the following hold true:

  • The business model of subscription music services is and should be brain dead simple.
  • No amount of “That’s not how it’s been done,” or “Are you sure this won’t cannibalize iTunes?” or “But I make more from a CD sale” is going to change the fact that adapting to this model is both required and will require change.
  • The longer any adaptation to change stalls and the higher the price for that change, the fewer the number of ecstatic fans, the fewer the number of happy customers, and smaller the pile of money that will be on the table for the music artists and owners involved.

It is time, quite frankly, to move on… regardless of the road conditions.

In the beginning…

In 1998 we launched a simple subscription-based music service online, thanks to a number of artists who were willing to experiment—way back then—with something new. That paid site would later shift to a free site, Noisebox, through which we shared ad revenue with artists and copyright owners. The business model was designed to fit within BDS (Brain Dead Simple) constraints.

The pitch to consumers, artists, and copyright owners for this way-too-early-to-be-plausible music service was pretty simple:

(1) Consumers were charged a monthly fee to stream/download music from the site. The initial price was $2.99/$3.99.

(2) Artists, and any other party with a financial interest in the recording and/or the composition/lyrics, would split the subscriber revenue based upon each song’s proportion of all songs streamed each month. The initial pool for royalties was 70-80% of revenues. The initial catalog of music came from self-released artists, which limited the complexity in who/what was in the pool.

For context: Napster had yet to be released. MP3.com was still for the most part a news site, with only a few music downloads. DimensionMusic, or dMusic, was more actively engaged than MP3.com in hosting MP3 files for artists. IUMA was still hosting MPEG2 audio files. eMusic was still for CDs, and the digital download store of the day was called NordicDMS. Neither iTunes nor the iTunes download store would exist for nearly half a decade. Spotify would not exist for a decade.

Ironically, points (1) and (2) above basically describe the subscription music service model by which services such as Spotify operate today, nearly 15 years later. Why? Because that model was and is brain dead simple.

This model also happens to be the same one that is debated almost daily on music news and artist sites, as people try to grapple with the implications of not being paid $X for every album sold, or ¢Y for every iTunes download sold, or a guaranteed ¢Z for each stream on these sorts of services. Even though part (2) is essentially the same method through which radio royalties have been distributed (weighted by actual rather than imagined listener numbers) for decades–either as a portion of ad revenue or license monies.

Frankly, its time to move on.

And so I figured I would describe how simple that basic design truly was, and why neither technology nor copyright law were ever really the roadblock. Any roadblocks were in the minds of copyright owners, artists, developers, policy makers, and even consumers.

How does a music service work?

Technically, in the simplest of terms, you really only need three things to build a subscription-based music service:

(A) A number of music files, encoded in a streamable format (with mime type set, back then), and stored on a working storage device that is connected to the internet;

(B) A method for preventing access to those music files unless the user can present appropriate credentials (e.g., show they are a paying customer); and

(C) A means to accept some form of payment (e.g., credit cards) on a regular schedule (e.g., monthly) the result of which is the user acquiring the credentials mentioned in point 2 so they can access and stream the files mentioned in point 1.

Some copyright owners would add an additional lettered point that would require truly bullet-proof security on the files. But that point, in the end, is pointless.

Aside: Negotiating licenses is not a technical problem, its a time/effort problem. However, yes, I realize that acquiring these license can be a real challenge. But, in my opinion, the law was not the ultimate roadblock. It took us less than 30 days to license the music we were looking for in the initial experiment and the law never stopped us. Artists/owners who participated were willing to license and learn—and these were the two dimensions that mattered. The law simply gave these artists/owners the right to say, “No,” if they wanted to.

That was it, and that’s what we built through the absolutely simplest means possible via a traditional LAMP (Linux, Apache, MySQL, and Perl/PHP) setup.

All the music files were placed in a folder that was “protected” through .htaccess (those in the know will know why I used quotes). When a user paid for a subscription they were given a password. That password was added to the .htaccess list. If the user did not pay the next month, the password was removed from the list. Voila, Subscription music service in a box!

Modern services use a wider and more sophisticated range of technical means to accomplish their objectives, but the A, B, C’s listed above are ultimately “the basics” that inform any subscription service—whether in music, film, text, or otherwise.

Why it’s time to move on.

Since those early days, very little technical or legal change has intervened. Technology still provides the means to accomplish the A, B, C’s listed above—the formats and acronyms have simply changed. Copyright law still spells out the necessity of negotiating licenses with the appropriate parties. Most importantly, after years of music service licensing deals that are highly-punctuated with sophisticated protections (e.g., per stream minima) the underlying business model is returning to its origin:

(1) Consumers are charged a monthly fee to stream/store music from the site.

(2) Artists and/or those parties with a direct financial interest in the recording and the composition/lyrics, split the pool of subscriber revenue based upon each song’s proportion of all songs streamed/accessed each month.

Any substantive change that has occurred over the last decade and a half—meaning the sort of change that made this BDS business model more acceptable—has occurred in the minds of people, not the granite or silicon pillars of institutions or technology within which these minds make decisions or with which they take (virtual) action.

Change has been slow. Glacier, slow.

What I have found is that over the last 10-15 years I keep hearing the same questions, having the same conversations, and meeting with many of the same people (who simply work at different companies, have new haircuts, or wear different hats). From conferences panels to research chats to board meetings, the discussions usually leave me in a nearly perpetual state of deja vu. Bookmarked by entrenched positions at extremes. Punctuated by far too many egos (one of which is my own).

What was once thought of as “renting music,” is now thought of as “renting music.” Except, fewer consumers are freaked out about that idea. What was thought of as “the end of CD sales” is still in part “the end of CD sales,” and so what. Executives who used to think $19.99/month for music was a bargain now think $9.99 is a bargain (that’s a change), regardless of what consumer behavior suggests (that’s not a change). What was thought of as a challenging licensing market is still a challenging licensing market—except the incumbent firms now see that challenge as a barrier to competition.

In the end, and as I said at the beginning of this post, I am pretty certain the following hold true:

  • The business model of subscription music services is and should be brain dead simple.
  • No amount of “That’s not how it’s been done,” or “Are you sure this won’t cannibalize iTunes?” or “But I make more from a CD sale” is going to change the fact that adapting to this model is both required and will require change.
  • The longer any adaptation to change stalls and the higher the price of that change, the fewer the number of ecstatic fans, the fewer the number of happy customers, and smaller the pile of money that will be on the table for the music artists and owners involved.

Frankly, it is time to move on.