Jay Z is Back on Spotify, What it Means for Tidal, and What it Says About Music Streaming

Hey! Happy Friday. I'm looking forward to seeing some of the Bay Area Trapitalists at tomorrow's brunch! It will be the last Trapital event of the calendar year.

Today's update explains why Jay Z's catalog was off Spotify in the first place, why it's now back, what it means for Tidal, and what it says about the state of music streaming.

Guess who's bizack?? Wednesday was Shawn Carter's 50th birthday and he put his albums back on Spotify.

From Pitchfork:

"In April 2017, nearly all of JAY-Z’s albums vanished from Spotify. At the time, a representative for the streaming service told Pitchfork, “Some of JAY-Z’s catalog has been removed at the request of the artist.” Now, over two years later, on JAY-Z’s 50th birthday, his albums are back on Spotify. Check out Spotify’s announcement below.

JAY-Z’s catalog has been available intermittently on streaming services and digital music stores. For example, he returned his music to Apple Music in 2017 (but still kept it off Spotify). For years, he also kept his Blueprint albums off Spotify, Apple Music, and iTunes. Of course, his catalog has always been available on TIDAL, the streaming service he co-owns."

As I wrote in I wrote in Jay Z's Cell Phone Strategy, Explained, Jay Z's albums were tools to maximize the willingness to pay and drive scarcity. His initial decision to keep music off Spotify never seemed as integrity-driven as say, Taylor Swift. In 2015, the "Bad Blood" singer deemed that art deserved to be paid for and kept her catalog off Spotify.

Meanwhile, Jay Z's rationale seemed far more capitalistic. He was someone who watched HBO monetize exclusive content and wanted to do the same. Reasonable Doubt was his TheSopranos. The Blueprint was The Wire. His classics were on another level. He knew it, and he knew that WE knew it. The Marcy Projects rapper wasn't gonna sit back and monetize his masterpieces with the same business model as a 45-track Chris Brown album.

Tidal was Jay's vehicle to make it happen. Tidal's artist payouts were higher and Jay was part-owner. He didn't have to just sell his content to Apple Music in exchange for exclusivity. He bought a digital streaming provider, rebranded it, and had exclusives there too. He used both channels. It was the best of both worlds. (Ironically, The Best of Both Worlds, Jay's 2002 joint album with R. Kelly, was available on Spotify for a majority of the time. He understood the perceived value within his discography.)

Spotify's global reach, with both its free and paid tiers, makes it more value for Jay Z. It's not just about streaming numbers. It's a top-of-funnel tactic that drives interest in everything else in his book of business.

In April, here's what I wrote in Beyonce's Streaming Strategy, Explained:

On Everything is Love, Beyoncé told us how she really felt about streaming numbers. “If I gave two fucks about streaming numbers, would have put Lemonade up on Spotify.”

Note, she gave two fucks about ‘streaming’ numbers. She said nothing about ‘subscriber’ numbers. Spotify currently has over 200 million on its free and paid tiers combined. Everything Is Love and Homecoming: The Live Album are on Spotify for the same reason Homecoming is on Netflix. It’s a gateway to the casual audience.

This is where the Jay Z-HBO comparison stops. Jay Z, like his wife, is not just an artist who makes albums. He sells merchandise, has restaurants, and runs an entertainment company with interests in several industries. Spotify is a gateway for him as well.

While I still agree with the general premise of that Beyonce article, I got this part wrong:

I predict that the next Beyoncé album will be a Tidal exclusive. After watching Homecoming, more of those casual fans will sign up for Tidal when the album drops. Others may get annoyed, but will at least do a 30-day trial to be included in the pop culture zeitgeist.

To date, Tidal’s business model has served Beyoncé well. She gets paid nearly double what Spotify and other services pay artists per stream. The Beyhive has streamed Lemonade more times than it can count. Those streams add up (unlike a documentary, which is revisited far less often). And since Beyoncé is a part-owner in Tidal, her team should have access to its valuable data on subscriber listening habits.The decision to release on Tidal will also reinforce Beyoncé’s ownership stake. A large portion of subscribers are there for Bey and are holding out for this next album.

Beyonce literally put Lemonade on Spotify two weeks after I published this. Ha! The streaming landscape had changed considerably by Spring 2019, and Jay Z and Beyonce wisely adjusted.

What this means for Tidal

Now that the Carters give two fucks about Spotify, the elephant in the room is Tidal. For years, the company's perceived value prop was its exclusive content. Tidal had albums from Jay Z, Beyonce, Kanye West, Rihanna, Radiohead, and more. Its users had early access to Formation World Tour concert tickets and other perks. It was a great way to build an initial userbase, similar to Apple Music's exclusives in 2015 and 2016. Without it, there's no way in hell Apple Music would have surpassed Spotify in U.S. paid subscribers.

But the U.S. streaming market, which is still the backbone for Apple Music, Spotify, Amazon Music, and Tidal, is reaching its saturation point.

Music Business Worldwide's Tim Ingham wrote about this in August for Rolling Stone:

"This deceleration in streaming growth in the USA and U.K. is likely a sign of the early stages of subscriber saturation. According to the RIAA, there were approximately 50 million paying music streaming subscribers in the U.S. last year, representing around a sixth of the population: a big question mark hangs over how high, and how fast, this number can climb in future."

One-sixth of the population feels like a fairly good saturation point. U.S. median household income has hovered around $60,000, and the majority of those 50 million users are definitely in the upper half of that median. How many more Americans will justify a $10/month music subscription service when there are free ad-supported alternatives and the service doesn't save them money elsewhere in life (like Amazon Prime does)?

These services will compete for each other's existing customers, but each service's switching costs are higher than ever. Both Spotify and Tidal use their algorithms to play to our tastes. The more the streaming services understand our preferences, the harder it is to leave. Users also get used to the playlists, user interface, and other features. Those features aren't necessarily better than other services, but familiarity matters.

There's a similar dynamic in the airline industry. The three legacy carriers in the U.S.—American, Delta, and United—all offer the same product. Airline purists may dispute this, but after my business school summer internship on Delta's commercial strategy team, I can assure you—it's essentially the same product!

But before the airline market was saturated with credit card miles and frequent flier programs, the product was critical. It mattered which airline got the Boeing 737 first. It was a landmark aircraft that changed the industry in the late 60s and early 70s. But now that airline switching costs are high, and the level of service is inferior for those without status on alternative carriers, it's a weaker selling point.

The average airline customer doesn't care who got the 787 Dreamliner first. Now, they might think it's a cool plane, but at what cost? Is it worth the time spent inputting your information on a different airline's website, then waiting for Boarding Group 19 when there's no more overhead space for your carry-on and now you have to gate-check it? From personal experience, it ain't worth it. As long as the Wi-Fi works when I get on that flight, I'm cool waiting till my airline of choice gets the newest aircraft.

That's where we are with streaming services. It happened much sooner than it did in the airline industry, but the internet moves fast and waits for no one.

On top of this, Tidal also has two additional value props beyond what was mentioned above. Here's what I wrote last year in Why Tidal is Banking on Meek Mill's Success:

This past month, Tidal also announced partnerships with Microsoft’s app store, Samsung Wearables, and Plex, the multi-media player system. These deals will help Tidal cross-sell to techies and audiophiles who spend money on high-quality technology (and in turn, might consider paying $19.99 / month for lossless sound).

These deals are smart tactics, but Tidal still needs to attract customers that are bought into Jay Z’s mantra of ownership. Consumers buy based on emotion and justify with logic. The ideal Tidal customers are inspired by the opportunity to support the artists, but rationalize their purchase because of the higher sound quality and other features.

Tidal's two value props—high audio quality and 'voting with your dollars'—are independent of whether Spotify users get access to Lemonade or The Blueprint.

By now, the quality of service is strong on most streaming services. The switching costs are high enough that Jay Z's discography won't cause much churn. It's a win for Spotify consumers who haven't listened to his back catalog in years, a win for Tidal consumers who want to see their GOAT flourish, and its a win for The Carters who now reap the benefits of ubiquity and still benefit from the early exclusivity they had on Tidal. Everybody's eatin'.