Tidal – Exclusively dependent.

Reply to this post

Tidal’s only real hope lies in exclusives.  

• Tidal has posted better than expected metrics on the 1^st anniversary of its relaunch but it remains sub-scale with only one real hope of longevity.
• Tidal now claims to have 3m paying subscribers of which 45% (1.35m) are on its high quality (lossless) tariff of $19.99 per month.
• These days every man and his dog has 40m tracks and a search box meaning that anyone looking to make it in this space has to offer something different.
• Tidal’s library is pretty much as good as anyone else’s but its potential for differentiation lies in its high quality offering and the potential for exclusives.
• Spotify does this by offering machine learning and data analysis to make high quality recommendations to users as well as innovative add-on features like Spotify Running and Spotify Connect.
• Apple manages to differentiate by being Apple but I continue to think that the real plum that Apple is going after remains radio (see here).
• YouTube differentiates by being an encyclopaedia of almost anything the user can think of with video in some instances.
• I continue to believe that the key to the streaming business is scale.
• This is because anyone starting out in this business will find that the gross margins are extremely challenging when one has to pay away 70%+ of revenues to the labels.
• When other costs have been removed, gross margins can end up at 20% or lower without difficulty.
• This makes breaking even very challenging without achieving substantial scale first.
• Obtaining huge scale shifts the balance of power as the content owners will begin to need the streaming service more than the streaming service needs them.
• It is then that negotiations for better gross margin can begin.
• Tidal is holding itself out to the market as a service that offers high quality streams but there is only a limited number of music buffs that care enough to pay the premium.
• Consequently, Tidal is unlikely to obtain scale using quality as a differentiator.
• The other option is music exclusives and here its unusual ownership structure has been of some help.
• Tidal owned by a collection of artists and it is aiming to expand the number which has now reached 20 from 16 a year ago.
• The idea here is that if these artists keep their music exclusive to Tidal, then it will add another string to its bow for differentiating itself.
• However this has two problems.
  • First. Most of the artists do not own the rights to their music meaning that their catalogues invariably show up on Spotify and Apple Music regardless.
  • Second. Tidal is not big enough for the artists to make a decent return by staying true to an exclusive.
  • The most recent example of this is Kanye West who originally claimed that his most recent Life of Pablo album would remain exclusive to Tidal, but has released the single from the album on both Apple Music and Spotify.
  • I suspect that the rest of the album will soon follow.
• Consequently, I remain concerned for Tidal’s long-term future and think it very unlikely that it will ever be in a position to put pressure on its rivals.
• The music buff segment is unlikely to be big enough to earn a decent return and its owners appear likely to break ranks in order to earn a better return elsewhere.
• Tidal remains no threat to Spotify, Apple Music, YouTube or even Deezer.