Let’s talk about my favorite subject: music.

There’s a battle brewing between Apple’s new streaming service and Spotify. If you’re unclear what these two services offer and charge for, you’re not hip to the new groove, man. Far out. Just image iTunes, but you don’t own anything, pay a monthly service fee, and have access to most of the recorded music that is and has ever been.

It’s cool, yes.

I use Spotify. I pay $10 a month to be able to play whatever music I want, whenever I want. It seems a reasonable fee for what I get out of it. And I own a lot of vinyl, so I get my fix for something tangible that way.

Some artists, and pretty much every record label, complain about how little is returned to the artist. Spotify, in defense, says they pay 70% of all revenue back to the labels/artists.

The math

  • * As far as I can see, that’s $120 a year from me each year, of which $84 goes to the labels/artists.
  • * Spotify has 20 milllion paying subscribers.
  • * At the height of CD sales (1999), the average music buyer spent only $48 per year on music, of which a likely 70%ish,$34, went to the labels/artists.

So…call me stupid (you won’t be the first) – $84 from paying users like me vs. $48 during the CD years seems like a HUGE increase for the artists. Right? Right? I guess not. They complain. Mostly the record labels complain.

What some (see links below) suggest is that we consumers want to pay about $50-$65 a year for music, and when music is priced in that range, sales increase. If the labels would let Spotify and Apple chage about $5 a month for streaming, odds are revenues would spike. Like…through the roof spike. But the labels won’t open those doors. So, instead of…what? – maybe 80 million subscribers @ $5 a month, they get 20 million @ $10 a month.

Businesses are stupid. Seriously. Sony. Altantic. Universal. They know one way of doing something and if it’s slightly outside of that, fahgettaboutit. And I know, I know…there’s no rock left in rock and roll. The Sex Pistols are a credit card. I can now hum God Save The Queen when I buy my toilet paper. How fitting.

You know who else is just as stupid as the record labels? The big consumer products brands. They been getting 40%-50% markup at retail for so long, they cannot function without. With Amazon (while we make fun of “retail”, we do love us some Amazon) laying seige to retail and winning, brands can no longer hold these same retail margins. You want to see who’s winning? Go to Amazon.com and search for Bluetooth Speaker. One of the hottest categories in electronics right now – and what are the top search returns? Scroll down and try to name the brands you have ever heard of. Odds are, you won’t know most of them.

Who are these guys?? Most of them are Chinese factories who are selling direct on Amazon. 10 years ago, they built products for the big brands, like Sony, JVC, HMDX, iHome, etc. Now they take that expertise and sell to you on Amazon. Same products. In many cases the same specs and quality. Just FAR cheaper. What does Sony do when a factory sells a similar product for 1/2 the price? Do they drop their own prices to match? Do they trim their business models to compete in this strange new world. I can’t speak for Sony, but I can speak for other US brands that I’ve worked for and the answer is: no. They won’t. They can’t. It’s not in their DNA. Hell, I’ve heard that exact sentence in brand management meetings, “it’s simply not in our DNA”. You can’t trim necessary margins from 40% to 20% when you have a giant corporate office, luxury executive offices, private planes, layers of highly-paid VPs and Directors, Financial Analysts, Engineers, etc. – these all add up. Who/what do you cut first?

There are wonderful US brands that will dissapear over the next 10 years. It will make me sad. I won’t predict which, that’s for TechCrunch and the like. But factory-to-consumer is the new model. 3D printer-to-consumer is not that far past that. We at FoxSmart exist as a bridge between today and tomorrow. We buy at the factory and sell directly to you, cutting out all layers but our own. We know our own business model will have to adapt year by year. We’re already planning for it.

The one thing we can promise is that when you, the consumer, needs something at a lower price, we won’t be sitting back barking that it’s not in our DNA. We’re slim out of the gate. We’ll stay slim as we grow. And when there’s a new model that works for the consumer, you can bet we’ll be all over it.

And I love Spotify.

Further reading:



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