Cellist Zoë Keating is asking What Should I Do About YouTube? :

My Google Youtube rep contacted me the other day. They were nice and took time to explain everything clearly to me, but the message was firm: I have to decide. I need to sign on to the new Youtube music services agreement or I will have my Youtube channel blocked.

This new music service agreement covers my Content ID account and it includes mandatory participation in Youtube’s new subscription streaming service, called Music Key [a Spotify-like service that costs $9.99/month], along with all that participation entails.

Keating primarily focuses on the fact that YouTube is basically giving her no choice in the matter:

The catalog commitment is the biggest issue for me. All these years I’ve yet to participate fully in any streaming service although I’ve chosen to give a handful of recordings to a few of them. If anyone wants more and they balk at paying for it, they can always stream all my music for free on Bandcamp or Soundcloud or they can torrent it (I uploaded my music to Pirate Bay myself many years ago). I’ve heard all the arguments about why artists should make all their music available for streaming in every possible service. I also know the ecosystem of music delivery made a shift away from downloading last year. Streaming is no longer advertising for something else, it is the end product. It’s convenient. Convenience is king. Yup, got all that, thanks.

This is the important part: it is my decision to make.

Certainly, YouTube owns their service, and they get to choose the terms they offer. And it’s easy to look at Keating – who uploaded her entire catalog to The Pirate Bay – and dismiss her as some sort of radical. I get the impression from Keating’s article that that is exactly how she is perceived:

A year ago my Youtube rep let me know there was a new music service coming and she sent along a new agreement. I read it and raised my concerns and asked if I could return the contract with those particular terms struck out. Alas no but the product folks seemed genuinely curious about my concerns and I had a phone meeting with them. The meeting was similar to one I had with DA Wallach of Spotify a couple years ago. Similar in that I got the sense that no matter how I explained my hands-on fan-supported anti-corporate niche thing, I was an alien to them. I don’t think they understood me at all…

In fact, while Keating may be a radical, I think she’s also entirely rational: I’m increasingly of the opinion that all-you-can-eat subscription services like YouTube Music Key or Spotify are a downright bad idea for niche artists.

The Problem with Niche Artists and Subscription Services

Stepping back, in one of my favorite episodes of Exponent, James Allworth and I coined the idea of The Internet Rainforest (although, now that I think about it, we mostly refer to it as the Internet jungle). The idea is that the economics of the Internet work for two types of businesses:

• Massive businesses that can take advantage of the Internet’s scale to reach a huge number of people very cheaply and efficiently
• Niche businesses that can take advantage of the super low costs involved in running an Internet business to reach a very narrow niche of people all over the world very cheaply and efficiently

Think of any potential audience as following a power curve:

With this audience there are two ways to maximize revenue:

• You can try to make a little bit of money from a lot of people – this entails getting a little bit of money from everyone on the curve
• You can try to make a lot of money from a few people – this entails maximizing the gain from the people on the left side of the curve

Think about a company like Facebook: true, there may be some Facebook-aholics who live in the service and would love if Facebook would just go crazy on the features, but serving those customers would endanger the right side of the curve – the people who are more take-it-or-leave-it. Ultimately, because Facebook monetizes through advertising, more eyeballs are more important than more intensive ones, so their product decisions are made with an eye towards appealing to as many people as possible. Of course Facebook doesn’t stop here – you can think of targeting as a way for them to make more money from some consumers than from others. Still, the goal is more users, not fewer.

A site like mine, on the other hand, or any number of niche-focused sites and services, is much more concerned with people on the left-side of the curve. We don’t want pennies from millions, but tens or hundreds of dollars from thousands. This, though, means that our motivations when it comes to our product are far different: if we appeal to everyone, we are necessarily loved by no one.

True Differentiation

Tim Wu has a piece in The New Yorker about the rise of small businesses, with a particular focus on craft brewers:

Consider the story of craft beer. Large-scale breweries destroyed their smaller rivals in the twentieth century because they were able mass produce the stuff for cheaper (reaching wholesale prices of about fifty cents a beer or less) and because their fat margins allowed them to pay for things such as television advertising…

But the small breweries came back. Their beers were not better advertised and certainly not better priced. Rather, the crafts went after an enormous blind spot for the big breweries—namely, flavor. I don’t entirely mean to be snide; more precisely, craft beer succeeded by opting not to compete directly, instead pursuing what can be called a “true differentiation” strategy. That means they established a product that, in the mind of the consumer, is markedly and undeniably different…

Here’s the thing: a lot of people dislike many of these craft beers, or at least some of the more unique and radical brews. But that’s a good thing! You can only succeed against a low-cost competitor by being different, and to be different is to be polarizing. More than that, though, you need a different business model: craft breweries make money by charging more; big breweries make money by reducing costs. 1

The difference in business models is far more stark on the web; at scale, advertising is the obvious solution. For niches, though, I strongly believe that direct payment is superior. It’s simply easier to get a lot of money from your best fans than it is to get a little bit of money from many. This, though, is the problem with all-you-can-eat subscription services: they only afford the chance to make a little bit of money from any one customer, even as they increase the friction over free. And, I agree with Keating that the subscription services, including YouTube, don’t understand this:

The Youtube music service was introduced to me as a win win and they don’t understand why I don’t see it that way. “We are trying to create a new revenue stream on top of the platform that exists today.” A lot of people in the music industry talk about Google as evil. I don’t think they are evil. I think they, like other tech companies, are just idealistic in a way that works best for them. I think this because I used to be one of them. The people who work at Google, Facebook, etc can’t imagine how everything they make is not, like, totally awesome. If it’s not awesome for you it’s because you just don’t understand it yet and you’ll come around.

I think it’s more that nearly everyone at tech – and I’ve witnessed this first hand again and again – is deeply conditioned to think at scale. It is the first question out of anyone’s mouth when it comes to a new service or product – “Can it scale?” Niches, though, don’t scale; they go deep. More importantly, they go deep in a way that wasn’t possible previously. Note again this line:

We are trying to create a new revenue stream on top of the platform that exists today.

I suspect this was in reference to the monetization options already on YouTube, but I have a much more profound objection to this idea: the thing about craft brewers is that they didn’t even have the option to be different until 1978 when President Carter signed Senate Amendment 3534 which deregulated home brewing. Similarly, the vast majority of niches – particularly for rock-and-roll cello players – were economically unviable before the Internet drastically reduced the cost of both production and distribution. In other words, there is nothing to “build on top of.” Spotify and YouTube Music Key and other all-you-can-eat services are ultimately suited for music that is broadly appealing – the same sort of music that has ruled the radio for decades. For anything truly different, though, anything with a limited but intensely interested audience, they are nothing but a bad idea – a way to both limit your audience and limit the amount of money you can make from your best fans.

The Proof is in the Revenue

In fact, Keating is the best example of this: she revealed her revenue figures last year. From The Guardian :

Keating’s biggest source of income last year was Apple’s iTunes Store, where sales of 32,170 single tracks and 3,862 albums netted her just over $38,195. Meanwhile, 185 tracks and 2,899 albums sold through her profile on direct-to-fan site Bandcamp earned a further $25,575, while a mixture of physical and MP3 sales on Amazon earned her a further $11,571.

403,035 Spotify streams earned Keating $1,764, while more than 1.9m views of videos on YouTube – mostly those uploaded by other people featuring her music – earned her $1,248. US personal radio service Pandora generated $3,258 of royalties – but from an undisclosed number of streams.

To be sure, downloads are dying broadly, but that’s my entire point: the mistake YouTube and Spotify and nearly everyone else makes when considering media of all types is to put everyone in the same boat. In fact, it’s the middle that is doomed but things are looking up for the truly differentiated . There are more ways to reach more fans who really care and who will relish the opportunity to pay. 2

So there’s your answer Zoë: tell YouTube to take a hike (but hey, keep it for marketing).

1. As Joe Cieplinski noted on Twitter , “Your update today made me think of indie app devs. Most make craft beer and try to sell it at Bud Light prices.” [ ↩ ]
2. Concerts are one way to make money, but they’re really expensive especially for niche artists (and they’re obviously not an option for non-musicians). I don’t believe they are a sustainable answer [ ↩ ]