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Apple Has Opportunity to Succeed Where Pandora Has Failed

Stocks in this article: AAPL P NLSN TWTR

NEW YORK (TheStreet) -- At New York Magazine, Kevin Roose published an article asking if Apple (AAPL) and Beats can "fix the economics of streaming music."

Reasonable query I guess, but it lacks the context required to move the streaming radio conversation forward, and accomplish anything otherwise meaningful. If you talk the optimistic approach (the way I always do!), there's nothing to fix. Just more ground to cover. More opportunity to make love to. That's got to be the mindset Apple and Beats share -- otherwise there's no reason to do this deal. 

In any event, here's how Roose lays it out:

"The basic problem streaming music companies face is a math challenge -- in general, the more people who use your service, the harder it is to turn a profit. The only ways to increase your profits while growing are to (a) reduce your overhead costs, (b) bring in a lot more revenue through ads and subscriptions (ideally subscriptions, since ad revenue is notoriously fickle), or (c) use your negotiating leverage to force labels and/or artists to accept lower royalty rates."

Roose made a mistake when he wrote, "The only ways to increase your profits" are (a), (b) and (c). My emphasis on only. That's simply a false statement.

Just because streaming services such as Pandora (P) are not doing something other than reducing overhead (they're not), increasing ads and subscriptions (Pandora's doing both, particularly ads) or "negotiating leverage" for better royalty rates (I don't have all day!) doesn't mean other ways do not exist. Not only do other ways exist, but they will end up making meaningful contributions to streaming radio revenue streams.

For background, see my article history at TheStreet -- there's tons of stuff there on the matter. But you can get an understanding of how streaming radio can generate revenue and increase profits in pieces such as Pandora Is Killing Itself Right In Front of Our Eyes, Google or Yahoo! Buying Pandora Makes a Ton of Sense and Twitter Could Crush Pandora Without Playing a Song. Each one of those articles should stimulate your vision and imagination, but the Twitter (TWTR) one segues best into the specifics I get into in this article.

Here are some thoughts on the value of music-related data within the Twitter platform, first from Ben Sisario of The New York Times and second from former Def Jam and Warner Music Group leader Lyor Cohen, sourced from another article I wrote on the subject:

Sisario in the NYT

For the music business, Twitter holds a vast haystack of data with no easy way to find the most valuable needles -- like which acts are attracting the most attention, and where ...
The reading of music's digital tea leaves has become a big business as companies like Gracenote, Next Big Sound and Musicmetric have joined traditional players like Nielsen in providing information about music online. But while music is the most popular topic on Twitter -- users discussed it in more than one billion messages last year -- its depths have not been fully plumbed ...

Lyor Cohen

There was a time not so long ago when we sold music to retailers and they sold to fans, but nobody knew who those fans were ... I've spent most of my life not knowing who the customer is. Isn't that a shame?

That's just with respect to Twitter. The potential blows up -- we're talking like NFL seventh round draft pick type of potential (!) -- when you consider streaming services, particularly a streaming service under the Apple umbrella that's keen on covering ground Pandora refuses to traverse. 

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